The market disruptions in California's Inland Empire could be a golden opportunity for local community bankers.

Four Inland Empire banks have failed since late last year, with out-of-state companies taking over all but one of them. Several out-of-area banks that had a big profile in the market have also changed hands — but to other out-of-area banks.

As a result, many customers who prefer a local touch, and talented bankers who want to offer it, are ripe for the plucking by surviving area banks, industry executives and observers said.

"There is a segment of customers that are happiest to work with a community organization," said Steven Reider, the president of Bancography, a Birmingham, Ala., consulting firm. "To the extent you are one of these local banks that never went crazy on local real estate, you will do quite well there."

Inland Empire has been hard hit by the housing crash, but bankers said it remains an attractive market because the low cost of living will continue to draw residents from nearby Los Angeles.

"Even though we are in the doldrums right now, there is a lot of opportunity for business because it is less expensive," said Steve Borg, a senior vice president with California Bank and Trust.

His San Diego bank, a unit of the $56 billion-asset Zions Bancorp. in Salt Lake City, acquired the $1.9 billion-asset Vineyard Bank in Corona after it failed this month.

Though like the rest of California, Inland Empire faces problems such as declining real estate values and unemployment, "what we have our eye on is that long-term growth potential," Borg said.

One example of a local bank that has been able to take advantage of the opportunities is the $278 million-asset Security Bank of California in Riverside.

The four-year-old bank had always planned to have operations in Redlands, said Michael Vanderpool, its president and chief operating officer.

After the $803 million-asset 1st Centennial Bank in Redlands closed in January, Security Bank hired two experienced lenders who had worked at the failed bank. Security opened a loan production office for the two recruits in March, and converted it to branch in July.

"Those two opportunities came up, so we took advantage," Vanderpool said.

"These are people we had known for a lot of years. … We think they are going to do very, very well."

During the second quarter, Security was able to expand its loan portfolio 7% or by $60 million, with deposits growing even faster at 11%, as customers moved funds from banks in the area that were reported to have trouble, he said.

To be sure, taking advantage of these opportunities is easier said than done.

Capital is hard to come by and many banks in the market have their own problems to deal with before they think about picking up new customers.

"There are some really, really good opportunities to pick up some good people," said Richard Levenson, the president of the San Diego investment bank Western Financial Corp. "But the majority of banks here are in survival mode. Think about it this way: if you are sitting here and you can't make decent earnings this year because you have a deteriorating loan portfolio and more losses coming, you don't go open a branch, because you don't have the opportunity to make up the cost."

And some who can lend said regulatory pressure to make only supersafe loans has forced them to turn down a lot of good bets.

Bill Demmin, the president and chief executive officer of the $45 million-asset Commerce Bank of Temecula Valley in Murrieta, said that even though his two-year-old bank has credit quality and capital ratios that make lending in the area possible, it is saying no more often than it is saying yes.

"I'm embarrassed to be a banker today because I am not making loans," Demmin said.

"I perceive the regulatory environment to be so negative that unless I have a gold-plated loan I am not going to make it. When I look at a loan, I look over my left shoulder and think about the FDIC and then I look over my right shoulder and think about them again."

A few years ago, the Inland Empire, which consists of San Bernardino and Riverside counties, was a booming residential market. Banks beefed up on construction loans, making hefty profits. But when the economic tides turned, they were left with borrowers unable to repay.

On July 17 both Vineyard and the $1.5 billion-asset Temecula Valley Bank in Temecula failed. They followed 1st Centennial and the $3.7 billion-asset PFF Bank and Trust in Rancho Cucamonga, which failed late last year.

Like Vineyard, 1st Centennial went to an in-state, but out-of-area, acquirer, the $1.5 billion-asset First California Bank in Westlake Village. "We anticipate good growth opportunity in the region," said Frank Holding Jr., the chairman and CEO of First Citizens.

But Temecula Valley Bank was acquired by First Citizens Bank and Trust Co., a subsidiary of the $17.2 billion-asset First Citizens Bancshares Inc., all the way on the other side of the country in Raleigh. PFF was acquired by the $263 billion-asset U.S. Bancorp of Minneapolis.

In addition to the local failures, Downey Savings and Loan Association of Newport Beach, Calif., which had 32 branches in the Inland Empire, failed and was taken over by U.S. Bancorp; Washington Mutual of Seattle, which had 52 Inland Empire branches, was seized and sold to JPMorgan Chase & Co. of New York; and Wachovia of Charlotte, which had 17 branches in the market, was acquired by Wells Fargo & Co. of San Francisco.

Gary Votopka, the president and CEO of Mission Oaks National Bank in Temecula, said that because the problems of Temecula Valley Bank and Vineyard were well publicized, their eventual failures didn't cause panic among depositors or borrowers; those customers who were going to withdraw funds or change banks had already done so.

"Temecula's failure wasn't on the front page," Votopka said. "It was on the third page of the local section."

Votopka said his bank has had a "steady trickle of customers coming over" from Temecula Valley Bank, especially in recent weeks, but no big surge since the failure.

Still, he said more customers may choose to move in the coming months.

"Right now the people who wanted to make a change because of concerns for the company have made those changes," he said. "Both Temecula and Vineyard had big bank companies that acquired them. … I am waiting to see if it is a similar sort of story as when a merger happens and the people who like doing business with a community bank move. There could be another round of people leaving."

One lingering concern Votopka said he has about the recent failures is that the acquiring banks will dump the assets because the losses are shared with the Federal Deposit Insurance Corp., and that would cause real estate prices in the area to fall further, delaying the area's recovery.

That happened during the last down cycle, when the FDIC used the Resolution Trust Corp. to get rid of bad assets, Votopka said. "It just flooded the market. The market took years to recover from that."

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