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Wilshire Financial Services Group Inc. (WFSG) |
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CEOCFO
Interview Index |
This is a printer friendly page! Wilshire Financial Services Group is
repositioning the Company so that investors can better understand its focus BIO: In May 2004, Mr. Kiley was named Chief Executive
Officer and Chief Financial Officer for Wilshire Financial Services Group Inc., the Bank’s
holding company based in Calabasas, CA. He serves on both the Bank and Wilshire’s
board of directors. Prior to his current position with First Bank of
Beverly Hills, Mr. Kiley served as Executive Vice President of Operations and Chief
Financial Officer of National Mercantile Bancorp, the parent of Mercantile National Bank
in Century City, CA, and Chief Financial Officer of Hancock Savings Bank, F.S.B., Los
Angeles, CA. In each of these positions, Mr. Kiley grew capital through public and
private offerings and returned the banks to profitability. Mr. Kiley is a Certified Public Accountant in
California, and holds a B.S. in Business Administration with an emphasis in accounting
from California State University, Chico, and is a Beta Alpha Psi, the Accounting Honor
Fraternity. Mr. Kiley serves as a member of the following
professional, civic and community organizations: American Institute of Certified Public Accountants CEOCFOinterviews: Mr. Kiley, there have been some changes at Wilshire recently; will you bring us up to date? Mr. Kiley: “In April (2004), the Company sold its specialty servicing subsidiary to Merrill Lynch. That was a $50 million deal, which closed on the April 30, 2004. This means that the Company has one main operating subsidiary, First Bank of Beverly Hills. Because of that, we are going to propose a name change for the holding company so it more closely links to the Bank; the name change will be Beverly Hills Bancorp, a unitary holding company, and a $1.2 billion bank as its major operating subsidiary.” CEOCFOinterviews: Why did you make the decision to go this route? Mr. Kiley: “The board and the Company wanted to focus totally on the banking subsidiary. With the two operating subsidiaries, the specialty servicer and the Bank, it was difficult for stock analysts and potential investors, etc., to get an idea of the Company’s focus. After a lot of internal soul searching at both the board level and management level, it was decided that the commitment was to the Bank, for it to be a bank holding company. That meant there was an opportunity to sell the servicer, which surprisingly generated more interest than we thought. We believe we got a fair price for the sale.” CEOCFOinterviews: Will you tell us about the bank and your focus? Mr. Kiley: “Our focus on the lending side is income property. We do multi-family or apartments, commercial office, industrial and retail buildings, and mobile home parks. On the liability side, we have one branch. We just obtained approval to open our second branch at our corporate offices in Calabasas, California. Our one branch is in Beverly Hills, with total deposits of $250 million, our wholesale fundings includes both repurchase agreements and borrowing through the Federal Home Loan Bank, along with a wholesale deposit money desk.” CEOCFOinterviews: Are the people that are borrowing money from you using the other side of your services as well? Mr. Kiley: “To some extent. We are a savings and loan and we are looking at possibly changing our charter because of the type of lending we do. I mention that, because if you look at a typical banking model, your borrowing and deposit customers are the same. In a savings and loan model, your borrowing customers and deposit customers are different because, typically, there isn’t a relationship manager that manages the whole relationship. Accordingly, you have a lending group, and a deposit or a branch group, and they attract different customers. Our borrowers are real estate investors; and we are going to tap into them as a source for deposit customers. It would be more difficult to make a deposit customer a borrowing customer, but when those opportunities arise, we will certainly pursue them. We feel the real opportunity is to make our borrowing customers depositors. The other reason is that when they apply for a loan, we become aware of their banking relationships and can ask whether we can pursue those.” CEOCFOinterviews: Why are they coming to you for loans? Mr. Kiley: “Borrowers are going to come to us for the service we provide. We close the loan in a short time period, and secondly, we have the flexibility in our loan products. Our products start at variable and flip to fixed, or start at fixed and flip to variable, and those are structured up-front to where the borrower can make the decision, or where it automatically converts from a fixed rate loan to a variable rate loan. Because we are small, we bring products to the table that others don’t, because it doesn’t fit in their box. We work with the borrower to come up with something that fits their objectives. The other thing I mentioned was the service in a quick close. We can gather our officers’ loan committee, and our directors’ loan committee, in about two days and give the potential borrower an answer very quickly. We process everything internally so that we can turn the loan docs around quickly, which takes all the agony out of closing a loan, buying a piece of property or selling a piece of property, and it makes everybody happy. Everyone is going to be paid quicker.” CEOCFOinterviews: How do you attract your customers? Mr. Kiley: “On the lending side, we have been sourcing through loan brokers. However, once a customer experiences our service, we have the opportunity for repeat business. The majority of our business comes through loan brokers.” CEOCFOinterviews: In which way have you been affected by the interest rate changes? Mr. Kiley: “Three years ago when this management team was assembled, sixty percent of our loans were fixed rate. I would have answered this question very differently then than I would today. Today over 80% of our loans are in variable rate products and we are excited about the fact that when rates go up, our balance sheet should behave favorably. In other words, the asset side of the balance sheet will react very quickly. Over the last year, we have been targeting long-term money at a time when the rates were relatively low. Thus, we’ve been targeting two-plus year terms over the last year or so, so that when rates rise like we’ve seen this year, it is not going to impact our liability side as severely. We don’t view it as a negative, but we know that rates are going to go up eventually, so we have prepared ourselves for that over the last couple of years.” CEOCFOinterviews: Will you tell us about loan volume, and rising interest rates? Mr. Kiley: “ We are an income property lender and there are a lot of transactions out there, whether they are 1031 exchanges or repositioning a real estate portfolio from, let’s say, apartments into office buildings. Therefore, I think it is going to affect our volume to a certain extent on the refinancing side. Further, a lot of the lending on income property is rather short. It is three, five, and seven years, not a thirty-year fixed-rate loan. There are always going to be transactions out there to refinance those maturing term. There will be investors continuing to trade into or out of income property. ” CEOCFOinterviews: You have a good mix of different types of income property; are there areas you would emphasize more? Mr. Kiley: “It does make a difference. Since we are an OTS (Office of Thrift Supervision) charter, or savings and loan chartered institution, we are required by law to maintain 65% of our assets in residential type properties. We have to focus on apartments, but if you were to ask me what my preference was, because of the competitive market in apartment buildings and residential lending in general, the wider spreads are with the commercial properties such as office buildings, industrial, etc. We would like to do more of these loans because the spreads are wider, sometimes more than 100 basis points. We would like to focus more on commercial, but our charter focuses us to compete for apartment loans. If we do change our charter, and that test requirement goes away, we would then be able to focus more on commercial loans.” CEOCFOinterviews: What is involved in changing the charter? Mr. Kiley: “First you have to decide what charter fits your business model. Your choices are generally an industrial bank, a commercial bank, or a national bank. We are looking into all three of those opportunities. We have a good relationship with our current regulator. I think it is at least a six-month process depending upon the timing and backlog of the approving regulator.” CEOCFOinterviews: That sounds like a lot of opportunity, whichever way you decide to go! Mr. Kiley: “I think it is, unless they change the QTL test at the OTS level, which I doubt.” CEOCFOinterviews: Do you get a lot of repeat business? Mr. Kiley: “Yes, we do because we will have an investor say “wait a minute, I am looking at this property now and I need to close on it by the end of the month..” We then look at the property and call our directors’ loan committee to obtain an opinion (not an approval). If the underwriting pencils out and the numbers they have given us are correct, we can close by the end of the month.” CEOCFOinterviews: Is your focus California, Nevada, and Arizona? Mr. Kiley: “Yes, Southern Nevada, Arizona, the Phoenix/Tucson area, and Southern California. We also get a fair amount of penetration in Northern California. “ CEOCFOinterviews: Why is the area good geographically for your base of operations? Mr. Kiley: We see values holding in these growing areas, even through some of the tough times, similar to that we experienced in the early 1990;s. Now California is going through in-migration, which keeps the demand high for our lending, and the values we feel will remain stable.” CEOCFOinterviews: Will you tell us about the team that is assembled and the areas of expertise that have been brought to the table including yourself? Mr. Kiley: “I was a CPA and CFO of three other banks before I became CEO of FBBH. I earned my stripes with the firm now called KPMG, so I have a financial background. My chief lending officer, although originally from Ohio, has spent a lot of time in California lending on income property. In two-and-a-half years, he has taken lending volumes from $150 million during 2002 to $300 million during the first half of 2004, on pace to almost triple the 2002 volume. We are off to a great start; we had a great pipeline at the end of last year that carried over this year. We are happy with the team of lenders and we have excellent underwriting processing groups. We brought in a CFO who previously was with Prime Bank (sold to EastWest Bank). We also have a very experienced loan administration group. Finally, on the liability side of the balance sheet, we have a group who manages a $400 million money desk, $300 million in borrowings from Federal Home Loan Bank, and $100 million in repurchase agreements.” CEOCFOinterviews: In closing, why should potential investors be interested and what should they realize that they don’t see on the surface? Mr. Kiley: “The key thing with our Bank is our asset quality. There is much talk in this industry about interest rate risk, and we think because we’ve changed the mix of variable rate loans to fixed rate loans to an 80/20 relationship, we feel we have that buttoned down. In my experience, what really hurts banks is asset quality. The team has been here for three years and has not had one delinquent loan (over 60 days). Granted, we have been in some good times, particularly in the real estate market, but to not stub your toe one time with the volumes I’ve talked about, I think speaks well to the quality of the lending we do. The other thing that jumps out is that the price to book value of our stock is 1.4 times; the average in this business is somewhere around 2.3 times. As our earnings continue to grow, and we get caught up with the industry, I think now is a good time to take a look at this bank. Good asset quality and interest rate risk management combined with an earnings pattern that continues to grow from year-to-year, has helped this bank grow from about $550 million in 2001, to $1.2 billion today.” disclaimers |
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