Relative Newcomer Tops SBA Lending List in L.A.

AT first glance, it might seem a bit surprising that U.S. Bank is the largest SBA lender in Los Angeles. After all, the Minneapolis-based institution didn't even have a presence in Southern California until last year.

But that was before corporate parent U.S. Bancorp Inc.'s 1999 acquisition of San Diego-based Bank of Commerce, a small bank that nevertheless was one of the top Small Business Administration loan providers in the country. As a result, U.S. Bank heads the 2000 list of L.A.'s SBA enders, having made $85.8 million in SBA-guaranteed loans to 143 small business for he 12-month period ended Sept. 30.

To top it off, U.S. Bank recently was named the top SBA lender in the country, having made $406.5 million loans to 845 businesses for the same period. That's a big turnaround for a bank that until recently had almost no SBA presence.

"In 1999, as a group, (U.S. Bank) probably did around $17 million in total," said Richard Flores, U.S. Bank senior vice president and SBA Western regional sales manager. "I have people in this office in Los Angeles who did more than that (this year), as individuals."

The key is that virtually the whole SBA division is headquartered in San Diego and run by the staff from what was Bank of Commerce. Local SBA officials say there has been no noticeable difference in the wake of the changeover because all the people they deal with are from Bank of Commerce.

"Basically, I really didn't know (U.S. Bank)," said Rick Kresser, chief of the finance division in the SBA's L.A. office. "But I've been familiar with Bank of Commerce for a long time. They were the leading lender or close to the leading lender here for five years. Even though U.S. Bank acquired Bank of Commerce, they assumed Bank of Commerce knew what they were doing."

California presence

Over the past two years, U.S. Bank has aggressively moved into the California market, in the process becoming the seventh-largest bank in the state with over $6 billion in assets and 140 branches statewide, including 18 in Los Angeles County. Its 1999 acquisition of Newport Beach-based Western Bancorp, the parent of Santa Monica Bank, means U.S. Bank local presence is largely on the Westside.

The decision by Bank of Commerce to merge with U.S. Bancorp has led to an increase in SBA activity it couldn't have achieved alone. Bank of Commerce had around $700 million in assets, which limited its attempts to expand its SBA operations. U.S. Bancorp, with around $86 billion in assets, brings a multi-state operation that it has used to up its number of SBA offices to 37 in 22 states. Bank officials say the result is a bank that will only continue to grow in its small-business lending presence.

"There have been a lot of meetings with the business banking people in U.S. Bank' said Brian Butler, vice president of marketing communications and, another Bank of Commerce holdover. "The results have been a significant increase in (SBA) loans."

Bank of Commerce had concentrated its SBA lending activity in real estate loans, and that path is being largely followed by U.S. Bank. Real estate loans typically involve more collateral than other kinds of SBA loans, which is reassuring to the lender. But having such a concentration also means that other kinds of small-business loans can get short shrift, and it also tends to increase the average SBA loan size, which is about $500,000 in Los Angeles. That's much larger than SBA officials would like.

"We would prefer our lenders to be all purpose lenders, doing all types of loans," the SBA's Kresser said. An average loan of $500,000 "is high," he added. "It's not close to our (national) average."

Efforts orts to diversity

U.S. Bank officials said they are working to expand their SBA activity to include loans that the old Bank of Commerce shied away from. The now-merged bank had few branches and did very little commercial business lending, so most of its loans came on referrals from commercial real estate lenders. Now that there are U.S. Bank branches engaged in business banking, those branches will start referring small-business loan prospects and SBA loans will broaden accordingly, bank officials said.

"In the past, we didn't have that capability," Flores said. "The majority of (SBA loans) are now in real estate, but we are going to see a shift, both in dollars and loan amount. My guess is that next year, the (average) loan size will be much smaller."

This increase in branch activity will also increase markedly when U.S. Bancorp completes yet another merger: its acquisition by Milwaukee-based Firstar Corp., which is expected to be completed by early next year. Although Firstar is buying U.S. Bancorp, it is the latter's name that will survive. The merger will create the country's eighth-largest bank, with assets of about $160 billion, but will have minimal impact in California, as Firstar has no presence here. (Firstar is run by Jerry Grundhofer, younger brother of U.S. Bancorp Chief Executive John Grundhofer.)

With its expanded asset base after the merger, U.S. Bancorp is planning to become even more aggressive in its SBA lending.

"The acquisition should generate more activity because of the synergies between everybody' Flores said. "U.S. Bank wants to be the No. 1 SBA lender. One way to do that is to buy a system like ours in place that works."