Guaranty had taken a goodwill-impairment charge of $242.2 million in 2007. It had also boosted its provision for loan losses by $20.4 million.

Eggemeyer is active in each of the five bank groups in Castle Creek’s portfolio. He has been praised for being both a banker and bank investor. I asked Davis if Eggemeyer might be spreading himself too thin. “There is a point where even smart guys are spread too thin and begin guessing at choices,” says Davis. When one strong person is active in several companies, “others defer to him, and he then has a problem judging the performance of the individual banks and management.” However, Davis doesn’t know that this is true of Eggemeyer.

Davis does say that banks can grow too fast. “Whether you acquire quickly or grow quickly, you are exposed to a sudden change in the market. They used to say, ‘Small volume, small problems. Big volume, big problems.’ ”

Eggemeyer, however, sees the ailments among small community banks as an opportunity for Castle Creek. “Going back over 18 years, we have stepped in to recapitalize and help restructure banks having difficulty. We haven’t had a lot of banks in that category since the early part of the 1990s,” he says. Now there are more banks needing help, “and we are excited about that. We may buy some more. The current environment is unparalleled in my 40-year banking career.” Prices of banks are much lower, but those lower prices reflect problems.

He says that “market-oriented investors” have been dumping small-bank stocks in the past year, but sophisticated players, such as private equity investors, may see “enormous opportunity.” Castle Creek may well raise more money and go fishing.

But Castle Creek may have to prove its mettle with its crown jewel, PacWest. The company has enough capital “to make it through the present situation,” says Davis, “but there could be a long delay before it brings the $60 a share the market valued it at just a short time ago.”

More from SDReader

Comments

Dannyboy July 25, 2008 @ 9:49 a.m.

Just curious how does one research the financial health of our local banks. Attempted this last week with no success. Do you know of any good web sites for this purpose? Thank you.

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Don Bauder July 25, 2008 @ 4:15 p.m.

Response to post #1: I don't know of any website that puts together the information on the various San Diego-based banks. You can get lots of information online on the big, publicly-held banks with branches in SD, such as Bank of America, from Yahoo. Best, Don Bauder

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Burwell July 26, 2008 @ 11:50 a.m.

There's not much information on the local banks to be had. I am watching one local bank that made numerous loans to condo coverters who were attempting to convert 1960s North Park style apartments into condos. The condo converters put very little down on the purchase and borrowed heavily to finance the conversions. Most of these conversions are stopped dead in their tracks and are now being rented as partments. There's no way the rents on these failed condo conversions can cover the loan payments, and the converters aren't paying the property taxes. This situation has not yet impacted the bank's loan loss provision and I am beginning to wonder.

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Don Bauder July 26, 2008 @ 4:10 p.m.

Response to post #3: It's often a subjective judgment on when to set up reserves for possible loan losses. But if the bank is already being hit by defaults and foreclosures, it should be acting. Best, Don Bauder

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Don Bauder July 27, 2008 @ 6:26 a.m.

Response to post #5: Thanks. I will read those. Best, Don Bauder

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aidualc July 28, 2008 @ 9:38 a.m.

In most any other industry that exists, privately held companies protect their financial information and it is difficult to determine how much money a company is making or what their financial condition looks like.

Not so with respect to financial institutions. Of all the industries that exist, banks are arguably one of the only industries where any banking company in the industry (privately owned or publically traded) can easily be researched to determine the bank's financial condition.

Each quarter, every bank in the nation is required to post its financial condition on the FDIC web site.

Its a simple matter to go to the web site, type in the name of the bank and then drill down to look at any aspect of the bank's financial condition that you have an interest in researching.

Here is the web site

http://www4.fdic.gov/IDASP/main.asp

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Don Bauder July 28, 2008 @ 12:11 p.m.

Response to post #7: But does that quarterly call statement really give you the information you need? That's the question. Best, Don Bauder

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