Ed Carpenter capped off 2012 with gains on many fronts.
“If we talk about the Carpenter banks, it was a very good year for us,” Carpenter said on a recent visit to his Park Place office, where he gave a rundown of the five banks in his private equity portfolio, the Carpenter Community BancFund.
The fund, which specializes in community-bank franchises, was established in 2008 as part of Carpenter’s Irvine-based advisory firm Carpenter & Co., with a rare designation that allows it to function as a bank holding company.
Making sure the banks are running better than when his fund found them—drawing deposits, lending more and notching some profits along the way—kept Carpenter busy throughout 2012.
$3.7B in Assets
The collective assets of the banks totaled about $3.7 billion at the end of September, a 61% increase from a year earlier.
“All of our banks exceeded our expectations for the year,” Carpenter said. “We’re likely to finish the year with $4 billion in assets. The future looks pretty good at the moment.”
His banks have combined to net about $36 million in earnings in the last 12 months.
These banks haven’t always been so profitable—and that’s what drove Carpenter to buy into them through various deals over the last four years. A look at the 12-month span immediately before Carpenter’s investments into each of the banks points to a collective loss of $30.5 million.
Carpenter Community banks had about $2.6 billion in loans as of September, about double the amount a year earlier. More than 60% of the total loans were made to small businesses, compared with a California median of 33%.
Combined deposits were $3.1 billion, about a 15% increase. Noninterest-bearing deposits made up nearly 40% of the latest tally. Carpenter said the state median is 25%.
“We have a lower cost of funds and higher yields, so net interest margins are higher,” he said.
A primary factor behind these banks’ growths is that the Carpenter partners know the banks well—four of the five were started with Carpenter’s help, and the fifth has been a client of the advisory business for more than 10 years.
Carpenter’s fund also has added “significant capital” for its banks over the years to expand their “unique product lines” with specific targets in their respective markets, Carpenter said.
Among Carpenter’s major investments last year was a $26.3 million stock purchase that gave his fund a 26% ownership of Costa Mesa-based Pacific Mercantile Bancorp. The April buy followed an initial investment of $3.7 million in the fourth quarter of 2011.
“In the 12 months prior to our investment, the bank had $1.8 million in earnings,” Carpenter said, referring to Pacific Mercantile’s subsidiary, Pacific Mercantile Bank, the third-largest bank based in OC with $1.1 billion in assets as of September. “In the last 12 months, it has earned $19 million.”
Carpenter became chairman of Pacific Mercantile’s board of directors in May. Also joining the board was Carpenter & Co.’s Chief Operating Officer John Flemming and Michael Hoopis, chief executive of Anaheim-based Targus Group International Inc., a manufacturer of cases and accessories for laptops and tablets.
Pacific Mercantile also added John Clark as a director in October. Clark has been a partner at Westar Capital LLC, a Costa Mesa-based private equity firm founded by George Argyros, who is also on Pacific Mercantile’s board.
Carpenter’s latest strategy for the bank has been to focus more on technology-related businesses, appointing Thomas Vertin as president of the commercial banking division to oversee that effort. Vertin has served as chief operating officer at Silicon Valley Bank.
“We brought in a real heavyweight to do business and tech lending in OC,” Carpenter said.
Carpenter’s other OC investment also has reaped a good crop last year.
“Plaza Bank, which we acquired in 2009, lost $4 million in the year prior to our investment,” Carpenter said. “This last 12 months ending the third quarter, it earned $2.5 million.”
The Irvine-based bank is the 10th-largest bank headquartered here, with $413.2 million in total assets as of September.
“Plaza was named the largest Small Business Administration lender in OC,” Carpenter said. “That’s quite a nice feat.”
Carpenter & Co.’s chief economist, Grace Wickersham, joined the board of directors of Plaza Bank in August.
She has been at the advisory firm for more than two decades and has previously served at other banks and financial organizations, including the board of directors of the National Association of Business Economics.
The rest of Carpenter’s banks are scattered up and down the state: San Jose-based Bridge Bank, Mission Community Bank in San Luis Obispo, and El Segundo-based Bank of Manhattan, which last year completed a merger with Professional Business Bank in Pasadena, which also had been in the Carpenter Community fold since 2010.
Leadership
Carpenter can count on the roster of banks to help draw talent and build strong leadership at each of his banks.
“The greater group of these banks … gives certainty to top bankers that they can grow their careers, and growth is not limited to just … one bank,” Carpenter said. “And our assets are local. Our deposits are here. We’re spreading our OC wings as our banks mature and begin to identify themselves.”
