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Banc of California sees growth in serving small, medium-size firms

Economy, Business and FinanceBusinessFinanceBankingOaktree Capital Management
Its primary customers are small to medium firms
'You cannot really serve California's private businesses and homeowners without serving the Latino community'

Banc of California executives say the financial crisis and recession left a big hole in the state's banking industry, and it's an opening they want to fill.

They're referring to the institutions that had $5 billion to $15 billion in assets and that played a big role in fulfilling California lending needs for businesses and others. Several of those banks failed or were absorbed by larger banks.

Across the U.S., more than 400 banks failed from 2008 to 2011, 38 of them in California, according to the U.S. Government Accountability Office.

"There were about two dozen banks that focused on the California community in lending," said Steven A. Sugarman, chief executive of Irvine-based Banc of California. "They were large enough to provide meaningful financing to businesses. The impact of their loss was that over $20 billion a year in lending to California businesses just vanished."

Banc of California, which has been expanding aggressively by acquiring smaller operations, sees its primary customers as companies that range from small to medium in size, as well as consumers, Sugarman said.

"A key element of economic recovery are the businesses that have the growth opportunities that need the financing to grow and hire new people," Sugarman said. "The smaller banks can't quite lend enough money. For the bigger banks, these loans really don't move their needle."

Last year, First PacTrust Bancorp changed its name to Banc of California to reflect its interest in becoming a major player in the state's lending environment. The institution traces its roots to 1941, when it began as the credit union for Rohr Aircraft in Chula Vista.

It became the Pacific Trust Federal Credit Union in 1995. In 2000, its charter changed to that of a mutually owned federal savings bank, the Pacific Trust Bank. In 2002, it sold stock to the public and became First PacTrust Bancorp Inc.

Sugarman's history with the bank dates to 2010. He was the founding partner of a $2-billion private investment fund and joined with a team at Crescent Capital to handle the recapitalization of First PacTrust Bancorp after the recession.

He also joined the board that same year, leading its strategic planning committee.

Sugarman was named chief executive of the bank's holding company in 2012 and chief executive of the bank last year.

The latest

Last month, Banc of California said it was acquiring Popular Community Bank's 20 Southern California offices for about $5.4 million.

Popular is Puerto Rico's largest bank and the branches Banc of California will gain will help build its banking presence in the Southern California Latino community.

As Sugarman put it: "You cannot really serve California's private businesses and homeowners without serving the Latino community."

That announcement overshadowed some other news from last month. A Banc of California subsidiary, the Palisades Group, has gained the rights to manage Oaktree Capital Management's $3.2-billion residential mortgage portfolio.

Accomplishments

If approved, the Popular Community Bank acquisition would bring Banc of California to the milestone it had hoped to reach since 2011 — $5 billion in assets. At the end of 2013, it had $3.6 billion in assets.

The Popular deal "adds scale and diversifies" the bank's balance sheet, said Andrew Liesch, associate director of Sandler O'Neill Partners. "Importantly, this deal gets the bank to the $5-billion asset base management has desired since the company was recapitalized in 2010."

Jacquelynne Chimera, an analyst for Keefe, Bruyette and Woods, called it "an excellent transaction for the bank."

Challenges

Banc of California faces competition from other commercial banks, savings institutions, credit unions and mortgage bankers in originating loans and attracting deposits.

Some shareholders and analysts also worry that Banc of California, which had about $1.3 billion in assets in 2012, may be accumulating new costs at an unacceptably high rate.

Sugarman acknowledged the concerns. "We're getting to where we want to go from a capabilities and infrastructure standpoint a little more quickly than our assets are getting there," Sugarman said.

"We have a team that can support a bank much larger than we really have," he said, adding that the Popular acquisition would improve that balance.

Analysts

Of seven analysts who regularly follow Banc of California, two have it rated as a buy, and five consider it a hold.

ron.white@latimes.com

Twitter: @RonDWhite

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