Community banks are flourishing in the North Bay.
Spandex-clad, they pedal to the incomparable vistas of Mt. Tam. They commune with smiling statues of Charlie Brown. They converse knowledgeably about everything from terroir to Internet service providers to book tours. They fall passionately in love and donate time and money to numerous local charities. They even laugh on the job and know their customers by name. Who might they be? Our community bankers—couldn’t you guess?
Starbucks might have helped drive local java purveyor Deaf Dog Coffee into the ground, but don’t expect Bank of America or Wells Fargo to do anything similar to the North Bay’s thriving community banks. Why? Because they have assets the multibillion-dollar big guns can’t acquire: They know the lay of the land intimately, and they depend on it.
“It’s a much more personal touch,” says Glen C. Terry, president of Vintage Bank, which was established in 1985. “Our activities are local, our investments are local, our people are local. We live or die by how successful we are in these communities, not by how successful we are in Atlanta, Dallas or Chicago.” Vintage Bank now has 10 branches, six in Napa County and four, branded as Solano Bank, in Solano County.
According to Kimberly Kaselionis, community banks are better equipped than their national and international cousins to develop relationships with their clients. Formerly Kimberly Patrini, Kaselionis is newly married and just celebrated her 10th year as CEO of Circle Bank. “Our employee base is more stable than larger banks, which provides the opportunity for those relationships to be sustainable. It makes all the difference,” she says.
Circle Bank opened in 1990 as New West Thrift & Loan and changed its name in 2000 to Novato Community Bank. As the bank expanded to include additional branches, it changed its name to Circle Bank in 2003. The current name “better captures our relationship with our clients. We’re there for them throughout all phases of their lives and their businesses, and we’re a seamless part of the circle that connects those phases,” Kaselionis explains. Circle Bank serves Marin and Sonoma counties and opened its fourth branch in December in Santa Rosa.
Kathy Pinkard is president and CEO of First Community Bank in Santa Rosa, which opened for business in January 2005 and currently has three branches. She thinks banks, in general, have proven to be a great investment, and community banks, in particular, succeed because they offer good to great customer service, which is something “you don’t find at the larger institutions—or at large credit unions, for that matter.” She also points out community banks bring special benefits to their employees and the communities they serve. “Employees benefit in smaller banks because they often participate in the goals and vision of the company and definitely have input into policies, procedures and other company matters,” she says. “The communities serviced by these banks benefit as well because these banks are typically owned by local businesspeople who are dedicated to supporting the communities where they live and work.”
In short, community banks provide the gamut of personal and business banking products larger institutions can provide—everything from business and personal checking, savings and money market accounts and CDs; business cash management and financing; online and telephone banking; courier services; real estate, automobile and other loan products; even safe deposit boxes and piggy-bank clubs for youngsters—and they offer a uniquely personal type of service. This matters to enough customers to make community banking a sustainable business model investors find appealing.
“What we’re unique at is building the relationships with our customers, taking time to get to know their businesses and anticipating their needs. That’s what makes a community bank different and why community banks handle small businesses better than large banks do,” says Russ Colombo, president and CEO of Bank of Marin, which got off the ground in Marin County in 1990. It now has 11 branches, three in Petaluma because many people who work in Marin County live in Sonoma County (including 30 percent of the bank’s employees).
Some community banks have merged with larger institutions or have partnered with established enterprises since their inception, such as Bank of Petaluma, which merged recently with Palo Alto-based Greater Bay Bank, and Napa Community Bank, which was established in 2001 and partners with Capitol Bancorp Ltd. (CBC). Both feel their arrangements give them the best of both worlds. “CBC improves our efficiency with back-shop administrative functions, such as accounting, human resources, legal, risk management and data processing services,” says Dennis Pedisich, president and CEO of Napa Community Bank. “This affiliation helped us reach profitability in a shortened time period. The bank continues to be very profitable. We maintain local management and board to make sure we’re responsive to our market.”
Local control enables community banks to “protect the deposits of local residents and invest in the futures of local businesses,” says Kaselionis. “We’re unique because we seek out solutions to financial challenges in our community.” One solution Circle Bank has brought to market in response to the high cost of North Bay housing is its “fractional TIC [tenants in common] program.” This type of financing enables a group of buyers to acquire a multi-family residential property, with the freedom to buy or sell units separately.
By getting to know their customers’ needs, community banks are also often in a good position to recommend other professional services. “If a client needs a resource or service not available at the bank—say an accountant or a financial advisor or a business evaluator—we can provide references and introductions,” Kaselionis says.
It’s more than size
Banks with less than $1 billion in assets are typically called community banks. But it’s more complex than that. What about Exchange Bank? With total assets in the $1.4 billion range, it’s over the financial ceiling, but in many respects, Exchange Bank, established in 1890, is the quintessential community bank. We obviously need a few more criteria.
Local control, how well an institution knows its community and how much it returns to that community are also paramount. Some banks are local, from ownership to employees to marketplace; they’re peopled by the George Baileys of our day. Others are backed by distant corporations but maintain local control. Some limit their scope to one county, others focus on the whole North Bay and some consider the entire Bay Area (and beyond) their domain.
“Local decision makers and personal relationships are the hallmarks of community banks,” says J. Barrie Graham, Exchange Bank’s CEO. “We have loyal, tenured employees who know our bank won’t be acquired, so they stay with us for many years and enjoy long-term relationships with our customers. Many of our employees have worked at other banks and know how disruptive and unsettling it can be to go through a merger or be downsized during an acquisition.”
Fifty-one percent of Exchange Bank’s stock is owned by the Doyle Trust, which is bound to the wishes of the bank’s founder, Frank Doyle, who wanted Exchange Bank to remain independent in perpetuity. Dividends from the trust provide more than $5 million a year to fund scholarships at Santa Rosa Junior College. “Exchange Bank has funded more than 100,000 scholarships at SRJC since 1948, paying out more than $72 million to educate students,” Graham says. The bank’s long-term goal, he says, is to be the premier community bank as measured by deposits, business lending and customer service levels that are among the highest in the industry.
Colombo says Bank of Marin’s purpose is to serve the communities of which the bank is part. “We don’t want to lose sight of that—ever. Our roots are here, and our future’s here. While we may expand geographically to the north, east or south, our roots are here in Marin and in southern Sonoma County,” he says. “We donate not only money but also our time to charitable organizations throughout the area, and we’re part of the fabric of the community. We believe, if you’re in business in a community, you shouldn’t only serve that community, you should give back to it too. That’s what makes us successful.
“If someone is just looking for convenience and low cost and feels the less often they go to the bank, the better, we take care of them, certainly, but that’s not really the type of customer we’re after,” Colombo reflects. “The one we’re after might have a small business and might need assistance with financing and depository requirements, or might need to talk to somebody who can get to know their business and understand what they do. A typical customer for us is Book Passage in Corte Madera, a very community-based bookstore. We partner with it for Marin Literacy [a project that provides Marin County adults with free instruction in reading, writing and speaking English] and donate money and time to its author events.”
They’ve got game
Whether a local bank is targeting a particular niche or industry or aiming to serve every segment of its community—and whether it views its primary competitors to be other community banks, regional, nationwide or international banks, or all types of financial institutions—community bank leaders agree the competition is stiff and will remain so.
“There’s a proliferation of new banks relative to the growth in the marketplace,” notes Pedisich. “Deposit growth in the North Bay, which historically exceeds 10 percent annually, was only 6 percent this past year.
“More players are vying for these same deposits. Loan demand is outpacing deposit growth. I believe we now have too many banks in this area. Timing and location in opening a new bank, just like any other business, are critical. We were fortunate to open when we did. This wouldn’t be an easy time to open a new bank.”
Tom LeMasters, executive vice president and chief financial officer of Bank of Napa, sees things differently. Bank of Napa opened in August 2006 and so far has just one office. “In the Napa Valley, we’re blessed with a robust and growing economy. When combined with our demographics, it makes for a unique opportunity for good community banks,” he says. “Our shareholders joined us for a number of reasons: one, they weren’t satisfied with their current bank; two, they understood the Napa Valley economy; three, they respected our organizers; and four, they had confidence in our senior management team.”
Duane Dougherty, vice president and branch manager of the Napa office of First Bank (which is almost 100 years old, family-owned and headquartered in far-away Missouri) says he keeps hearing businesses are leaving California, but “we continue to see large dollars coming into the state and many new start-up businesses each year. While the pie may be getting cut thinner each year, banks have done an excellent job diversifying their product lines to stay competitive.” Nevertheless, he thinks community banks, in general, are an “endangered species, in many cases giving way more frequently to the larger institutional banks.”
Flying solo or not
While the thought of being absorbed by a larger financial institution is anathema to many community banks, others see it as desirable or practical. Deborah A. Meekins, president and CEO of Sonoma National Bank (SNB), is on the verge of opening the bank’s 13th branch. She came aboard in 1985, the year the bank was established. SNB has offices in Sonoma, Marin and Contra Costa counties, as well as in Sacramento, San Francisco and Phoenix, Ariz. Meekins says she appreciates how community banking affords her “the ability to be hands-on in all aspects of the bank and not limited by working far away and removed from headquarters.”
She thinks Sonoma County is a very dynamic marketplace. “The business model for start-up banks is to gain market share to achieve size to generate net interest and fee income to achieve profitability, all while controlling costs,” she says. “As long as we have businesspeople willing to take the time and energy to start a bank and willing to spend the money to hire local, recognized banking leaders, the proliferation and success [of community banks] will continue. As seen by recent new banks and the success of community banks, there are lots of people interested in investing.”
Sonoma National’s short-term goals “would be to continue to grow and keep the shareholders pleased in a very competitive marketplace,” Meekins says. “Long-term goals [are to] merge with a larger organization to bring better products, services and technology to customers while growing and being profitable. It’s hard to say what the merger or acquisition climate will be in the future, but we’re in an attractive marketplace to other banks.”
Exchange Bank’s Graham thinks the majority of banks starting today have an exit plan to be sold in the next 10 to 15 years. “As a capitalist, I applaud that plan, but it’s not the plan Frank Doyle, our co-founder, had.”
According to Howard Daulton, president and CEO of Bank of Petaluma, which was begun in September 1987 and is now part of the $7.2 billion Greater Bay Bank family, all new banks have a life cycle that “usually lasts 15 to 20 years before some hard decisions have to be made. It’s generally at this time that, assuming the bank has reached a certain level of success, it must make a major investment in its infrastructure and products. Many opt not to; thus you have the eventual sale.” Greater Bay Bank serves all nine Bay Area counties; Bank of Petaluma has three branches in Sonoma County and one in Marin.
“Somebody once said, ‘Everything’s for sale. It just depends on the price,’” Glen Terry of Vintage Bank notes. “That’s true of most businesses, but I don’t think anybody starts up a community bank with the idea to sell it in two years. We didn’t start out that way with Vintage nor did we with Solano.”
Creativity within structure
Whatever their particular business plans, community banks, like all banks, operate in a highly regulated environment. However, that doesn’t appear to dampen creativity. “It’s easy to be creative when you truly care about delivering quality service,” says First Community Bank’s Pinkard. “Yes, the industry is extremely regulated, but tailoring a product around the client’s needs is easy when the whole team is dedicated to the same end result.”
“The regulatory burden is an issue that needs to be addressed, particularly as it pertains to compliance with Sarbanes Oxley. [Passed by Congress in 2002 in reaction to corporate accounting scandals, including WorldCom and Enron, the act established stringent, new standards for public company management, boards of directors and auditors, in an effort to restore public confidence in corporate accounting and reporting practices.] That’s the environment in which we operate, so we try to effect change as we go,” says Tom LeMasters. “There are only 15 people working for us now. Combined with our board of directors, we’re all forced to wear many hats. We have no choice but to be creative.”
According to Glen Terry, until recently, banks have had good profits and growth due to relatively low interest rates and good economic activity. “Now we’re facing significantly higher interest rates and a potential slow down in the real estate market. That will create some challenges for banks,” he says. “Many, if not most, banks are facing compression of their net interest margin, which is the relationship between what we pay for deposits and what we earn on loans and investments.”
Graham thinks 2007 will be a “more difficult year because of the interest rate environment. We have an inverted yield cure which makes it more challenging to make money, particularly for us, because our balance sheet is comprised of $1.1 billion in loans, many tied to a floating rate index.” Despite the challenges, however, community bankers of all stripes anticipate continued success in the coming year.
Charles Hall, president and CEO of Atlantic Pacific Bank, which opened in Santa Rosa in July 2006, says the extent to which the economy will slow remains unknown. “ It’s during these times that community banks will shine since they’re positioned and structured in a way that lets them understand the challenges of their customers and offer unique solutions to those particular circumstances,” he says. “During times like these, community bankers have successfully acquired lasting relationships with clients who have been pushed out by the broad-brush elimination of products and services among major banks. Now more than ever, clients need the true relationship-style banking community bankers provide.”
Banking on the future
What does it take to maintain success? “Passion, persistence and attention to detail,” says Kimberly Kaselionis. “I think all of us, whether community banks or just individuals, have developed some really bad habits. We’re more impatient, expect immediate gratification and are less willing to put in the hard work it often takes to achieve something worthwhile. But the key to success, whether in banking or in life, is to stick to it. Keep it simple and keep at it. People these days are looking for consistency and continuity. It can only pay off in the end.”
Gone are the 10 a.m. to 3 p.m. bankers of yore. The North Bay’s community bankers work long hours to bring their investors a reasonable return on their investment, of course—but they’re also passionately committed to their customers’ success.
“You need for each employee to have a stake in the community within their daily lives,” says Bank of Petaluma’s Howard Daulton. “It’s not just making a donation to a worthy cause. We all make an effort to understand the person or organization behind the request and get involved. It’s the same approach we use in our banking programs.”
“We’re working harder,” Dennis Pedisich adds. “I call it ‘blocking and tackling.’ It’s asking our customers for additional business and referrals, it’s getting the board of directors to refer business, it’s delivering loan requests in a timely fashion and it’s empowering the employees to make decisions. I’m proud to say we have very few, if any, customer complaints.”
He’s not alone. In the North Bay, it seems, whether you’re intent on being a one-branch operation or spreading your wings throughout the region, if you build it wisely and hire a superb banking staff that’s rooted in the community, they will come.
