Bank says being careful key to its success

As some banks have been hit hard, one bank based out of Newport Beach has been doing well. In its first six months, California Republic Bank has acquired more than $125 million in assets. The Daily Pilot met with two of the men who have helped this bank thrive. Jon Wilcox, a Tustin resident, is the president and chief operating officer of the bank, and John DeCero, an Irvine resident, is the vice chairman of the board.

With all the turmoil in the banking industry, what makes you guys different from anybody else?

Wilcox: First of all, when we started we didn’t have any bad loans. We don’t have any sub-prime loans; we don’t have any home loans. ... We started with a clean portfolio. On top of that reason, with as much capital as we have, with as much liquidity we have, we are a very safe-and-sound bank. So with a lot of turmoil in the markets, people feel comfortable and safe here.

DeCero: We also don’t have any risky investments; we don’t have any CDOs (collateralized debt obligations). Not only did we start with a clean slate of loans, but we got a clean slate of investments. The majority of our liquidity is invested in federal funds. We are pretty basic. There are no fancy investments. We take in depositors’ money and we make safe loans to individuals who have a lot of wherewithal.

If playing it, as you say, “with nothing fancy” can be successful, why is it that you haven’t been tempted as others have to make those riskier loans and those kind of exotic types of ventures?

Wilcox: The biggest reason is it’s our own money. These are people who have invested in the bank: They are 300 friends and families. If you look at what management and the board put in, between $10 and $12 million of our own money, we are more careful because it is our own money. The only way to screw up a bank is doing bad loans. And we don’t want to screw it up because this is for a long-term play because it’s our cash.

In a previous statement by your chief executive, he said the bank is taking advantage of the opportunities presented right now. What are those? Why isn’t everyone seizing on those same opportunities for success?

Wilcox: What happens is if you have a lot of bad real estate loans, you stop doing real estate loans — period. That doesn’t mean there are not still some very good real estate loans to do with rich people — good, strong borrowers. What happens is sometimes people overreact in a market, so we can cherry pick that a little bit. Cherry pick is a bad word, but we can be opportunistic.

In your mind, what kind of mentality does it take to not be overly aggressive, to not get yourself in trouble? What do you have to teach yourself to not make those mistakes?

Wilcox: One thing is you have to live through some previous cycles. It’s experience. Live through the early 1990s and seeing what happens during those markets. You get experience and wisdom through that and it gets back to putting up our own money.

Decero: Exactly. And I think it is, also, it is keeping your powder dry. We understand that if you are safe, and you are sound, and you are liquid, there is always going to be terrific opportunities that will present themselves to us.

Wilcox: This business is not a high-technology business. This is block and tackling. You make money through compounding interests over a long period of time. It is very simple.

What do you think was the mentality of these other banks when they got themselves in trouble over the last few years? What was the mentality when they went out there and made some of these bad loans? How did they get themselves into this jam?

DeCero: We were bankers in what appear now to be crazy times and it is a drive, you have one successful year, you want to beat that year. ... If you are not disciplined and you don’t have as much skin in the game as we do, you may be tempted to do some things, push the envelope a little bit. At the end of the day it is a competitive environment.

Wilcox: They are doing it because they believed they can make a lot of money. That is the ultimate driver.

Decero: And they believed there was very little risk.With the failure of some major banks, such as Indymac, do you believe the government has played an important role in providing a safety net for banks and some security to consumers, or has it overstepped its bounds and has given banks room to make the same mistakes?

DeCero: I think we are in a free-enterprise system, but I think there are, obviously, insured deposits and to that extent I think the regulators have to protect the depositors. I am not sure they have to protect shareholders.

Wilcox: The option market and stock market, you can make a lot of money or you can lose your investment.

The regulators are there to offer some level of protection, but if you make a bad mistake sometimes you have to pay for it.

When will there be a rebound?

DeCero: I think we are in the third inning of the baseball game.

Speaking of baseball, you guys have a pick for the World Series?

Wilcox: Angels.

DeCero: Chicago White Sox.

DANIEL TEDFORD may be reached at (714) 966-4632 or at daniel.tedford@latimes.com.