For Gary W. Wright, figuring out how to run a profitable bank turned out to be the easy part.
Before he could open the doors to Stockmans Bank of Commerce in 1991, he had to get out of the Farm Credit System. And that meant fighting a protracted battle with the system's regulator, the Farm Credit Administration.
"During the time we were in the heat of the battle, you always wondered if it was worth it," said Mr. Wright, Stockmans' 44-year-old chief executive. "I'd been in the Farm Credit System for 18 years and built up a reputation. I was cutting the cord. Today, it was well worth it."
For the bank, a former Farm Credit System production credit association, the bitter three-year battle to leave the system was an inauspicious beginning.
"At any point in time, we could have thrown in the towel and said, 'We've been whipped,'" he said. "I don't accept defeat in about anything, and that would have been defeat after a long battle."
Since then, however, Mr. Wright has made Stockmans one of California's best-performing community banks.
The $60 million-asset bank's 1995 return on assets was 1.65%, and return on equity 16.7%. "In 1995, we were the most profitable bank in Sacramento County," Mr. Wright boasted.
During its struggle to leave Farm Credit, Stockmans lost some business. "If we were trying to attract a new customer, they were saying, 'How do you know if you'll be here tomorrow?'" Mr. Wright said.
It lost business opportunities, too. When a local bank was acquired by a regional holding company in 1988, Mr. Wright was mired in conversion paperwork instead of harvesting customers.
But many farm customers stuck with the bank. "I felt at ease with the transition," said Larry Lawrence, a dairy farmer and customer since 1974 who bought stock in the new bank. "I knew they were good managers."
The lender also had whittled down loans when it was seeking to leave the Farm Credit System; it needed a clean balance sheet to go looking for new funding sources, Mr. Wright said.
So loans were down to about $16 million when the bank opened in March 1991 with capital of nearly $4.3 million.
Stockmans has built up loans to about $39 million. More importantly, however, it has expanded into new lending areas. As a Farm Credit institution, its entire portfolio was agriculture related, and bank regulators required it to diversify.
For all this, Mr. Wright said the changes have been easy.
"I know it's probably going to burst a lot of commercial bankers' bubbles," he said, "but lending is lending. I got this question asked to me by the head honcho at the FDIC: 'How are you going to do it (nonfarm lending)?' And I said, 'If you analyze the credit factors - I don't care what kind of loan it is - you can make a decision."'
Farm loans, the bulk of which are to dairy and beef cattle operations, are down to about a third of the portfolio.
However, Stockmans clearly remains an agricultural-oriented institution. It has a stuffed Texas longhorn steer in its lobby.
Stockmans also has become an approved Farmer Mac lender, offering long- term farm financing in a similar relationship to one it had with another Farm Credit entity.
"Because of the Farm Credit experience, we've been well accepted into the Farmer Mac loan program," said vice president Jack Dalton, who like Mr. Wright joined the institution in 1981.
The bank even has re-established relations with the Western Farm Credit Bank, which helps fund the Farmer Mac lending.
In its new incarnation, "The biggest challenge was to raise deposits," Mr. Wright said.
A marketing campaign helped deposits grow a million dollars a month in the first year. Deposits were about $52 million at yearend 1995.
"Today, we have to watch our liquidity very closely," Mr. Wright said. "In the (Farm Credit) system, you didn't have to manage the liability side - there was always money there."
Becoming a bank has not only meant offerings such as credit cards, ATMs, and checking accounts, it's also meant a host of other strange new things: taxation and the Community Reinvestment Act, to name two.
Stockmans received "satisfactory" ratings after a "needs to improve" in an exam a few months after its charter switch, which Mr. Wright attributes to documentation problems.
Switching to the bank charter also has meant making the institution's board more local to mirror its new core community. Its Farm Credit charter allowed it to cover most of the state, and the former chairman was based 350 miles away in San Luis Obispo. The current chairman, Anthony Machado, is a dairyman near Elk Grove.
Management and observers alike give the bank good marks for its transition. "They're doing quite well," said Jerry Bertsch, deputy superintendent of banks in the California Banking Department's Sacramento office.
And Mr. Wright isn't done yet. This year, the bank will open a second branch and add annuity and mutual fund services to its lineup.
Next year, Stockmans, currently in an Elk Grove strip mall between an Ace Hardware store and a jeweler, is moving to a larger headquarters along a freeway, and a much more certain future than it had a few years ago.
"I think we've done excellent," Mr. Wright said. "We've had good loan demand, we're a well-capitalized bank. We've been successful and our future looks good."