Local banks are on the menu for a Pennsylvania investor with a partner stationed in Irvine.
Context Capital Partners, based just outside of Philadelphia, has invested in four Orange County-based banks as part of its bid to buy stakes in small banks it hopes might be bought by larger ones.
The firm has invested in Irvine-based Pacific Enterprise Bank, taking a 9.7% stake, and has an undisclosed stake in Newport Beach-based Commerce National Bank.
Context also has invested in two other OC banks it declined to name.
The managers of Context’s bank fund, Yaron Brook in Irvine and Robert Hendershott in San Jose, have another $10 million they’re looking to invest. They’ve invested about $34 million so far.
Context could invest in about a dozen more banks by year’s end.
“The good thing is we haven’t been competing with many other buyers,” Hendershott said.
Context also owns shares of San Marcos-based Discovery Bancorp, which is being bought by Irvine-based Commerce West Bank NA in a deal expected to close in the third quarter.
The $10 million deal stands to move CommerceWest from the No. 10 spot among the largest locally based banks into the top five.
Context is betting on a wave of consolidation after a rush of bank startups earlier in the decade.
“More banks have been started than what we think makes sense,” Hendershott said.
Context doesn’t expect all of the banks it invests in to be bought. It looks for management that can build a bank by gaining deposits.
“Gaining deposits is a lot harder than loans,” Hendershott said. “If you succeed here, it’s a good sign.”
Community banks have held up better than big banks during the downturn, with most banks in OC being strong enough to ride out the turmoil, he said.
But falling commercial real estate prices are threatening loans made by banks here, according to Hendershott. They stand to test banks in the next couple of quarters, he said.
Context’s investments run from about $100,000 to $3 million. It has a goal for returns of about 20% a year for the next five to seven years.
Brook and Hender-shott have been investing in banks for 12 years. Their first fund was set up in 2006, with a second in 2008.
The fund managers teamed with Context, which helps them bring in funding from wealthy investors as well as handle office work.
Both managers are electrical engineers with doctorate degrees in finance. Hendershott teaches at Santa Clara University. Brook used to teach at the Catholic university.
Brook is executive chairman of the Ayn Rand Institute in Irvine, a nonprofit that advances the philosophy of Ayn Rand, who espoused the free market and individual rights.
Another investor in local banks is Irvine-based Carpenter Community Banc-Fund LP, which recently received approval from the Federal Reserve Bank to complete an $18 million investment in Irvine-based Plaza Bank.
The investment stands to put Carpen-ter’s stake in Plaza Bank at 54%, after a $15 million investment in December.
Carpenter, which is run by longtime industry consultant Ed Carpenter, has pooled together an estimated $300 million from investors and is targeting West Coast banks.
