Mellon Bank Corp. is buying Los Angeles-based 1st Business Bank for a leg up in California's hot-and hotly competitive-small-business market.
"It's a hyper-competitive market," said Keith P. Russell, vice chairman, West Coast, of Pittsburgh-based Mellon. "But if you have the right ingredients, it can be very profitable."
1st Business, with $1.1 billion of assets, has 1,700 business customers in manufacturing, import-export, and service industries, with annual revenues between $5 million and $300 million.
The California business banking market is one of the most competitive in the country, with lenders pitted against one another in a feverish battle to attract new customers.
For many large banks like Mellon, buying a community bank that specializes in small business is the easiest way to gain access to this coveted market. Detroit's Comerica and U.S. Bancorp, Portland, Ore., have pursued a similar strategy in California.
Mellon ranks as the 23d-largest bank lender to small businesses nationwide and is the sixth-largest bank lender in the Middle Atlantic states, where it has more than 400 branches.
Mellon's small-business loan portfolio increased 136%, to $1.4 billion, during the year ended June 30, 1996, according to Sheshunoff Information Services.
Mellon has no depository institutions in the western states and needed 1st Business' four branches to attract customers, Mr. Russell said.
"We needed a organization with a local presence and a sterling reputation," he said. "We could have developed this on our own, but we wanted a considerably larger scale and capabilities."
But Han Park, senior vice president of Wilshire State Bank in Los Angeles, said Mellon's purchase of 1st Business would not affect the local market for several years.
"The people higher up in their hierarchy do not know the competitive climate or the type of industries or even the people here," Mr. Park said. "The learning curve is 5 to 10 years."
Mellon has 77 offices in 13 western states, where it offers corporate trust services, asset-based lending, venture capital financing, and business banking products.
Last year Mellon purchased the business equipment finance unit from Ford USL Capital Corp. in San Francisco. The deal made Mellon sixth among banks in the leasing business.
Robert W. Kummer, chairman and chief executive officer of 1st Business, said he wanted to join Mellon to expand his bank's lending capabilities and offer more products.
"All banks have products that the middle market needs, but Mellon has them in spades," Mr. Kummer said.
