While Orange County’s crop of publicly traded banks took a hit to their stock prices at the start of last week after the collapse of Silicon Valley Bank, executives said their institutions are sound, and a midweek rally amid lower inflation expectations appeared to eased fears on Wall Street.
“We have stood out as a pillar of strength for many years because we are focused on prudent risk management,” Pacific Premier Bancorp Inc. (Nasdaq: PPBI) Chief Executive Steven Gardner told clients in a letter last week.
Within the span of three days, three regional banks collapsed, with the biggest by SVB Financial, the parent company of Silicon Valley Bank, which emphasized loans to tech companies.
Local banks raced to emphasize their strategies weren’t similar to Silicon Valley Bank nor the other banks that went belly up, such as Silvergate Capital Corp., a crypto-focused bank that voluntarily closed, and Signature Bank, a New York lender with $110 billion in assets.
“We don’t focus on one niche or industry like crypto or technology like the banks that just recently failed,” CommerceWest Bank (OTC: CWBK) CEO Ivo Tjan said in a statement to clients.
“CommerceWest Bank has a fortress balance sheet, strong liquidity and strong capital ratios. Our company operates today as one of the safest and strongest banks in the country.”
Stocks at the local banks in the past week often mirrored their benchmark KBW Nasdaq Bank Index (BKX), which fell 22% in the three days after Silicon Valley Bank’s problems became known.
The index rose 3.2% on March 14 when the government reported inflation might be tapering off, easing fears of larger interest rate hikes that could increase losses at banks.
After a roller-coaster week, shares for regional banks last Friday closed near their 52-week lows.
President Joe Biden last week tried to reassure depositors with more than $250,000 in an account—including many businesses—that they would recoup their deposits at the failed banks.
What follows are comments and actions of banks with headquarters or significant operations in Orange County.
Gardner is known for rescuing Pacific Premier from near bankruptcy when he took it over in 2000 and then navigating it successfully through the 2008 financial crisis and building the bank to the largest with headquarters in Orange County through acquisitions and organic growth.
In the past year, Gardner bulked up the bank’s cash and equivalents to $1 billion as of Dec. 31—triple the amount from a year ago. By contrast, Silicon Valley Bank reported its cash and equivalents fell 5.4% over the same period to $13.8 billion.
Gardner told clients that the bank has some of the highest levels of capital and liquidity compared to competitors.
“Although unprecedented rapidly rising interest rates have impacted the value of the industry’s securities portfolio, we have purposefully retained high levels of capital to serve our clients. We remain one of the strongest among our peers.”
Its stock fell 17% in the four trading sessions after Silicon Valley Bank’s problems became known. As of the close on March 16, the shares traded around $25 and a $2.4 billion market cap.
Banc of California
CEO Jared Wolff declined to comment, except to say, “We are doing well.”
The Santa Ana-based bank (NYSE: BANC), second largest in the county, declined 20% in the three trading sessions after SVB’s collapse before rebounding 3.6% to $13.83 and an $816 million market cap on March 14.
Commercial Bank of California
Irvine-based Commercial Bank of California emphasized to its clients that its practices are far different than Silicon Valley Bank, such as no exposure to crypto-related deposits or loans nor venture capital portfolio companies nor startup technology clients.
CBC also said that its investments are shorter term as opposed to Silicon Valley Bank, which invested in longer term bonds that gave higher returns but were riskier.
“The portion we invest is placed in low-risk, low-duration securities, and the loans we make are high-quality, short-term and rigorously underwritten,” CBC Chairman and CEO Ash Patel told depositors.
“Keeping our clients’ funds safe may reduce our profits a bit, but that’s one of the advantages of being a privately held financial institution. We don’t have to sacrifice safety for profitability.”
Silicon Valley Bank’s board of directors has come under criticism for being politically connected rather than banking experience.
“We have a board of directors comprised of people who are deeply rooted in the local business community and who greatly impact the Southern California local economy,” Patel said. “As a private bank, we are shielded from the exposure of the less predictable public markets and purposefully closely manage our own investment risk to protect the bank, the local community, our team and our clients.”
Tjan, who founded CommerceWest in 2001, has successfully steered it through crises like the aftermath of the Sept. 11 terrorist attacks and 2008 financial meltdown.
“CW also primarily targets businesses with annual revenues of $5 million to $100 million throughout California to further limit our concentration on any one industry or client. The bank’s clients are traditional companies that are the bread and butter for small and midsize businesses in America.
“Our company was simply built to last!” he wrote to clients.
Shares of the thinly traded bank were relatively unchanged during the three-day crisis, falling 5.9% to $32 and a $107 million market cap.
Stephen Gordon, who successfully started two banks before beginning privately-held Genesis in 2021, noted that it doesn’t hold any U.S. Treasury bonds, notes or bills, which other banks have sold at a loss to generate capital.
“We made an intentional decision to hold the bank’s excess liquidity at the Federal Reserve in overnight Fed Funds,” Gordon told the Business Journal.
“The bank does not own any U.S. Government Agency securities or any U.S. Government Agency Mortgage Backed Securities, or investment securities of any kind, and therefore does not have an investment portfolio of securities with an unrecognized negative mark or valuation.
“Genesis Bank’s portfolio is not comprised of any technology companies, start-up companies, early-stage companies, or companies backed by venture capital firms,” he added. “Genesis Bank does not bank the cryptocurrency industry, nor any related businesses.”
Shares of the Garden Grove bank (OTCQX: USMT), which caters to Korean Americans, fell 6.8% from March 9 to March 13.
The bank reacted by issuing an “interim dividend” of 3 cents a share, payable on March 15.
The day after that release, the shares rose 2.8% to $4.01 and a $66 million market cap.
Partners Bank of California
Shares of the Mission Viejo-based bank (Other OTC: PBKX), which targets doctors’ offices, were little changed, falling only 1.7% to $10.91 and a $42 million market cap as of March 14.
Among area banks, First Foundation Inc. (Nasdaq: FFWM), which has major operations in Irvine, was the worst hit during the turmoil.
The bank issued a press release on Sunday afternoon on March 12, saying it “has no direct exposure to Silicon Valley Bank or Silvergate Bank.”
“First Foundation remains stable in this difficult market moment for regional banks through our careful balance between loans and deposits,” CEO Scott Kavanaugh said in the statement.
“Our liquidity positions are healthy. Our risk management has kept us well-positioned to serve our clients no matter what shifts in the industry come. We will continue to serve as a trusted partner to our customers.”
However, that news release did nothing to quell the concerns about the bank, which fell 33% on March 13.
A Dow Jones article on March 13 placed First Foundation on a list with nine other banks that it said had “similar red flags to those shown by SVB Financial through the fourth quarter.”
Overall, the bank, which moved its headquarters from Irvine to Dallas in 2021, fell 45% over a three-day period.
However, on the day of the inflation report, it rebounded 18% to $9.15 and a $516 million market cap. The Motley Fool website on March 14 noted that First Foundation’s unrealized bond losses “are much smaller than those that impacted SVB Financial.”