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Banking: More Asset Growth, Competition; Acquisitions?

For Orange County-based banks and thrifts, 2007 could look a little like the year that just passed.

They’re set to see growth in assets and deposits next year and steeper competition.

“We think this next year will be a very profitable year for small banks and an average year for large banks,” said Ed Carpenter, chief executive of Carpenter & Co. in Irvine, a banking startup consultant.

Assets at local banks are set to grow about 10% in 2007, up from estimates of 8% for this year, Carpenter said.

Deposits are seen growing 7% next year, up slightly from 5% in 2006.

The growth marks a slowdown from 2005’s 15% clip and 2004’s 23% pace.

The Federal Reserve’s holding pattern on short-term interest rates could boost loans next year, Carpenter said.

The Fed held interest rates steady for the fourth straight time last week.

That keeps the overnight bank lending rate at 5.25%, where it’s been since August.

Before that, the Fed raised rates 17 times in a row.

Most bankers are betting on stable rates or a slight decrease in 2007.

That’s good news for local banks, thrifts and credit unions, which have been squeezed as long-term rates on mortgages and other loans haven’t kept pace with the rapid rise in short-term rates in the past few years.

Next year should bring some relief, at least for smaller banks, according to Carpenter.

“The small banks have maintained their net interest margins even though interest rates have risen, because the majority of the loans has been re-priced,” Carpenter said.

Startup activity should continue to slow after a peak year in 2005, Carpenter said.

In the past two decades, “there’s only been one year where the number of bank startups was greater than the number that were sold,and that was 2005,” he said.

2007 could see deals after a relatively quiet 2006.

“We’ll continue to see an environment where large banks will be shopping for banks headquartered in Orange County,” Carpenter said.

Regional business banks in the area are particularly attractive to large players.

“It’s the second-wealthiest county in the U.S., so everybody wants to be here,” Carpenter said. “If you are a banking company from out of state, you want to be where the money is.”

Banks are willing to acquire other banks at a hefty premium to have access to this market now, according to Carpenter.

Carpenter’s clients “get offers all the time,” he said.

“But the majority of the banks in Orange County are not for sale,” he said.

As for startups, expect more banks targeting ethnic groups.

They dominated startups in the past year or so after a wave of mainstream business banks opened earlier this decade.

The trend: “a proliferation of branches of Asian banks and the market entry of new Hispanic banks,” Carpenter said.

The county’s banks have been battling each other, trying to lure deposits with aggressive interest rates on certificates of deposits and other savings accounts.

But Carpenter insists there’s still plenty of room.

“California is the least saturated with branches and banking companies in the nation,” he said.


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COMPANY TO WATCH: Orange County Teachers’ Federal Credit Union

The county’s largest credit union,and biggest financial institution based here by assets,is stepping up its bid for the loyalty of Hispanic residents and businesses next year.

Santa Ana-based Orange County Teacher’s Federal Credit Union, with $6.5 billion in assets, is the driving force behind Comunidad Latina Federal Credit Union in Santa Ana, the first credit union geared towards Hispanics.

“Clearly there is an unmet need for retail banking among Hispanics,” said Ed Carpenter, chief executive of Carpenter & Co. in Irvine.

In August, federal regulators OK’d Comunidad Latina. The credit union is set to open its doors next year.

Chief Executive Luis Valerio was hired by OCTFCU to run it.

Valerio headed up Citibank’s Hispanic banking efforts in OC.

Hispanics, who make up a third of OC’s 3 million people and more than 75% of Santa Ana’s 350,000 residents, already are a big source of OCTFCU business.

OCTFCU is working with other credit unions on the launch of Comunidad Latina.

Other supporters include Lake Forest-based Eagle Credit Union; Brea-based Evangelical Christian Credit Union; Orange-based Health Associates Federal Credit Union; Santa Ana-based Orange County’s Credit Union and La Habra-based South Western Federal Credit Union.

Membership in Comunidad Latina, which plans to have a branch at 1317 W. Warner Ave., will be open to Santa Ana residents and those working there.

Meanwhile, OCTFCU is expanding on its own. It recently opened branches in Rancho Cucamonga, Redlands and San Bernardino.

But with Comunidad Latina, OCTFCU is charting new waters.

“The success of Hispanic startup banks is largely unknown,” Carpenter said.

Comunidad Latina is set to be only the third credit union chartered in California in the past six years, said John McKechnie, director of public and congressional affairs for the National Credit Union Administration, which regulates credit unions.

Credit unions require far less money to start than banks, which have to raise $15 million or more from investors to get rolling.

Comunidad Latina plans to raise about $1.2 million, according to organizers.

“The big test is whether Hispanics will decide that they want to bank in an environment where Spanish is spoken,” Carpenter said.

,Sarah Tolkoff


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PERSON TO WATCH: Raymond DelleRBa

Ray Dellerba’s Costa Mesa-based Pacific Mercantile Bank hit the $1 billion asset milestone in 2006.

Not bad for a homegrown bank that got its start just seven years ago.

The billion-dollar benchmark could make Pacific Mercantile an attractive acquisition in a market that’s consolidating.

Dellerba said he’s not looking to be acquired in 2007.

He said he’s set his sights on getting a better foothold in the markets the bank serves. Pacific Mercantile targets business owners with $500,000 to $150 million in yearly sales.

The bank “has $25 million worth of capital to deploy,” Dellerba said. “We are out to bank that small business that we can add value to.”

Expect more consolidation among banks next year, Dellerba said. He wouldn’t say whether Pacific Mercantile has had buyout offers.

Small regional business banks like Pacific Mercantile continue to compete for customers’ loyalty and dollars with higher interest rates on savings accounts.

“That’s a sign of when deposits get tight, everybody participates in that,” Dellerba said.

Some say fierce competition is a sign of a saturated market. Others, including Dellerba, insist that there’s room to grow.

Don’t count on more branches opening soon.

After meeting a goal of opening two branches a year (including one “Internet branch”), Dellerba said he plans to hold the line.

He said he wants to make his existing operations more profitable.

Pacific Mercantile also is going after Hispanic businesses through direct mail advertising.

“We like the ethnic market,” Dellerba said.

,Sarah Tolkoff

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