California Bank of Commerce (CA) (CABC-OTC: BB)

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March 5, 2010 Issue

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Bay Area Business Bank Bucks the Trend With Steady, Balanced Growth

Company Profile:

California Bank of Commerce completed its initial public offering on July 3, 2007, raising $27.5 million. Operating from a single suburban location in Lafayette, California, the bank serves well-established owner operated companies throughout the San Francisco Bay Area. The firm employs an experienced cadre of business bankers and finds many of its clients through referrals from an extensive network of Bay Area accounting firms, law firms and other professional service firms that serve the same market with the same emphasis on excellent service. The bank serves businesses from a broad range of industries, typically offering them treasury management services and lines of credit or term loans of $1-5 million.

John E. Rossell III, President and Chief Executive Officer, California Bank of Commerce. Mr. Rossell is also a Director of the Bank. The Bank is located in Lafayette, California.

Mr. Rossell has over 24 years of commercial banking experience, 17 of those in the position of President and Chief Executive Officer. Most recently, he was the founding President and Chief Executive Officer of Santa Cruz County Bank.

Mr. Rossell was the founding President and Chief Executive Officer of Heritage Commerce Corp and Heritage Bank of Commerce, in San Jose, California.

Prior to establishing Heritage Bank of Commerce, Mr. Rossell was Senior Credit Officer for Silicon Valley Bank where he served as Chairman of the Credit Committee for the Commercial Division.

Mr. Rossell was a Senior Consultant with the St. Louis accounting firm of Brown, Smith and Wallace, providing merger and acquisition and financial planning services for middle market companies prior to joining Silicon Valley Bank.
 

Mr. Rossell was successively the President and Chief Executive Officer of three subsidiary banks of Mark Twain Bancshares, headquartered in St. Louis Missouri, including its lead bank, Mark Twain National Bank.


Prior to joining Mark Twain Bancshares, Mr. Rossell was employed by Wells Fargo Bank where he held successive positions as Vice President in the San Francisco Corporate Banking Group and as President of Wells Fargo and Company, Canada, Ltd., a Toronto-based commercial finance subsidiary.

Mr. Rossell holds a Bachelor of Arts degree in English from the University of Virginia and a Masters of Business Administration from the Darden School of the University of Virginia.


Financial
Commercial Banking
(CABC-OTC: BB)


California Bank of Commerce (CA)
3595 Mount Diablo Boulevard
Lafayette, CA 94549
Phone: 925-283-2265

 

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – March 5, 2010


CEOCFO:
Mr. Rossell, you have a long history in banking; why are you with California Bank of Commerce today?
Mr. Rossell: I am now working on my third startup and I saw this bank as a unique opportunity to take advantage of everything I have learned. As I approached the end of my career, I was also attracted by the opportunity to play an active role in putting together the management team that will replace me when I am gone.

CEOCFO: What is unique about California Bank of Commerce?
Mr. Rossell: California Bank of Commerce is not unlike one of the business banks that you recently wrote about in Los Angeles. However, we are younger and we serve the San Francisco market place, but our model is similar. We are a middle market business bank. We operate from a single suburban location, outside of San Francisco. We operate from an upstairs location, with no signage, no ATMs and no night drop. We are not so much a community bank as we are a community owned business bank. Our client focus is on businesses that are anywhere from about $10 million to $100 million in sales, all around the San Francisco Ban area. Most of our clients are located along the transportation arteries that connect the cities of the San Francisco Bay area, with a concentration in Alameda and Contra Costa counties. We reach our clients with a potent combination of up-to-date technology and high touch business bankers who often spend their time at the client’s place of business. On the technology side, we encourage our clients to take advantage of internet banking and remote deposit. On the touch side, we employ lenders and cash management officers who have been at it for a long time and really know the Bay Area middle market.

CEOCFO: How do you reach potential customers?
Mr. Rossell: We reach potential clients in a several ways. The most important way is through our Relationship Managers (RM), who are out and about, working their referral network. Our RM’s are often known and respected by accounting firms and law firms that serve the same client profile that we serve. We support our RM’s with a limited but unique advertising program that utilizes the local business journal and various industry publications. Our ads focus primarily on our clients and our byline is “defined by the company we keep”. We get additional support from our shareholders, who were handpicked as people who would participate actively in building the bank.


CEOCFO: Why are your clients choosing California Bank of Commerce?
Mr. Rossell: Probably the most important reason that clients pick us is either because they already know us, or because they were given a recommendation to make us their bank by their CPA or their attorney, or other trusted advisor. In the final analysis, our success in finding new clients is built upon a good reputation disseminated by word-of-mouth. Although the bank is young, our people are well known and so our reputation precedes us.

CEOCFO: What are clients finding at your bank that they are not finding elsewhere?
Mr. Rossell: The first thing that they find is a bank that is sound and is eager to do business with clients that are likewise sound. Second, they find a bank that considers their relationship important. Our typical line of credit is anywhere from $2-4 million. Given our age and client list, such a relationship is by definition very important to us. Third, clients find that they have access not just to their RM, but also to his or her banking assistant, for operational needs, as well as to two members of senior management. Senior management contact includes, for credit driven relationships, our Chief Credit Officer. We are quite unusual in that most banks, particularly bigger banks, have a philosophy that people making credit decisions preserve objectivity by remaining at arm’s length from clients. We disagree with that perspective - we find that when our credit folks meet clients we are more responsive and we make better credit decisions. All of these qualities are appealing to an owner-operated business. They mean the bank takes seriously this idea that they are going to partner with the client. We will position ourselves so that we are able to roll with them in good times and bad times.

CEOCFO: What is the financial picture for the bank today?
Mr. Rossell: We are 2˝ years old. As of December, we have had operating profits for two quarters. It is too early to comment about the first quarter of 2010, but we made a GAAP profit in January. If you look at the trend line you can see that GAAP profitability is going to happen very shortly. In the meantime, we are growing capital and we are growing our legal lending limit, because the operating profit accomplishes that for us. On the balance sheet side, we are growing steadily on both sides of the balance sheet, with relationship driven loans and core deposits. At the end of the year, we had a 23% ratio of non-interest bearing deposits and our interest bearing funding costs are very favorable. Our loan pricing is below peer, but we are choosy about loan quality. Our asset quality is good and we have no non-performing loans. We have strong capital ratios, but if we keep growing we will need at some point to raise more.

CEOCFO: Although many of your clients come from recommendations,  what do you look for in a new client before you take them on?
Mr. Rossell: In a word, relationship. In addition, we look for businesses that have a good track record.

 

CEOCFO: Given the recent economic downturn and recent bank difficulties, how do you reassure your clients?
Mr. Rossell: We get in front of both client and prospects with our numbers. We talk about our liquidity management practices, our capital ratios and our asset quality. When the INDY MAC crisis happened in July 2008, we were just one year old. We had depositors with millions of dollars in the bank, well beyond FDIC coverage. So, we developed our program of sharing performance data with clients and prospects. We remind the community that we are young, but our officers are experienced and our bank is safe and sound. We believe that if the process of education between bank and client is two way, the relationship that develops will be strong and long lasting. Confidence is only meaningful if it is mutual.

CEOCFO: What is ahead for California Bank of Commerce?
Mr. Rossell: In its infancy, California Bank of Commerce took on a very challenging economic environment but nevertheless, accomplished what is critical to a new bank. We grew core deposits and added to earning assets in a measured way. We intend to continue to do more of the same. For the next two years, we will grow the bank by about $4 to $6 million a month in new loans and deposits. We will emphasize balance; we think one of the big mistakes of the banks that have been fortunate enough to grow, is that they sometimes grow one area at the expense of another. For the sake of growth they either put on loans that do not represent a high standard of quality or they accept deposits for which they do not have a safe use. So, we try to be sure that we are funding incremental business with new deposits and that those deposits are relationship based deposits and not high cost. On the asset side, we put the emphasis, not so much on yield, as on the quality of the assets. Business banking is a scale business, and we are working hard to achieve scale. So, we are resolved to grow, but the emphasis is on careful, steady growth.

CEOCFO: Why should potential investors take a look at California Bank of Commerce?
Mr. Rossell: There are a several reasons investors should consider California Bank of Commerce. We have an experienced team. We are growing despite an adverse climate. Investors will also see a clean loan portfolio and that is probably the number one factor today when people buy commercial banks. Is it safe, is it going to survive? We are core deposit driven and our funding costs are favorable. We have a unique combination of high-end technology, sophisticated bankers and community bank accessibility which is appealing to the upper half of the middle market. The management team has been clear about its focus and strategy. It is a fairly narrow focus, on owner operated businesses, but that is where the real strength of this economy lies. That is to say the entrepreneur’s economy. Lastly, an investor will be able to see quickly that the bank has worked its way through onerous start up related costs associated with the first three years of a de novo bank. As we finish out our third year in business, one will see from the trend lines that the bank has momentum taking it in the direction of profitability. Unfortunately, this is a time when many banks are moving in the opposite direction. At the margin, we represent a good investment opportunity. Lastly investors will see that our bank’s share price has been relatively stable, particularly for a startup bank in an environment where price-to-book is down in the 60% range or below. Our own share price has held up at around book value and book value is now growing. Investors will be impressed that we have a supportive shareholder base.

CEOCFO: Final thoughts, what should people reading about California Bank of Commerce remember most?
Mr. Rossell: We are defined by the company we keep. That phrase is more than a tagline for us. It is our credo – we hook up with people and companies that the rest of the business community admires and we emphasize good, strong relationships.

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We are defined by the company we keep. That phrase is more than a tagline for us. It is our credo – we hook up with people and companies that the rest of the business community admires and we emphasize good, strong relationships. - John E. Rossell, III

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