It’s a bank you haven’t heard of. And that makes loans other banks typically don’t. And that goes out of its way to keep a low profile. And that doesn’t even have a website.
But it’s also the most consistently profitable bank in Los Angeles County.
For the past three years, tiny First Credit Bank in West Hollywood has posted an average return on equity of 18.6 percent. The median for local banks is 6.8 percent.
First Credit is tops in return on assets as well, averaging 5.8 percent over the past three years – more than twice that of the next highest bank.
Farhad Ghassemieh, the bank’s chief executive for the past 31 years, said those big returns come from making the same kind of high-margin loans through boom times and busts alike.
“It’s discipline,” he said. “We don’t get too crazy when business is good. We don’t get scared when business gets bad. We just concentrate on what we do best.”
What he does best – and almost exclusively – is make short-term, high-interest loans to real estate investors. First Credit specializes in what’s called bridge financing, which is usually used to buy a property before rehabbing it or bringing in new tenants.
That’s a peculiar line of business for a bank. Bridge financing typically comes from nonbank lenders, sometimes called hard-money lenders, and it comes into play before banks feel comfortable lending. For example, a bank might not lend to an investor buying a half-empty office building. In that case, the investor would buy with hard money, bring in new tenants and then secure cheaper financing from a bank.
Because banks don’t do much bridge financing, they don’t often compete with nonbank bridge lenders, said W. Scott Dobbins, president of private real estate lender Hankey Capital, part of L.A. billionaire Don Hankey’s Hankey Group.
“That’s why people come to a bridge lender,” Dobbins said. “They have a property in transition. At the end of that transition, they can go get bank financing.”
That goes a long way toward explaining First Credit’s returns.
Nonbank real estate lenders typically charge interest rates approaching 10 percent. Last year, First Credit’s average loan charged 9.1 percent interest – a bit less than most private lenders but more than twice the average interest charged by L.A. banks.
“Our competition is mostly from private funds,” Ghassemieh said. “And we’re less expensive than a typical fund. There’s always enough business for us.”
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