Lincoln Bancorp, which didn't even exist six years ago, is now the second-largest banking company based in the San Fernando Valley. But for John J. Keating, Lincoln's president and chief executive, that's not nearly good enough.
Lincoln, the parent of Lincoln National Bank, provides mostly corporate banking services such as equipment and real estate loans, lines of credit and checking accounts for a firm's daily cash needs.
The business niche has been good to Encino-based Lincoln. Its assets have soared to $300 million from $125 million in 1984 and $42 million in 1982, Lincoln's first year in business.
Yet Keating wants to double his bank's assets again in three years, to "between $500 million and $1 billion by 1991," he said.
Keating, 43, is anxious to meet that deadline because in 1991, the big New York banks will be free to open branches in California. Keating believes that once the out-of-towners arrive, the big banks will slash prices for loans and other services to grab a share of the market.
That will be good for the banks' customers, of course, but will hurt the banks' profit margins. Lincoln--which operates only two offices, in Encino and Beverly Hills--figures the answer is to spread any price cuts among more customers. So Lincoln wants to get bigger quickly.
Lincoln might buy one or more banks to accomplish that goal. "We're looking and talking," he said, although Keating would not identify any potential targets by name.
There's another reason why Lincoln Bancorp wants to get bigger: Lincoln itself would be more appealing to a major out-of-state bank that is anxious to gain a slice of the California market via an acquisition, Keating said.
"If some New York bank comes in and offers a price you can't refuse, we'll sell," said Keating. "But that price has got to be good."
Keating, who invested $100,000 to help start the bank, owns about 5% of the bank, worth about $720,000. Although he would profit handsomely if the bank were sold, most chief executives avoid any mention of a possible sale of their company.
"I don't care. I'm very open on that," said Keating, a no-nonsense New York City native. "That's the plan. It's either-or. I'm not saying I will" sell the bank. "But I'll never say I won't."
Keating is just as blunt explaining why Lincoln has grown so fast so quickly.
"We have good people, but it's more a function of the incompetency of the larger banks" with which Lincoln competes, he said. "They're doing such a miserable job of servicing that segment of the market."
"That segment" is made up of small- and medium-sized businesses with less than $30 million in annual sales, companies that seldom need to borrow more than $3 million at one time. It is a niche that bankers call the middle market, a lucrative one because loans to smaller businesses tend to have higher profit margins than those made to giant corporations that have greater borrowing power.
Lincoln opened in April, 1982, in Sherman Oaks. The bank, which began with $5 million in capital, was the brainchild of Steven C. Good, an accountant who is Lincoln's chairman, and Jeffrey Katzer, a Los Angeles mortgage broker no longer associated with the bank.
Keating, who had held posts at Bankers Trust in New York and Union Bank in Los Angeles, was hired as president. Lincoln moved its headquarters to Encino in 1984 and opened the Beverly Hills branch a year later.
From the start, Lincoln's executives believed that many smaller firms were dissatisfied with the service of major banks, particularly in the banks' branch offices, where turnover among personnel is high.
Lincoln "is anxious to help you. That's not the case with all the larger banks," said David Marker, a co-owner of Show Industries, a Los Angeles company that owns Music Plus, a chain of 51 music/video stores. "They take the time to learn about your business."
Lincoln "delivers a very intensive, hands-on service to these corporate clients," said Gerry Findlay, publisher of Findlay Reports, a Brea-based banking industry newsletter. "You can't get that out of a branch manager."
Even some of Lincoln's competitors have come to that realization. Bank of America recently set up 25 regional centers in California, each staffed with executives who know their local area and who have the authority to provide business clients with the aggressive service the branches had lacked.
The restructuring "is in direct response to the success of banks like Lincoln," said Scott Kisting, Bank of America's senior vice president for commercial banking in Southern California.
Lincoln's success has also come without the benefit of promotion. Lincoln does not advertise and relies solely on referrals from clients and business associates. "If you do something good and you do it long enough, word gets around," Keating said.
The resultant surge in Lincoln's assets has propelled the bank to second place among the Valley's biggest banks, behind Independence Bank of Encino, which had $388 million in assets as of Sept. 30.