John DeCero didn’t take an easy path to this week’s honor as the Business Journal’s finance Person of the Year.

The co-founder and former president of Irvine-based California Republic Bank—now chief executive of Mechanics Bank in Walnut Creek—was one of the few bankers who anticipated the financial crisis and the Great Recession that started almost a decade ago.

He and former California Republic Chief Executive Jon Wilcox formed the idea for a new bank after they left Western Financial Bank in Irvine, which was acquired by Wachovia Corp. in 2006 for $3.7 billion.

“In 2006, when we were at the previous bank … we saw that things were way overheated, not only in the mortgage markets, but the commercial markets, the construction markets and land development,” he said. “You could see there was a bubble there.”

He and fellow bank organizers raised $52 million in capital from about 300 investors—almost twice that required by the Federal Deposit Insurance Corporation—and launched California Republic in 2007 in Newport Beach. It targeted midsized businesses and said it wouldn’t provide loans larger than $12.5 million.

The bank asked its investors for leads when it opened for business. Ten years later, it had grown assets to $2.2 billion.

DeCero this past October helped sell California Republic in an all-cash, $330 million deal with Mechanics Bank.

That’s about twice its book value—the difference between assets and liabilities—and significantly more than the national multiple of 1.3 reported by SNL Financial, a banking industry data provider.

DeCero capped the Mechanics Bank deal with the chief executive appointment, succeeding Ken Russell, now steering a bank with $5.4 billion in assets. Wilcox joined the bank’s board.

Patient Capital

Capital requirements for new banks were much lower in 2006 when DeCero formed the idea for California Republic.

Any bank aspiring to build $300 million in assets needed to start with about $12 million in capital, according to S&P Global, a banking industry research firm.

The FDIC in 2007 ordered California Republic to raise $30 million in capital.

DeCero said he was “totally” aware of the impending financial crisis and chose to raise an enormous amount of capital without institutional support. The strategy was a patient credit policy without the pressure to make risky loans, a plan that likely helped California Republic avoid other banks’ mistakes.

It chose to grow assets strictly organically without acquiring other banks. The Great Recession and the financial crisis meant a lot of competitors could have been bought cheaply through government-assisted acquisitions, an easy way to grow assets.

The FDIC said five financial institutions failed in OC since 2007: Downey Savings and Loan and First Heritage Bank, both in Newport Beach; MetroPacific Bank in Irvine; Pacific Coast National Bank in San Clemente; and First Vietnamese American Bank in Westminster.

California Republic decided to acquire bankers instead of banks, DeCero said in 2009.

“It is a lot easier to acquire good people … than trying to acquire an entire bank, especially … with most banks having so many skeletons in their closets,” he said.

Few bankers can actually bring big client relationships when they change employers, DeCero said then. But he wanted polished employees to help grow the client base.

The bank by the end of 2009 had $200 million in deposits, a ready supply of money to invest in OC’s recovering economy.

Two-and-a-half years later, it had reached $400 million in assets and forged a strategy to overcome the low interest rates dampening most banks’ profits.

Niche Market

“You have to be a niche player,” DeCero said in 2012. “(California Republic) can’t try to be all things to all people. We can’t take on the big banks and do everything they’re doing. You have to be a specialist and do the things you are best at (doing).”

DeCero had plenty of experience evaluating auto finance applications at Western Financial. He said he thought auto loans based on prime lending standards were a solid investment in OC’s burgeoning economy and a “consistent” generator of earnings and assets.

“We’re not a luxury-car lender,” he said in 2013. “We’re doing everyday primary vehicles that people need to live their lives and get to their jobs. That’s our focus and target.”

The bank moved to Irvine because it grew 70% to employ 185 after two years and had almost $800 million in total assets.

Then the bank started to attract national attention when it received an AAA rating from bond-rating agency DBRS for its $247 million bond backed by $250 million in car loans. The bond also received a BBB+ rating from Kroll Bond Rating Agency, signaling to investors a low risk of default.

Opportunity

DeCero said the bank’s post-recession success came about because it adhered to strong credit practices and had plenty of cash, which it was able to lend while other banks were stymied. The competition was unable to lend during the recession because they needed to solve poor performing loans and falling profits.

“There were some major customers that came to us (when) they couldn’t get a loan anywhere else,” DeCero said. Those customers had solid credit histories and solid collateral to support the loans.

In 2013 DeCero said the bank would consider a merger or acquisition but not with a distressed bank, the typical deal back then. California Republic would deal with a “high-quality bank with strong credit” and about the same size as California Republic, he said.

Its assets had grown to $1.8 billion, based mainly on geographic expansion of its auto loans, by the time Mechanics Bank offered a deal for it last year. It also employed 295 in Orange County and 487 firmwide, including branch locations in Newport Beach, Beverly Hills, West Lake Village, San Diego and a call center in Las Vegas.

DeCero, now that the deal is sealed, said he’ll remain in Irvine but regularly travel to Northern California.