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Following unique deal, 1st Century Bank eyes major growth in LA


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According to Market Intelligence, April 2023

Following unique deal, 1st Century Bank eyes major growth in LA

Jason DiNapoli, president and CEO of 1st Century Bank in LosAngeles, says that with the backing of a new and much larger owner, thecommunity lender is determined to grow extensively over the next few years,potentially tripling in size as it pushes to become a power player acrossCalifornia'slargest market.

Oklahoma City-based Midland Financial Co., which has about $12 billion inassets, this month closed its $116 million acquisition of LosAngeles-based  ($739.5 million in assets) and its . The bank unit now operates as a stand-alonedivision of Midland Financial, retaining its name and physical locations, andserving as the West Coast face of the buyer.

Midland Financial gets geographic diversity, with entrance toa prized market, at a time when Oklahoma banks are grappling with a protracted oil-priceslump. And the seller gets needed fuel for its growth engine. DiNapoli, theformer COO of 1st Century Bancshares, said in an interview that, while unique,1st Century's decision to sell in order to grow made sense.

The bank, eager to expand in its affluent West Los Anglesbase and in other coveted territories in the Los Angeles area, consideredraising capital to fund expansion plans, but the risk of shareholder dilutionloomed large as a concern. And ultimately, such a move would have fallen shortof the financial wherewithal that 1st Century gains by joining MidlandFinancial, DiNapoli said.

Selling yet retaining its identity, he said, allows 1stCentury to continue to build off already established momentum — 1st Century hadmore than doubled its loan book over the past five years — while drawing on itsparent'sresources to offer more products and on its size to boost lending limits andpursue more customers and larger loan deals. Those ingredients, he said, werekey for 1st Century to further expandsubstantially in Los Angeles.

"Itis really going to accelerate our growth," DiNapolisaid. He said the bank unit in Los Angeles could double or even triple in sizeover the next three to five years. "We do have big growth goals," hesaid.

Thoughit would consider acquisitions, DiNapolisaid the 1st Century division will focus firstand foremost on organic growth. He thinks the bank can achieve its aggressiveexpansion objectives via organic means — by attracting new customers and byhiring proven lenders who would bring with them both customers and experiencein working with clients who need large loans.

"Weare actively pursuing those kinds of lenders," DiNapoli said.

DiNapolisaid M&A activity in Southern California, including the 2015 sale ofCity National Corp., oncethe largest bank based in Los Angeles, to Royal Bank of Canada, has created disruption among theranks of proven lenders. That has and should continue to provide 1st Century opportunities to hire talent, who wouldhelp the bank in its efforts to deepen its presence in West Los Angeles andspread its tentacles into other areas.

InWest Los Angeles, 1st Century works with entrepreneurs, small business owners, small manufacturingoperations, high-net-worth individualsand a variety of professional services clients,including doctors, lawyers and accountants. DiNapoli said the bank can now offer these customersmore products and services and larger loans. At the same time, the bank plansto venture into several other areas of Los Angeles, including downtown, andcould broaden the types of commercial clientele it serves.

"Oureyes are wide open now," DiNapolisaid.

Alongthe way, DiNapoli said 1st Century is likely to open new offices — perhapssome traditional branches but more likely smaller offices that do not havetellers and are instead staffed with small teams of staffers that focus onlending and on providing customers financial advice.

DiNapoli said the Los Angeles market, while hit hard duringthe recession of the last decade, has recovered and continues to generatestrong economic activity across a range of industries and in many areas of thevast city, the second most populated in the country.

"Itstill seems to have a lot of energy to it," he said.

Timothy Coffey, a California-based analyst withFIG Partners, agreed that the Los Angeles economy is on solid ground. That,coupled with its sheer size, makes it fertile ground for banks.

"Thereis a tremendous amount of wealth there," he said in an interview.

Coffey, who formally covered 1st Century,said the company was "doingquite well on its own" but did need a capital boost to pursue itsambitious growth plans. Midland "certainly provides them with that."

WhileM&A does not appear to be an immediate priority, Coffey said that, should the company go down that path, therewould be a variety of targets for it to pursue, from smaller business banks toniche lenders. With or without deals, he said the 1st Century division does appear to now have a longgrowth runway before it.

"Ithink it's wide open," Coffeysaid. "They have a lot more options now."