Carl Raggio is the president and CEO of Western Commercial Bank which celebrated its second year in business in March. The Woodland Hills-based business bank which makes just over half of its loans in commercial real estate has had two consecutive quarters of profitability in a very challenging marketplace. Lending has increased to the point where the bank will be opening a loan production office in Oxnard by the fourth quarter. The Business Journal sat down with the bank’s founder to find out how he is handling the challenges. Question: What was the turning point of your career? Answer: My first turnaround bank. I have done five turnarounds. My first one was the old California United Bank. Dave Rainer is now running the new Cal United Dave came while I was there at Cal United and stayed. My first turnaround … was the most tenuous, stressful period I’ve ever had in my life, by far, and it started a career of five turnarounds … I don’t think I would have done this as well had I not had those five banks as background. I diagnosed historically what went wrong and kind of took those elements and said “what do I want to do in my own bank.” One of the things was: I don’t want a problematic board of directors. So I spent a lot of time interviewing board members. Even the regulars said, “You have an unusual group of board members. They have legs for you to grow to one billion or more.” Most community banks don’t have that. Then I didn’t really use somebody to get my stock, I did it myself. It took me longer and I don’t know all 350 shareholders today but I probably know 225 to 250 and I pick up the phone and I call them. And I think that’s why we’ve done so well. I mean, come on, I can’t do this by myself I have great people; I had a good business plan, I have great support from my directors: I couldn’t ask for a better board of directors. And tremendous support from my shareholders. Q: You said last year that your goal was to reach $150 million in assets by December 2008. How are you doing on that? A: Very well. We’re at $122 million right now and I think that we’re probably going to go over that. Q: With the opening of the new loan processing facility, do you see yourself hiring more people? How many employees do you have now? A: We have 16. We will open the new loan processing office with one person, Maribeth Butler, and then eventually hire a few more people. We’re at the stage where we probably do need to get a loan officer. I wouldn’t mind having somebody out there who has ag [agricultural] experience When I was at BCNB back in the mid-90s, about one-third of our portfolio was in ag lending and that was a very good portfolio. Q. How many lenders do you have? A: Well, I don’t have, per se, lenders. I’m a little different from most banks. Most banks have loan officers and that’s how they structure themselves. I have relationship managers and then underwriters. The reason we set it up like this is so we can be faster. We have people who can advocate for the client as they start the loan process, but we have processors and underwriters that look toward that close of escrow date and they understand how to manage the deal in the pipeline to get it closed on time. And to me that’s very critical. Q: How much has your loan processing increased in the past year? A: We’ve grown 50 percent in this last year. We are at $94 million in loans right now We have been growing at about $5 million a month, on average for the last year or year-and-a-half. Q. What is the breakdown of lending between real estate and other types of loans? A: About 57 percent is real estate. When we first applied for the charter for the bank we said we were probably going to have the majority of the loans, around 75 percent, in real estate. What surprised us is that we got so much more small- and medium-size business requests for regular working capital loans and term loans and that type of thing We were happy to see that we got as much as we did in business loans, only because those loans are variable-priced so they move as the market moves and real estate is fixed, so that’s really been very good for us from a margin standpoint. Q. Do you lend on projects out of state? A: We’re conservative about even lending in other counties. We lend mostly in Los Angeles and Ventura counties. About 80 percent of our loans are in those two counties. Part of the way we started the bank was by going out and bringing a lot of shareholders that we thought would be part of the real estate market. We have probably 30 or 40 commercial property brokers that are stockholders. We stay close to them for two things. First, they give us a lot of their deals first off. Because they’re a shareholder, they know how fast we’ll be and how accurate we’ll be. We don’t do every deal, but they know we’ll be very fast at the front end. Secondly, we stay glued to them about the market conditions. We look at vacancies, we look at trends, we understand what the price per foot is. We really stay close to that. If we start to see burps or bubbles in the system we put that back into our calculations when we start analyzing different types of real estate transactions that have high risk. I can’t do that in San Diego. I can’t do that in Orange County. I can’t do that in Northern California. Q. Is that one of the things that has contributed to the fact that you have absolutely zero loan losses? A: There are two reasons why that happens. First, we are conservative so we were very careful about what we underwrite and second, we’re only two years old usually if (loans) start having problems it’s in their third or fourth or fifth year. I don’t want to overemphasize how conservative we are, because we are going to have losses; in fact, we may have a small one this quarter, a very, very small one, but our portfolio has been very strong. Also, I don’t do any residential real estate. That’s just a part of the product menu that I’ve never wanted to go into. Apartments, we’ll do, but I won’t do a tract development. I think that market’s too commoditized. Q. Do you have a minimum and a maximum size loan that you’ll make or business that you’ll deal with? A: We don’t set a standard for a minimum loan because it depends on the client and the relationship, but we can’t go over $2.5 million because that’s our legal lending limit for real estate secured loans and we can’t go over $1.5 million on regular loans. Q. $2.5 mil sounds like a very small real estate loan. A: It is in today’s marketplace. My average deals are between two million and four million So we’ll be the agent on a deal I’ll take two-and-a-half million and I’ll lay off anywhere from half a million to two million in a blind participation so the client sees us as the primary bank relationship. Last year we laid off over $30 million in participation. It is a challenge because in today’s marketplace even a small warehouse is going to sell for anywhere between $1.5 and $2.5 million, so the price per square foot has gone up considerably in the last five years. For that reason I’m going to do a debt offering in the next month or two to not only allow us to grow more but to have a higher legal lending limit. And I think in the next year or two we will look at the prospects of merging or acquiring other banks as another strategy to increase the size of our presence. SNAPSHOT – Carl Raggio Things You Might Not Know Carl has been writing a column for Western Commercial’s newsletter since August. He has more than 2,000 subscribers. He is the Chair of the CSUN College of Business and Economics Advisory Board. Carl is the father of six: The twins are 31, a single son is 30 and the triplets are 19. He is also stepfather to wife Mary’s two children. He is a 10th generation Los Angeles resident. His grandmother’s great-great-great-grandmother first came to the Valley with the De Portola expedition.
