Banks bring $100M in capital into region
Some $100 million in new capital has poured into tri-county banks in recent weeks, providing a potential new flow of credit to businesses.
But how fast that new cash translates into loans depends on the remaining fallout from the recession and what regulators are willing to allow as commercial real estate bottoms. While economists called the capital inflow an unqualified strengthening of the region’s financial sector, they expect any ramp-up in lending to play out slowly.
“I don’t think they’ll all of a sudden have a money sale,” said California Lutheran University economist Bill Watkins. “They’ve been burned, and they’re going to be careful. That’s not just these particular bankers — that’s the industry.”
Any new lending the $100 million supports could have a big impact on small business in the region, which could fuel modest growth in 2010, said Brad Kemp, director of regional research at Beacon Economics, which produces the University of California, Santa Barbara, Economic Forecast Project.
“It’s going to be a reawakening of the entrepreneurial environment,” Kemp said. “But it’s going to happen very slowly.”
On March 24, Westlake Village-based First California Financial Group, parent of First California Bank, closed a public offering that netted it $39 million and deepened its ties to its largest institutional investors, Banc Funds Co., Wellington Management Co. and Och-Ziff Capital Management. On March 12, Paso Robles-based Heritage Oaks Bank closed a $60 million private placement with Patriot Financial Partners of Philadelphia taking a big role.
At First California, Chief Executive Officer C.G. Kum said the new money is earmarked to support new lending and possibly acquire failed banks with help from the Federal Deposit Insurance Corp. Kum has recently drawn teams of bankers from Santa Barbara Bank & Trust and Los Padres Bank.
“The reason I’m recruiting bankers from other banks is they can bring us their proven relationships,” Kum told the Business Times. “If I were to just grow the loan side organically, it creates a lot more scrutiny from the regulators. We’re going to be very cautious about commercial real estate lending.”
First California had a $4.7 million loss last year but expanded by acquiring $270 million in deposits from 1st Centennial Bank from the FDIC. Kum said new money could help buy up a troubled commercial bank in Southern California.
“There’s 12 of them between $200 million and $1 billion in assets,” Kum said. “That’s kind of my universe of banks I’m monitoring and potentially bidding on.”
At Heritage Oaks Bank, at least some of the $60 million in new capital will gird the company against potential losses in the North San Luis Obispo County real estate markets and satisfy regulators, who days before the money came in had asked for a capital plan. The bank on March 24 revised its 2009 loss from $5.2 million tp $7 million.
But there should be capital left over to help fund expansion, said Chief Executive Officer Larry Ward.
“Our No. 1 priority is to position the bank to get through this recession,” Ward said. “But at the same time, we continue to make loans. The level of capital we raised will allow us to continue to grow the company for a number of years to come, quite frankly.”
Ward wants to win over deposits to support lending, especially in Santa Barbara County, where Heritage operates Business First Bank.
“Right now we have a little bit over 10 percent of deposits in [the San Luis Obispo County market], and we have only about 2.5 percent in Santa Barbara County,” Ward said. “Our focus is a strategy to get our market share in Santa Barbara up to where it is in San Luis Obispo County.”
Economists said all the new capital is an encouraging sign but said it will take time for it to reach the street.
The economy is improving and banks have more capital, said Sung Won Sohn, an economist with California State Lutheran University, Channel Islands, and the former top economist with Wells Fargo. “Both things point to hopefully a greater flow of money to business,” he said, but in the short term “no one should really expect a dramatic improvement in lending.”
Borrowers won’t ask for loans until they see steady enough sales to support it, Kemp said.
“I think this is more than anything bolstering the banks and hopefully emboldening the banks to leak money out onto Main Street,” Kemp said. “The question is whether there will be demand out there.”
Sohn is not predicting a renewed economic downturn.
“We came through probably the worst storm,” Sohn said. “That is not to say the sky is clear, but we’re beginning to see some breakup in the clouds and see some sunshine.”