Genesis Bank in Newport Beach, California, which exited its de novo status in August, has announced its first acquisition, paying an undisclosed sum for the $300 million EH National Bank in nearby Beverly Hills. There's more dealmaking to come, according to founder and CEO Stephen Gordon.
"We're already working on other acquisitions," Gordon said Monday in an interview. "M&A is part of our strategy. It's like a business line."
The $197 million-asset Genesis and EH — both privately held — announced the deal Thursday. It's expected to close in mid-2025.
Gordon has a history of using acquisitions to grow banks. He did it first at Commercial Capital Bank in Irvine, California, then at Opus Bank, also headquartered in Irvine. In December 2023, while it was still a de novo, Genesis announced it had
"It was a great opportunity that we jumped on," he added.
Genesis
Founded in 2005, EH does business as Excel Bank. Primarily a multifamily lender, it has struggled in the wake of the rapid interest rate hikes in 2022 and 2023. Prior to the pandemic, EH routinely reported net interest margins in excess of 4%, but as rates ticked up, its spread narrowed considerably. Through the first nine months of 2024, the bank's reported NIM was 1.81%.
"I think there are a lot of banks that are kind of stuck," Gordon said. "They're stuck with legacy loans, legacy deposits. Having to fight their way through that liquidity crisis from a year-and-a-half ago and having to struggle with the low-rate loans and securities they put on the balance sheet."
According to Gordon, Excel was seeking to sell a minority stake, an event he viewed as unlikely. "I reached out to them and told them that I'd be willing to buy them," Gordon said. "When they didn't get the capital raise done, we moved forward very quickly with due diligence, then negotiating a definitive agreement and then announcing the deal just last week."
"It was a pretty quick, very efficient, very strong deep dive into all the areas you've got to diligence," Gordon said.
The change-in-control component proved crucial. "We get to mark the entire bank to market for both interest rates and credit. You immediately generate strong returns at closing," Gordon said. None of those benefits would flow from a minority investment.
After deleveraging the EH balance sheet, the combined company expects to have assets totaling $400 million, a tangible-equity-to-tangible-assets ratio north of 14% and a loan-to-deposits ratio of approximately 90%.
"We're buying [EH] at an attractive price," Gordon said. "We immediately become highly profitable, with very strong capital ratios and a lot of liquidity. We like all of the accounting aspects and metrics and returns out of this transaction."
EH CEO Chuck Thomas said the acquisition would result in better service for clients and increased opportunities for EH employees as Genesis scales. "Genesis Bank is a dynamic organization with a state-of-the-art technology platform, and shares the same passion as Excel Bank for creating the best possible client service experience,' Thomas said in a press release.
Excel's two branches should raise Genesis' profile in Riverside County and in Beverly Hills' Golden Triangle district, a neighborhood Gordon knows well.
"Back at Opus, one of our locations was on Canon Drive, just north of Wilshire Boulevard in what was known as the Fred Hayman Building. It was a phenomenal L.A. headquarters for us," Gordon said. Excel's headquarters sits on the south side of Wilshire Boulevard, "literally within a stone's throw of the location we used to have."
