Community Banker of the Year: Hope Bancorp's Kevin S. Kim
It was September 2008 — a few days after Freddie Mac and Fannie Mae were taken into conservatorship and a few days before Lehman Brothers imploded — when Center Financial announced that Kevin Kim would join its board as part of an effort to recruit a new generation of leaders.
The lawyer and former accountant had no reservations despite the daily headlines. While the banking industry was clearly in crisis, the extent of it was underestimated.
Many thought the trouble was concentrated in mortgages and would mostly hurt big banks. The expectation was that smaller institutions focused on areas such as commercial real estate and small-business lending would be spared.
Kim certainly believed that about Center, a well-respected institution started by Korean entrepreneurs in Los Angeles.
"They paid a nice dividend and the stock price was pretty good," Kim recalled. "Then I joined and soon earnings turned to losses."
Kim's title expanded over the years, from director to chairman and chief executive. He became CEO of the parent company in March 2013 and of the bank unit in April 2014.
But he played an active role in the company's strategic direction from the start.
Kim pushed Center to raise capital and avoid disaster in 2009. His business acumen and agreeable demeanor helped bring two of the biggest Korean-American banks together in 2010, creating BBCN Bancorp. The institution then set out to diversify its business and become less reliant on commercial real estate.
Earlier this year, the 59-year-old Kim led BBCN through another Koreatown merger, this time with Wilshire Bancorp. It is now the nation's largest Korean-American bank, with assets of $13.5 billion and offices in nine states.
Although the Wilshire deal is still fresh, Kim's deft hand in steering the company — which has been renamed Hope Bancorp — has investors, board members and analysts optimistic.
Rescue and Rev Up
It didn't take long for Kim's fresh perspective to be put to use.
By 2009, the crisis had cratered the economy. Community bank failures were quickly piling up. Center's losses were eroding capital and it became apparent to Kim that the company needed to raise money.
Many other directors — largely the founders whose net worth was wrapped up in Center — didn't see it so clearly. It was easier for Kim, who was trained as an auditor and didn't have a significant ownership stake, to recognize the seriousness of the trouble.
"They were very resistant," Kim said. "The stock price was pretty low and all they could remember was how expensive their shares were about a year [earlier]. But that was the past, that's gone."
Center announced in December 2009 that it had raised $86.3 million. "In hindsight, had we not raised capital at that time, the bank might have failed," Kim said.
Now a survivor, Center had to figure out what to do in the new banking climate. The crisis had changed banking; adding loans would be tougher and earnings would be thinner. Center's board decided to pursue a major acquisition — one that would position it as the biggest Korean-American bank in the country.
Koreatown, the Los Angeles neighborhood that many Korean-American banks call home, had already seen its fair share of bank consolidation, but Kim and other industry observers also described the market as one with a lot of egos that can make friendly dealmaking tough.
There were four major Korean-American banks at the time: Center, Hanmi Bank, Nara Bank and Wilshire, each with $2 billion to $3 billion in assets.
Center decided its best potential partner was the $3 billion-asset Nara. And Center's board picked Kim to lead the negotiations.
Chung Hyun Lee, one of Center's founding directors, said the board saw Kim as "the right person" for several reasons. First, he was one of the youngest board members. "Some of us can't hold meetings all night long," Lee said. Then there is Kim's professional experience — those skills align well with negotiating a deal. And there was the capital raise.
"He had shown us that we could trust him," Lee said.
Kim's personality helped, too. He is likable and friendly. Several of his colleagues used "sincere" and "decent" to describe him. He is the kind of guy who could get two rivals to set their differences aside and come together.
In December 2010, the companies announced a deal under which Nara's shareholders would control 55% of the combined company, with Center, which was smaller at $2 billion of assets, getting 45%. Though banks often refer to deals as mergers — rather than one buying the other — few really involve two companies combining into one in the way Nara and Center sought to do. That's particularly true in Korean-American banking, Kim said. "Merger-of-equals is a new concept in Koreatown," he said.
The deal closed in November 2011, and BBCN was born.
A Quick Ascent
Center and Nara were similar organizations. Both had major focuses on commercial real estate and small-business lending. Many Koreatown bankers had moved back and forth between the banks over the years. But the similarities only went so far.
"Everyone knows everyone, but still they were two organizations that were different; they had different policies and procedures," Kim said. "We didn't know what to expect."
The biggest obstacle involved getting the board and management on the same page, Kim said.
BBCN initially announced a structure that had a mixture of Center and Nara executives and directors, with Kim serving as chairman of the bank.
The company cast about over the next couple of years trying to find solid leadership. "The board spent a lot of time recruiting," Kim said. "It is a tough task because we needed to find a banker who was familiar with U.S. banking, Korean culture and the Korean way of doing business."
During that time, Kim increasingly stepped up his responsibilities. In March 2013, Kim gave up his law practice to become the chief executive of BBCN Bancorp.
"I was wearing too many hats," he said.
An Outsider's Perspective
With the new CEO, Kyu Kim, BBCN's chief operating officer, felt herself pause for a second before entering his office to consider where to start. How far back did she have to go to explain the issue to a nonbanker boss? If she went too far back, she wondered, would she offend him?
"From banker to banker, you don't think about it," said Kyu Kim, who now serves as head of community banking at Bank of Hope (and is not related to Kevin Kim).
It took about three or four months for that feeling to subside. Though Kevin Kim didn't understand everything then — and still doesn't — "there's no ego problem," she said. "It is well known that he's not from banking and he doesn't hide it."
In some ways, Kevin Kim's inexperience is an advantage, she said. His business background has given him perspective into what clients need, and there are times that he sees problems and opportunities that a traditional banker might not.
"The true contribution is that, because he doesn't have the operational background, he can focus on big things," Kyu Kim said. "He doesn't try to force you to follow his way [like] a CEO who has been in banking for 30 years."
As Kevin Kim sees it, his job is "like an orchestra conductor."
"You put the right people in the right positions so they can do their jobs well," he said.
Another Major Merger
As the longtime chairman of Wilshire, Steven Koh wanted to meet the man who had brought together two of his Koreatown competitors.
"I've always thought that consolidation would happen, that there were too many Korean-American banks," Koh said. The merger that created BBCN "was an instrumental deal in our industry."
The two met informally shortly after the Center-Nara deal was consummated. While it wasn't the right time to start talking about another deal, Kim left a good impression.
"It was the start of this merger for us," said Koh, who is Hope Bancorp's chairman.
Imagine Koh's surprise when he read in 2015 that Hanmi and BBCN were in discussions on a possible merger.
Kim assured Koh that they were only rumors and that BBCN, as a company, was not talking to Hanmi about a deal. But perhaps it was time to consider an additional acquisition.
Kim said Wilshire seemed like a better option. "It was a better-run company," he said. "It was more profitable."
The then-$7.6 billion-asset BBCN agreed to buy the then-$4.7 billion-asset Wilshire last December for $1 billion. The companies have described the deal as a merger, rather than a takeover, despite their size differences. BBCN's shareholders own 59% of the combined company, while Wilshire's own 41%.
There was some noise around the deal. Hanmi went public with a disruptor bid to merge with BBCN, which it withdrew after the Wilshire deal was announced. Two BBCN directors who voted against the Wilshire deal resigned, claiming that there were corporate governance issues. BBCN, for its part, said the men stepped down after they were told about plans to exclude them from a slimmed-down board.
Kim stood firmly behind the deal, which easily gained shareholder support and closed in late July.
There are a few auspicious markers that suggest the integration should go well, Kim said.
First, the merger received regulatory approval in less than six months. The Center-Nara deal took nearly a year to get approved and other M&A deals, specifically ones between larger community banks, are taking longer to get regulators' blessings. The approval time "goes to show how comfortable" the regulators are with how Hope Bancorp and its Bank of Hope proposed to conduct business, Kim said.
The company also has the benefit of merger experience. Having gone through the Center-Nara deal, as well as two much smaller acquisitions in subsequent years, Kim has some learned some lessons. The primary problems with the Center-Nara integration were differences between management and the board, Kim said. Now, the combined organization is run by someone who started at the board.
"I'm not the banker who grew from the bottom to the top. I jumped from the board down," Kim said. "So I understand the relationship, the cooperation needed. I think that puts us in a good position."
The company is expecting to deliver $11 million of cost savings by year-end through a branch consolidation. It is also planning to combine branches that are within a quarter-mile of each other.
"Obviously, they still have a good ways to go," said Aaron James Deer, an analyst at Sandler O'Neill. "I don't know that any bank integration has ever gone flawlessly."
But absent any problems that cause a loss of customers or employees, "it should be OK," he said. "They've done a good job in the past, and I think they have a good road map for avoiding certain pitfalls."
Kim is also optimistic that one culture will emerge.
"We want to develop and cultivate a Bank of Hope culture that is something different from BBCN or Wilshire," Kim said. "We are going area by area, issue by issue, and taking the better of two."
In October 1904, A.P. Giannini, a first-generation American, opened the Bank of Italy in San Francisco to serve the immigrant community. In the 1920s, through a merger, that bank became Bank of America. Yes, that Bank of America.
Chung Hyun Lee, one of Center's founding directors, views that history as an inspiration of what he and his colleagues envisioned when they started a bank with $4.5 million in capital in the 1980s. They were a group of Korean immigrants who had become successful entrepreneurs. Their bank would initially serve the Korean-American community, but they also thought it could someday become a major mainstream bank.
"If we start up a bank — that could last forever," Lee said.
Recruiting Kim was an investment in that future. To Lee, he represents a link between the immigrant founders and the next generation.
Kim was born in South Korea and attended Hankuk University of Foreign Studies in Seoul, where he received a bachelor's degree in English. He and his wife, Okee, met in college. And after he concluded his compulsory military service, the couple moved to the United States in 1982 so Kim could pursue a master's in business administration at the University of California at Los Angeles.
From there, Kim joined Arthur Andersen, and later KPMG, as an accountant. He then pursued a law degree from Loyola Law School in Los Angeles and opened his practice in the mid-1990s.
His daughter, Debbie, is a teacher. His son, Philip, is pursuing an MBA at Columbia University.
Essentially, Kim is an immigrant similar to the founders, but he is younger and was a professional in the U.S. business world long before he was running Hope.
Kim also sees himself as a connector between Hope's founders and the next generation. "Most of them came with very little money. Some may not have even had legal status. But they worked hard, saved money and opened a bank," Kim said.
The Korean-American banks are very successful, he said. "They're publicly traded companies and are good investments. That is a tremendous achievement. The next leaders don't have to be Korean-American, but I would imagine they'll be more American than I am. ... My unique role in that process is to be a bridge so that this bank becomes a successful American bank founded by Koreans in the U.S."
Mergers will play an important role in creating that future, as Kim sees it. Hope Bancorp could buy some of the remaining Korean banks once the Wilshire integration is complete.
But acquisitions can't be the only method of growth. In recent years, BBCN had launched several consumer-oriented products such as mortgages, wealth management services and credit cards as a way to diversify its portfolio. Wilshire had also been moving in that direction, buying a mortgage company last year.
"When the economy is good, [CRE and SBA loans] are good, but it can be real damaging when real estate goes south," Kim said, now sounding like a crisis-tested banker.
Although the bank aspires to be mainstream, Kim said this will wait until after it has fully leveraged its opportunities within the Korean-American community. For instance, BBCN in late 2014 opened a representative office in Seoul. It is now working with U.S. and Korean regulators to open a full-fledged branch. If successful, it would be the first community bank to operate a branch there.
"We will capitalize on our ethnic heritage," Kim said, noting that it also provides a business advantage with other ethnicities. For instance, Kyu Kim, while at Nara, made that bank a dominant player in lending to Dominican grocers in New York. The bank also found niches within the hotel business with Pakistani entrepreneurs and in Los Angeles' garment district with Jewish and Armenian groups.
"We are going to stay with the customer bases where we have competitive advantages," Kim said. "It is premature to compete with the mainstream for now."
But Kim understands the founders' dream for a major mainstream bank. Lee said he trusts Kim "200%."
"He knows why we started up a bank and he'll carry that on," Lee said. "I don't know how long it is going to take to make this bank look like Bank of America, but I hope it happens."