Ed Carpenter was a teenager when he and his folks left their corn farm in Salix, Iowa, and headed for California in the late 1950s.
Times were tough, and it was a banker who made sure they had a car to make the trip.
Perhaps it was the break from the banker that led Carpenter to earn a bachelor’s degree from Loyola Marymount University, go on for an MBA from California State University, Long Beach, and get into banking, where he’s carved out a long and unique career.
Carpenter has been advising banks since 1974, when he started Carpenter & Co. in Irvine. He’s worked with more than 700 as they got started, providing many with ongoing consultations through various stages. He’s taken on a similar role at the highest regulatory levels of federal and state government at various times over the years.
Carpenter’s career took a unique turn in 2008, when his company added a private equity arm to its advisory business, stepping in as an investor just as the global economic meltdown drove many financial institutions to heavy losses and bankruptcy.
Local Investments
He holds a controlling interest stake in Carpenter & Co., whose private equity operation, Carpenter Community Bancfund, now takes up a larger chunk of the business. The private equity fund has a controlling interest in five banks, including Plaza Bank in Irvine and Costa Mesa-based Pacific Mercantile Bank.
“We do some advisory still, but it’s a small piece,” Carpenter said.
Carpenter Community is involved in a second round of equity financing for Pacific Mercantile, with plans to buy $26.3 million worth of its common stock. It bought $3.7 million of the bank’s preferred stock last year.
The initial buy helped Pacific Mercantile boost its capital ratio above 9%, enough to satisfy an order issued in 2010 by state regulators.
The second round will make Carpenter Community the largest shareholder in Pacific Mercantile’s parent company, Pacific Mercantile Bancorp Inc., with a 29% stake. The fund is expected to name three directors to the bank’s board in coming months.
Plaza Bank was one of the first investments by Carpenter Community, which put in $15 million in 2008. The bank had $74 million in assets at the time; it’s now past $300 million, according to the Federal Deposit Insurance Corp.
Other banks controlled by Carpenter are:
n El Segundo-based Bank of Manhattan, which now has about $438 million in assets, a total that reflects its merger with Carpenter-owned Professional Business Bank in Pasadena last year.
• San Jose-based Bridge Bank, with $1.2 billion in assets.
• San Luis Obispo-based Mission Community Bank, with about $455 million in assets. Carpenter Community made two separate investments in Mission Community, along the lines of its purchases of Pacific Mercantile stock.
Don’t necessarily expect a consolidation strategy for Carpenter Community, despite the north-central-south pattern of the fund’s holdings or the earlier merger of the El Segundo and Pasadena banks. Carpenter himself has said the private equity fund will consider combining some of its banks if it makes sense—but that means more to him than the sort of efficiencies and economies of scale often cited in bank mergers.
“We believe in the community banking model, where the chief executive officer is in the community and the directors are from the area,” Carpenter said. “They know the intricacies of the businesses and the marketplace advantage.”
Status
Carpenter Community can consider stand-alone strategies for its holdings because of its status as a bank holding company, a rare designation for a private equity operation, allowing it to hold significant stakes in more than one bank.
Federal law generally forbids any entity other than a bank holding company from owning 25% or more of bank.
“There are 2,500 bank holding companies in the U.S., but only three are private equity funds,” Carpenter said. “We are the last one to be approved.”
Carpenter Community was approved as a bank holding company by the Federal Reserve in November 2008, just a month after stock markets swooned and the national economy plunged into recession.
The two other private equity funds that also are bank holding companies are BSE Management LLC, run by William Isaac, a former chairman of the Federal Deposit Insurance Corp.; and CapGen Financial Group, headed by Eugene Ludwig, former comptroller of currency in Washington, D.C.
Carpenter’s own work experience with government no doubt helped him join the exclusive club.
“The Fed was comfortable licensing us,” Carpenter said. “They were comfortable knowing that the applicant was just like a bank.”
The comfort level came after Carpenter spent decades working with federal regulators, starting with the savings-and-loan meltdown in the 1980s.
More than 700 savings and loan associations in the U.S. failed during the 1980s and early 1990s.
The Federal Savings and Loan Insurance Corp. went bankrupt and was abolished in 1989. Congress created the Resolution Trust Corp. in its place to help liquidate bad assets and manage bank closures.
Carpenter & Co. was one of the primary asset managers for the agency.
“We became the largest Resolution Trust Corp. contractor on the West Coast,” Carpenter said. “We liquidated between $15 billion and $20 billion of loans for the RTC.”
Carpenter counts other spells affiliated with government. He has served as a member of legislative review committees for the Office of the Comptroller of the Currency in Washington, D.C. He also was on the California Department of Corporation’s Industrial Bank Advisory Board.
Executive Team
He’s not the only seasoned banking pro on the Carpenter Community team.
Howard Gould, a managing partner of the fund, is a longtime industry executive who served as banking commissioner of California in the 1980s under Governor George Deukmejian. Gould was called back for the same post again in the Schwarzenegger administration, where he spent two years before joining Carpenter & Co. in 2005.
Gould also spent 10 years with United California Bank, a result of a merger between Sanwa Bank California and Tokai Bank of California. He was an independent director at Los Angeles-based Nara Bancorp, now BBCN Bancorp Inc., from 2006 to 2009.
Chief Operating Officer John Flemming has been with Carpenter & Co. for more than 20 years. He joined the firm in the heat of the S&L crisis, and now manages the company’s government asset practice, investment banking and private equity, among other things.
“The experience with the Resolution Trust Corp. prepared us for this time around,” Carpenter said. “But the difference this time [is] the magnitude. It’s so big and global, and ‘too big to fail’ was around the world. So the government said, ‘Keep the banks alive and let them figure it out themselves.’”
Government attempts to prop up the banking system without forming a central agency like the Resolution Trust Corp. cued the Carpenter team to step in.
“We raised money to help the ‘too small to succeed,’” Carpenter said. “As a bank-like private equity firm, everything we do here is a bank’s functions.”
Carpenter said his firm follows the “plant, grow, harvest” model in its relations with banks.
The farm imagery goes beyond mission statements for Carpenter, who now owns a ranch in Santa Barbara County and invests in vineyards in place of the corn farm his family left more than 50 years ago.
Photographs of vineyards run throughout the otherwise discreet office at Park Plaza. Large TV screens in meeting rooms display more earthy images when they’re not being used for conferences. Even the covers of Carpenter & Co.’s briefing documents are meant to feel like soil, another lesson learned on the land long ago.
“During the farming days, we’d get up in the morning, take soil and rub it through our hands and drop it, and we’d watch it fall and tell if there was enough water in the soil, if it was good for planting,” Carpenter said. “That’s soil. The agricultural earth became something that I never forgot. As we got into our business world, it struck me that it was good to get back to the earth, good to think of everything we do as planting, sowing and growing, and harvesting.”
Good Fit
The banking landscape in Orange County is a good fit for Carpenter Community, he said.
“Orange County has always been unique in that there are very few billion-dollar banks here,” Carpenter said. “In 1985, there were 45 commercial banks headquartered in OC. Today the economy has doubled, but there are 17 banks here. The local bank sort of faded.”
Carpenter’s chance to reverse that trend will get a boost when the Pacific Mercantile deal is completed.
“Our goal for Orange County is for our two banks in OC to have $3 billion in deposits together,” he said, referring to Pacific Mercantile and Plaza Bank, which together have about $781 million in local deposits now.
“We’ll have a local bank with some strength,” Carpenter said.
