ECONOMY
As near as they can figure , Julie Morehead and Andrew Ryback say the grand opening of Bank of Feather River ’ s new building in downtown Yuba City was the moment they started talking seriously about joining their community banks . Ryback is president and CEO of Quincy-based Plumas Bank , and Plumas was making upgrades to some of its own branches , so he was looking for ideas . Morehead was president and CEO at the Bank of Feather River . On that early May day in 2019 , Ryback stopped by to take a look .
The companies already shared a heritage : In 1821 , Spanish explorer Luis Antonio Argüelo named the big river in the area for the many birds he saw on the water : El Rio de las Plumas , later Feather River . A tributary that feeds that river starts near Quincy , and about 120 miles downstream the river flows through Yuba City , passing not far from Morehead ’ s building .
When the pandemic hit , they put their merger talks on hold to focus on getting federal loans out the door to struggling businesses . But this March , they formalized the plans , and Feather River formally became part of Plumas on July 1 . Morehead stepped down as CEO to join the Plumas board , while the rest of the staff kept their jobs .
Also in March came news of a different kind of merger : San Francisco fintech firm SoFi announced that it was buying Sacramento-based Golden Pacific Bank and its three branches . SoFi offers residential and student loans , which will be brand-new products for Golden Pacific ’ s customers , says Golden Pacific President and CEO Virginia Varela , who will continue to lead her bank under the deal .
Spring is for marriages , and at least three other area banks announced new partnerships as the weather turned warm . Northern California National Bank in Chico reported in March it was being bought by a group of investors . In April , Rancho Cordova-based American River Bank signed a merger agreement with Bank of Marin and finalized the deal in August . In June , Merchants Bank of Commerce , whose holding company is located in Sacramento , said it was being acquired by the larger Columbia State Bank in Washington .
All that may sound like a sudden merger mania , but it ’ s part of a 35-year trend . The number of banks has fallen
“ This is a good market to grow in . Larger banks want to be in our market … and they should .”
JAMES BECKWITH President and CEO , Five Star Bank
from more than 18,000 in 1985 to fewer than 5,200 in 2019 . Attrition has been most severe among the smallest banks , those with less than $ 10 billion in assets : Their share of total assets shrank from 55 percent in 1995 to about 16 percent in 2018 . That worries some bankers and banking experts : As community banks continue to be swallowed by bigger fish , some of them say it could put small-business lending at risk .
Growth through credit cards ?
The shakeout could have big implications for the country ’ s small businesses . Community banks are defined by the U . S . Small Business Administration as locally owned and operated and having less than $ 10 billion in assets . That group may hold only 16 percent of total assets — but they made 42 percent of the total value of small business loans in 2019 , according to the SBA .
Edward Carpenter is chairman and CEO of Newport Beach-based Carpenter & Company , which has advised on hundreds of bank startups since 1997 . He forecasts that in the next five years bank numbers will fall further to about 4,000 — another 20 percent drop — and he worries too few community banks will be left to meet the demand for small-business capital . Small loans “ aren ’ t economical for the large banks — the profit margins aren ’ t there ,” says Carpenter . “ But they are for smaller banks that don ’ t have these huge infrastructures , these huge overheads .”
He ’ s seeing the disappearance of smaller banks leading more entrepreneurs to finance their growth through credit cards — at 14- to 18-percent interest — instead of through bank loans at the prime rate of about 3 percent plus 2 percent ( as of July ). Indeed , SBA ’ s numbers already show an 11 percent drop in the number of small-business loans made nationally from 2017 to 2019 .
Community banks also give customers access to bank decisionmakers in a way larger banks can ’ t , says Stephen Fleming , president and CEO of River City Bank ( and a member of Comstock ’ s Editorial Advisory Board ). “ If you ’ re a business in Sacramento , how important are you going to be to one of the megabanks versus a local bank that ’ s going to give you more attention ?” he asks . “ Being important in your relationship matters .”
Malcolm Hotchkiss , Golden Pacific executive vice president and chief operating officer , also has concerns , though not about Golden Pacific ’ s ability to serve its small-business customers post-acquisition . He worries about fewer community
48 comstocksmag . com | September 2021