You’ve got to have money to make money. The old adage sums up the strategy behind the decision by California United Bank to raise additional capital after just a year and a half in operation. The secondary offering, which closed last week, is expected to net Encino-based CUB about $22 million in additional capital, a sum that will raise the bank’s lending limit and provide funding for potential acquisitions. “We’ve been growing very quickly, and we felt the additional capital would provide us with the financial flexibility to allow us to continue growing at a pretty fast pace,” said David I. Rainer, CUB’s president and CEO. “It certainly allows us to bump up our lending limit a little higher, and that is going to allow us to capture more business.” The additional funds increase lending limits for individual, unsecured loans to $7.7 million and secured loans up to $12.8 million, thresholds that are more than 60 percent higher than those allowed under the bank’s initial $35 million capitalization. (A variety of government regulations proscribe bank lending limits based upon specific ratios.) In addition to generating more and larger loans, CUB anticipates that its growth will also come from adding branches to the two (with a third on the way) the bank already operates, although the bank has no current acquisition targets. “We may not be able to sustain our planned growth without establishing additional new branches or more new products,” the bank said in its offering prospectus. “Therefore, we may expand in our current market by opening or acquiring branch offices, or we may expand into new markets or make strategic acquisitions of other financial institutions or branch offices.” CUB has already logged considerable growth. Since opening its doors in Encino in May, 2005, the bank has opened a branch in West L.A. and by the second quarter, expects its third branch in Santa Clarita to open. “When you’re a growth company, the greatest risk to shareholders is that growth stops,” said David Fleming, president of Carpenter & Co., banking consultants and investment bankers that work with CUB. “And in banking, the thing that stops your growth is absence of capital.” Although the bank is not yet turning a profit, its assets and loans have more than doubled to $159.7 million and $35.2 million respectively between September, 2005 and September, 2006. In the same period, Bank of Santa Clarita, which is about one year older than California United, increased its assets 138 percent to $93.6 million and its loans 162 percent to $69.9 million. Size is clearly a factor in growth in the industry, experts say, not only because the bank can make larger loans, but also because it can expand its reach to generate a higher volume of loans. “I think over the long haul, banks have a need to grow deposits, and with other established institutions, you have to take business away from someone to do it,” said David Haithcock, executive director of the Independent Community Bankers Association. “That in itself creates a unique competitive environment.” Competition for banking business has become exceptionally strong in recent years locally, particularly as much larger banks have turned their focus to the middle-market that independents traditionally serve. Rainer downplays the competition, saying that he believes independents like CUB have an advantage because they offer more personal service. But other bankers note that the environment has heated up. “Generally, commercial banking right now is very competitive,” said Roberto Barragan, president of the Valley Economic Development Center, which works with a number of banks to secure loans for its clients, and a member of the CUB board of directors. “I’m seeing all the banks fighting very hard for business. The businesses are pitting banks against banks for the best deal and the lower rate and the lowest terms.” Additional capital can help CUB to compete, not only with similar independents but also with much larger banks, and experts say it carries little risk. “The stability of new banks is actually remarkable,” said Fleming. “In California, 178 have been formed since 1987, and none has failed. You won’t find another industry with a zero failure rate.”
