Costa Mesa-based Commercial Bank of California has set its sights on northern Orange County with plans to open a Brea office by the end of the year.
The 4-year-old business bank is looking to serve manufacturers in the area, as well as in Santa Fe Springs, City of Industry and Ontario.
“We want to be identified as an Orange County bank while extending our presence,” said Bala Balkrishna, chief executive of Commercial Bank.
By the end of next year, the bank hopes to open a third office in south OC. It’s first branch opened in Costa Mesa in 2003.
Commercial Bank also is looking to acquire another bank to help it reach the billion-dollar asset mark, a key benchmark for local startups. An acquisition could happen by 2009, Balkrishna said.
Costa Mesa-based Pacific Mercantile Bancorp is the only local startup to reach a billion dollars in assets in the past 10 years. It did so last year.
For Commerical Bank, potential acquisitions could include OC banks valued at about $200 million to $300 million, Balkrishna said.
The next couple of years could see a round of consolidation among local banks as some smaller players continue to struggle, Balkrishna said.
The bank started with $27 million in funding from 36 local investors. Among them are William Lyon, chief executive of William Lyon Homes Inc. in Newport Beach, Roger Kirwan, president of Woodside Financial Services in Newport Beach, and Paul Folino, chairman of Costa Mesa’s Emulex Corp.
Quickly Profitable
Valued at about $230 million, Commercial Bank became profitable after its first 15 months of operations, Balkrishna said. After 21 months, it recouped its initial investment, he said.
The bank counts 29 workers and is run from an 11,000-square-foot office in Costa Mesa.
The Brea branch is set to target manufacturers, wholesalers and distribution companies valued at $3 million to $50 million, said Mark Dumas, the bank’s chief operating officer and senior executive vice president.
The Brea office is set to be 5,000 square feet and cost about $750,000 a year to operate,including rent and salaries, Balkrishna said.
“If we break even after the first nine months that will be an accomplishment,” he said.
Brea is familiar turf for Balkrishna, who worked in the area when he was at First Interstate Bancorp, which was bought by Wells Fargo & Co. in 1996.
Commercial Bank wants to balance its lending to businesses and to real estate, Balkrishna said. Right now about 60% of loans are in real estate, mostly for construction, he said.
Like most lenders, Commercial Bank has been more cautious with real estate-related loans, following a general trend of requiring better credit and more conservative terms.
Still, the bank sees its flexibility in making loans as an edge against big rivals such as Wachovia Corp. and Washington Mutual Inc., according to Balkrishna.
Fueling Growth
Commerical Bank is growing largely due to cast-offs from larger banks that turn down loans for “technicalities,” Balkrishna said.
The tighter restrictions that many banks have reverted to as of late leave some borrowers seeking other lenders, he said.
“Companies that fail to meet a bank’s criteria for debt ratio will automatically be considered outside of the box,” Balkrishna said. “It’s too strict.”
That creates clients for smaller lenders. But the bigger banks still make things tough by taking smaller profits on some loans, and in some cases being too liberal, according to Balkrishna.
That’s the case with Small Business Administration loans, a practice that has become popular with banks in the past year, according to Balkrishna.
Commercial Bank makes most of its money by collecting interest from loans rather than selling them to other investors, Balkrishna said.
That’s helped as the market for selling bundled loans has flattened, driven by lingering fear from the subprime fallout.
Commercial Bank increased its loan value 29% from a year earlier to $146 million in the first quarter, the most recently reported.
The challenge for Commercial Bank is grabbing more customers looking to open savings accounts, most of whom think of big banks first.
Commercial Bank’s deposits were flat for the first quarter compared to a year earlier, as some customers sought higher returns with investment banks and brokerages, Balkrishna said.
