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Tuesday, Sep 26, 2023

Fast Starter

When it opened in May, California United Bank held the distinction of being the largest publicly-held state-chartered bank ever to open in California. Thanks to a management team with decades of experience in the banking industry, much of it with other, local banking institutions, and a dwindling number of community banks to service local businesses in the San Fernando Valley, CUB, as it’s known, raised more than $60 million from investors in its initial stock offering, nearly twice what officials had expected. (The bank launched with about $35 million, and the balance was returned to investors per industry regulations.) Despite the consolidation in the banking industry, and the relentless expansion of regional and national banks into the area, institutions like CUB have been highly successful. After five weeks of operation, the most recent period available, California United Bank had grown its assets to $51.2 million and deposits to $17.6 million. David I. Rainer, CUB’s president and CEO may well have named his newest venture d & #233;j & #341; vu. Rainer and several of the other executives and directors of the bank ran another Valley bank by the same name in the 1990s. That bank was acquired by Bank of Hawaii which changed the name to Century Pacific Bank and later sold it to US Bank. Rainer stayed on through the transition, eventually becoming state president for California for US Bank. He left there in 2004. But many of the executives of California United’s predecessor, joined him in this current venture, including Stephen G. Carpenter, CUB’s Chairman, CFO Robert J. Dennen and Anne A. Williams, the bank’s chief credit officer. In many ways, Rainer, a lifelong Valley resident who graduated Taft High School, said things have not changed much since the first California United was in operation. The economy is strong and the local business community, which has long preferred to do its banking with neighborhood institutions, is underserved. Question: Why did you believe the timing was right to open a community commercial bank in the Valley? Answer: I watched over the last 10 years the number of independent banks not only in the Valley, but up and down the state continue to shrink, and I came to the realization that one of the very best markets not only in Southern California, but maybe the whole country in terms of middle size businesses, was experiencing a shortage of independent banks. When we did this the last time, when we sold it in 1997, there were maybe 10 community commercial banks in the Valley. When we did our analysis we saw that the San Fernando Valley, which you could consider the fifth largest city in the U.S. was the most underserved in terms of the relationship between headquartered banks and small businesses. There were only two independent banks based in the San Fernando Valley. And many of those business owners want to have a relationship with the bank, and I think the smaller, independent banks provide the level of service to a small- and mid-sized businesses that some of the larger banks can’t provide. Q: In most other industries, independents are having a very difficult time competing. Why do you think this sector is different? A: It’s the relationship we’re talking about. What we’re really selling is a relationship between a bank, a banker and a business owner. I think that the smaller banks that know the marketplace and are dealing in the same geographic area can provide a more intimate relationship than an out-of-market bank, and I think business owners really want to have a banker that knows and understands their needs. Credit decisions are made locally, access to management, all those things are part of being a smaller independent bank and that is what many business owners want. Q: How important was it for the bank to raise as much money as CUB raised? A: It allows us to be more competitive on the lending side. Legal lending limits are determined by the amount of capital (the bank has) so the more capital, the bigger the loans you can make. In terms of attracting deposits it’s helpful in that we have a lot more capital and that makes prospective customers more comfortable. In terms of future expansion certainly by having that much capital, it could allow us to accelerate any kind of growth strategy. Q: Had you known how much investor interest you had, would you have filed for a larger offering? A: I think there is an amount of capital where it becomes maybe too much in the sense that you can be forced to leverage that capital and do things a little more aggressively, so I think $35 million is the right amount. Sometimes growing too quickly might bring some risks as well so it has to be controlled growth. The more capital you raise it’s going to take longer and longer to achieve the kind of return to the shareholders. It felt like the right amount where we could balance executing our game plan and leveraging the business within a time frame where we could provide a good return on capital. Q: Why did you want to start a new bank? A: We sold the former California United Bank in 1997 to Bank of Hawaii. There had always been regret about having done that. We had a great bank and we sold the bank for a number of reasons we felt made a lot of sense at the time. We were acquiring banks, and we felt we would be able to continue that expansion with Bank of Hawaii having purchased us, and they had a plan to expand in the mainland. Their strategy changed soon after the sale, and California was not one of their priorities. If we had known that we would never have sold the bank. We went from two to 22 branches in five years. The stock had performed wonderfully and because the expectations were not realized after that sale it was a great disappointment. In the back of my mind we always said someday there may be a chance to do that again. About 18 months ago I called Steve (Stephen G.) Carpenter (now chairman of the board) and said I think it’s time. The Valley and Northern Los Angeles is in great need of a local bank, and if we don’t do it somebody else is going to figure this out. Q: How much of your own money have you invested? A: I put in $1,050,000. It definitely has an entrepreneurial element to the deal. It was very important for me to be one of the largest individual shareholders, so there’s definitely an equity stake in this and additionally what makes this deal somewhat unique is that the top executive managers have also put significant personal money into the deal. That would include Bob Dennen and Anne Williams. There’s a sense of ownership amongst the management team here that is very exciting and I think it was one of the reasons that the investor community looked upon this deal favorably. And we have all taken substantial pay cuts in terms of day-to-day compensation to make this work. So we really put it all on the line, and that just suggests how committed we are to make it successful. Q: The handful of community banks in the Valley have done so well, it kind of suggests to the casual observer that opening such a bank is a no-brainer. Is it environment or the management that is making these banks so successful? A: At the core of every good marketing plan you have to have a need. And I think that’s evidenced based on the demographics, and that’s going to drive good financial returns. If you expand it to all of California, the market share of independent banks is less in California than it is throughout the country as a whole. So I think independent banking up and down California is doing quite well because there is great demand for people wanting to do business with smaller banks, and that’s going to drive results. We are in a good business cycle right now too. We all know things go up, things go down. Right now it’s a very favorable business environment, and that should drive results. Q: Is the strong environment the result of low interest rates, or are there other factors that are affecting the success? A: Interest rates have helped in terms of people being employed. I think we’re in a vibrant market here. Certainly the real estate market has been strong and that’s a big component of the economy, so I think the answer to the test will really be when we experience the other part of the cycle. It may not seem quite as easy as it is now to achieve the kinds of results. Credit quality for banks has been very good, and it’s been a number of years since we’ve had to deal with a tougher economy, so I think you have to look at it over the long run. Q: What are your goals for California United Bank? Would you like to see the bank acquired by a larger bank? A: Every decision we’re making around here, whether it’s the systems side or investing in people, we’re making the decision around being around for the long term. The game plan here is to grow ourselves in terms of the markets we’re serving so we would really want to replicate something similar to the old California United strategy: opening de novo offices in adjacent markets, look for areas heavily concentrated in small business and, further down the road, we would like to be in a position where we could make some acquisitions in other markets. The old bank did that. We’d like to follow that model. Q: Is the bank specializing in a particular niche? A: We really have three core business lines: the commercial group which is really focused on middle-market businesses in all industries; the commercial real estate group, which is also targeting the middle market developers; and private banking, high net-worth individuals. We want to provide business owners of real estate and the commercial side with banking services. One of the things that will set us apart from many community banks is the fact that we’ll have a commercial side many of the independent banks don’t have. A lot are heavily dependent on real estate, and we intend to have a well-diversified portfolio of customers and I think that will bode well for us over the different economic cycles. Once again that’s something we did before. It worked well for us. David I. Rainer President and CEO Date/Place of Birth: 3/15/57, Chicago Education: Bachelor’s degree in business from Cal State Northridge; MBA in finance from USC. Personal: Married, three sons. Career Turning-Point: Meeting Stephen Carpenter at Wells Fargo soon after he graduated USC. Most Admired Person: Stephen Carpenter. “He’s incredibly honest and full of integrity and taught me that the best way to operate in this business is to be honest and straightforward with people.”

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