The Business Press: Still bullish on the Inland Empire

09:32 AM PDT on Wednesday, October 20, 2010

Contributing Writer

James Robinson is chairman and chief executive officer of Security California Bancorp – a small but successful community bank focused on serving small and mid-sized businesses.

Known locally as a career banker, he joined the Riverside-based company along with several other industry veterans at its formation five years ago when the region’s economy was at its peak, creating thousands of construction and logistics jobs, new homes and attracting residents Inland from the coastal counties.

But Robinson, 75, and his team, which features Michael Vanderpool as president and COO, and Ernest Hwang, its president and CLO, have had to endure a turbulent period that saw the bank receive $6.8 million in funding from the Troubled Asset Relief Program and report a modest loss for 2009.

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Paul Alvarez / Contributing Photographer
Ernest Hwang, Michael Vanderpool and James Robinson make up the senior leadership team for Security Bank of California, which has locations in Redlands, Riverside and San Bernardino.

Having been through the depths of the economic downturn, Robinson is confident the worst was over for Inland Southern California and the bank was on track to finish the current fiscal year in the black after reporting two strong quarters.

He also doesn’t regret his decision to accept a position with the parent company of Security Bank of California after more than 40 years in the industry. During his career, Robinson has held a number of high-ranking positions including executive vice president with City National Bank and president and chief executive officer of Riverside National Bank.

“We wanted to form a highly professional financial institution, with a good commercial and industrial lending group at its core,” Robinson said. “We also chose professionals who knew the community well.”

Robinson Vanderpool and Hwang recently sat down with The Business Press for an interview. Surrounded by University of Southern California football memorabilia in his eighth floor office at 3403 10th St. in downtown Riverside, Robinson said he’s been in the region his whole career, and while he could have lived or worked anywhere he wanted, he chose to stay in Inland Southern California.

“I want to live right here. We love this area,” he said. “It will come back, and when it does, the region will need a strong bank to service businesses out here.”

Vanderpool, 54, attributed Security Bank’s success and growth to employees who have the lending expertise found at a larger bank, but are committed to the community banking model. He said Security Bank needed to play a significant part in assisting the region’s business community. The difference, Hwang said, Security Bank does not have a formula to the way it conducts its business lending, adding the bank will work with seasonal businesses to match a line of credit to their business.

“We’ll work with the company with $500,000 in revenue, for a larger bank, anything under $1.5 million is formula lending,” he said.

Hwang, 46, said the company had a diversified portfolio in term of loan types. As of June 30, professional loans those to doctors and lawyers were 45 percent of the bank’s loan portfolio; while wholesale loans were 23 percent, manufacturing 13 percent, construction 8 percent, agriculture 5 percent, food service 4 percent and other listed at 2 percent.

“The Inland Empire may have a 14.8 percent unemployment rate, but 85 percent are still employed,” Hwang said. “Economically, hospitals are being built here and there is an economy that is going on. Our institution is supporting that economy. It may be hard for Beverly Hills and Newport Beach to understand … there is still business and dollars out here.”

At the end of the second quarter, Security Bank gross loan portfolio stood at $267 million, down slightly from $272 million at the end of 2009.

Robinson pointed to the bank’s financial performance as proof it is positioning itself to take advantage of the region’s economic turnaround. Since reporting a loss of $2.15 million, or 72 cents per share, for 2009, Security Bank of California has produced back-to-back profitable quarters with $201,558, or 6.7 cents per share, for the first quarter and $414,082, or 13.7 cents per share, for the second quarter ended June 30.

Vanderpool explained the loss last year was due to proactive additions to the bank’s loan loss reserves, and unanticipated increase in the Federal Deposit Insurance Corp.’s premiums as well as the costs associated with opening a branch in Redlands in July 2009. At the end of the second quarter, the bank continued to maintain an allowance for loan losses of $5.7 million, or 2.12 percent of gross loans.

But Hwang described the loan loss figure as somewhat misleading. As of June 30, the bank had one loan valued at $320,000 listed as past due out of a $267 million loan portfolio, he said.

Vanderpool said the provision was also needed to pay the FDIC assessment. Last year, the FDIC added a one-time special assessment of 20 cents on every $100 of insured deposits so it could restore reserves to its deposit insurance fund.

“We also had some concerns about the economy last year,” said Vanderpool, adding the bank was well capitalized to take advantage of future opportunities.

RBC Capital Markets last month raised $20 million in a private placement of common stock to help recapitalize the five-year-old regional bank. The company issued 2.58 million shares of common stock at $7.75 each. The offering represented an 82.1 percent stake in the book value of the company.

Robinson said the company needed to raise additional capital to support continued growth in loans and deposits. He said the offering could be used to support Security Bank’s acquisition of deposits, loans, or branches negotiated through the FDIC or new branches.

He said the successful sale also represented a strong vote of confidence by the bank’s investors who recognize “our team has built a strong community bank.”

“Well established institutional investors took part in the share sale,” he said. “Management also put in money. We (acquired) 30 percent to 35 percent of the sale, which includes management and directors. We have personal money invested, which makes us different.”

At some point, Security Bank of California will use a portion of the new capital to repay its TARP loan. On Jan. 9, 2009, the company received $6.815 million in federal funds and has paid $592,000, or $92,000 quarterly, in interest on the loan.


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