A bank bets big on California

If California were a bank, what sort of bank would it be?

Banc of California has a new, intriguing answer. In just six years, “California’s bank” has emerged as one of America’s fastest-growing – from $700 million in assets in 2010 to nearly $10 billion today. Since the end of 2014, it’s been the best-performing bank stock in the country, while pursuing a strategy even Bernie Sanders might love – serving the state’s diverse array of small and midsized businesses.

More than 100 banks have California branches, many of them community banks that seek to serve the same customers as Banc of California. But its focus on defining itself by its California-ness is unmatched and noteworthy for any enterprise, especially in a globalized era when consolidation across borders is all the rage.

Banc of California bills itself as “California Strong,” touts California icons among its customers (Wolfgang Puck, Vin Scully) and builds partnerships with USC, San Diego State, Pepperdine and the Los Angeles Unified School District schools associated with former Mayor Antonio Villaraigosa, a bank adviser.

In so doing, Banc of California is betting that an enterprise grounded in the Golden State can prosper in this new and different era when, for the first time, the majority of Californians are born and raised in California.

“What’s good for California is good for the Banc of California,” the bank’s chairman and CEO Steven Sugarman, 41, who grew up in Fullerton, told me recently at the bank’s headquarters in Irvine.

Sugarman argues that California’s economy is so varied and peculiar that it needs banks with deep local knowledge to serve it effectively. While bigger corporations dominate other state economies, California’s business base is “very democratic,” in his words, with properties owned by individuals and families.

Since so many Californians work for themselves, even very credit-worthy people don’t qualify for traditional mortgages. The bank’s data also suggests that businesses owned by Latinos and women are far more credit-worthy than many lenders have recognized. To better reach those customers, Banc of California in 2014 acquired Banco Popular’s 20 Southern California branches, including $1.1 billion in deposits.

In this context, California is not just a state but a business model. To attract diverse businesses, Banc of California needs to show commitment to communities. This is one reason the bank has prioritized its Community Reinvestment Act lending and trumpets its “outstanding” rating in such lending at every opportunity.

The strategy has critics; many banks consider CRA lending an unprofitable chore. In a conservative banking world, Banc of California’s rapid success can be seen as suspicious, perhaps predicated on ill-advised pricing or risky lending.

Sugarman says the bank invests heavily in risk management and in hiring people who understand the state’s markets. The rapid growth is in part a function of launching a bank in the wake of a massive recession that left an enormous void as California-based banks failed and consolidated.

He also makes a strong case for a sort of California patriotism in banking. When Californians bank with national or multinational banks, their deposits are loaned or invested outside the state. Banc of California is busy pointing this out to governments and nonprofits, and also wants to expand into Northern and Central California.

Will this California model endure? A bank tied to a state as volatile as California can expect a bumpy ride in the long term. But the Banc of California makes a compelling case that it pays to bank on California.

I dropped by its Pasadena branch recently. Within 30 seconds, I’d been offered coffee, a cookie and a chair. Then a young banker asked me: “Where are you from in California?”

This story was originally published June 9, 2016 at 6:00 AM with the headline "A bank bets big on California."