Under new ownership, California Savings Bank in San Francisco is expanding beyond its traditional thrift roots in search of bigger profits.
The $966 million-asset thrift has hired 15 commercial bankers since FBOP Corp. of Oak Park, Ill., bought it in July 2004. And this month it opened two loan production offices in the northern California cities of Walnut Creek and Sacramento.
James Gala, California Savings' president and chief executive, said that though the thrift is not abandoning residential lending, he believes it can grow faster by ramping up in commercial real estate lending. His goal: to double assets by early 2007.
"Clearly commercial real estate is a profit opportunity," Mr. Gala said. "San Francisco, the East Bay, and Sacramento are vibrant development markets, and we want to be a player in those markets."
The thrift's loan mix is already starting to look more bank-like. More than 75% of its loans were secured by single-family and multifamily properties at mid year, but that was down from 84% a year earlier.
Total single-family loans fell 13%, to $128 million, while the volume of commercial real estate loans rose 26%, to $126 million. California Savings also had $27 million of construction and land development loans on its books at midyear; it had zero a year earlier.
The shift toward commercial real estate lending is consistent with FBOP's strategy. The $12.7 billion-asset company owns nine banks and three thrifts in Illinois, California, and Texas, and the three thrifts have beefed up commercial lending since FBOP acquired them.
Commercial real estate lending "is in our corporation's sweet spot," Mr. Gala said.
California Savings' commercial lending team is led by Patricia Theophilos, formerly a vice president and an area director for commercial real estate lending at Citigroup Inc., and Richard Caldwell, a former principal at Buchanan Street Partners, a real estate investment bank in Newport Beach, Calif.
California Savings, which was founded in 1887, also recently obtained the Walnut Creek loan production office from another FBOP subsidiary, California National Bank in Los Angeles. Previously, California Savings had just one in commercial office, in San Francisco.
Ms. Theophilos, who was with Citi from 1985 to 1998, said the commercial lending team has about $300 million in loan commitments in the pipeline now, and she predicted the thrift would have no problem reaching its asset goal in 18 months.
Aside from increasing assets, though, California Savings is counting on its commercial lending efforts to provide a substantial boost to its profitability ratios, which are well below industry averages.
Though the thrift's second-quarter net income nearly tripled, to $1.8 million, its return on assets was 0.38% and its return on equity 2.13%. The average ROA for thrifts nationwide with assets of $500 million to $1 billion was 0.86%, and the average ROE was 8.13%.
FBOP has made more than a dozen acquisitions in the past decade. Typically it looks to buy commercial banks, but it has been known to buy thrifts to get into new markets at a reasonable price, said Terry Griffin, the Chicago-area vice president for the Community Bankers Association of Illinois. FBOP paid $170 million in cash for California Savings, about two times its book value.
"They look for bargains in areas of the country where they want to diversify, and San Francisco is definitely an area they want to be in," because of its growth prospects, Ms. Griffin said.
Mr. Gala stressed that the thrift would continue to make home loans. In fact, he said, California Savings plans a number of new initiatives over the next year to improve its mortgage services and loan volume.
