IT WASN'T AS DRAMATIC as the periodic earthquakes that rattle California, but the deep recession that hit in the early 1990s has left few of the state's banks unscathed.

However, California Baneshares, a supercommunity bank operating in the East Bay suburbs of San Francisco, not only avoided the worst of the economic downturn but managed to prosper as well.

Joseph P. Colmety, chief executive of the $1.2 billion-asset bank, credits its conservative lending standards. And he said the San Ramon based bank was blessed to be doing business in Northern Calif a, which fared better during the recession than the southern part of the state. The bankwas created in 1991 by amerger of equals between two $400 million-asset institutions -- Northern California Community Bancorp. and Mission-Valley Bancorp -- that operated in the East Bay suburbs. Since then, the new bank has made five acquisitions, including two that are pending.

Today, the bank can boast of top market share in three communities- Alameda, Pleasanton, and Livemore -- beating out BankAmerica Corp. and Wells Fargo & Co. The bank ranks third in market share behind the two giants in several other towns.

"We're happy that in this time of acquisitions and growth we have been able to increase our earning per share each quarter since we've been put together," said Mr. Colmery. California Bancshares has aiso managed to avoid the potential pitfalls of a merger of equals -- tension over the location of headquarters, which executive gets the top job, and soon. Mr. Colmery, 40, who had headed Mission Valley, took the chief executive slot. Donald J. Gehb, 63, who had been chairman and CEO of Northern California Community, was made chairman. Mr. Gehb, who currently works about two days a week, is planning to retire as chairman at the end of next year.

"It played out quite well. As far as changing titles and so on, it wasn't an issue," said Mr. Gehb, who has been a Northern California banker since the 1950s. "That' s probably the hardest thing we face every time we talk to people about acquisitijons, the social issues. In our case, it has been most unusual to work so closely together and have it work so well."

A key strategy the executives agreed on was maintaining the two institutions' community banking tradition. California Bancshares operates nine- soon to be 10banks that retain the old hometown names. "At the time, we both had the same strategy of acquiring independent banks and operating them as independent units under the holding company structure," said Mr. Colmery. While that is a keystone of super community banking, it is a somewhat unusual strategy for a bank that operates in such a concentrated market. All of California Bancshares' banks and branches are located within 100 miles of each other. Another difference: While each of the nine banks has a president, there is only one board of directors.

It' s a formula that works for California Bancshares. The second quarter return on assets was 1.04%, up from 0.95% a year earlier. For all of 1993, the ratio was 0.93%. That may not seem high compared to lofty numbers reported by many community banks around the country, but they are enough to place California Bancshares among the top performing banks of its size in the state. The ratio of nonperforming loans, which stood at 0.78% at midyear, peaked at 1.09% in 1993.

"They have never shown a willingness to sacrifice quality for the sake of growth," said Joe Morford, an analyst with Keefe, Bmyette & Woods Inc. in New York.

Mr. Morford also said the bank has an excellent franchise in a growing area, and has been effectively leveraging its capital base with acquisitions. He added that California Bancshares has a very strong management team led by Mr. Colmery and Mr. Gehb. "They have managed to have a very successful working relationship," said Mr. Morford.

California Bancshares has also managed to operate reasonably efficiently, given the high costs of the community bank structure. The efficiency ratio, or noninterest expense per dollar of revenue, stood at 66.04% at midyear.

While the bank has consolidated nearly all back-office tasks to gain efficiencies, Mr. Colmery, who spent the early part of his career with Andersen Consulting, concedes the personal service that is hallmark of community banking has its costs.

"You'll never see the efficiency ratio down in the high 50s, or even at 60%," he said. "Because at that point, we lose what we think sets us apart -- that is providing a higher level of customer service" than a large bank.

The executives said other factors affect the ratio as well. Mr. Colmery noted that the bank is slightly asset sensitive. "As interest rates have risen, oar net interest margin has gone up," he said. "So our ratio will not go down [in the next quarter] because of any expense reduction but just because the denominator is getting larger." Analysts agree. "They are positioned well in the rising rate environments," said Mr. Morford.

Mr. Gehb noted that the efficiency ratio also reflects expenses associated with mergers.

Mr. Colmery added that several small branches haven't grown very quickly. as a result of the recession. "But we think they are in the path of progress in future growth areas. So we're willing to make a long-term investment in them," said Mr. Colmery. "If we were only worried about our efficiency ratio, they would probably close."

The executives are also confident about the economic future of the area. The bulk of the bank' s branches are in Alameda and Contra Costa counties, which have grown considerably in the last 20 years as major San Francisco companies moved their support functions out of the city. The area is the home of Chevron's worldwide communications network and operations centers of other companies such as AT&T and Metropolitan Life.

Mr. Colmery said California Bancshares' niche is affluent individuals, and businesses too small to appear on the radar of giants like BankAmerica.

"The large banks want to be the lowcost producer. Well, that appeals to about 60% of the population," said Mr. Colmery. "We want to provide a higher level of personal service and we think lhat appeals to the other 40%." He said the super community bank strategy gives California Bancshares that edge. "You've got the entrepreneurial spirit in each of these community banks that I don't think would exist if they were branches of a much larger institution," said Mr. Colmery. "And we think it's easier to make business development calls with 'president' on your business card?"

One way executives say the bank beats its bigger rivals is in making faster lending decisions. "We have our loan approval system centralized," said Mr. Gehb. "Instead of having to deal with a separate board and separate loan approvals at the bank level, [loans] can be sent to the holding company level and get turned around in a day."

Executives say that approach is not only fast, but results in better decisions. "Our belief is you can never have too many people looking at a credit request," said Mr. Colmery. 'That' s the one part of the operation that if a torpedo hits that part of ship, it's going to take down the whole ship. We have the holding company senior credit officer look at alot ofthe credits, particularly the larger ones." Mr. Gehb added, "Our nonperforming loans are averaging about a third of what our peers' were in Califomia." The bank has also sought efficiencies in other areas. "In large pan, we have consolidated almost all of back-room operations," said Mr. Colmery. "The products are primarily the same, the pricing is similar." Data processing for the institution's nine banks is handled centrally at a 27,000 square-foot data center in Alameda. The bank uses core processing software from Lincoln, Neb.-based Information Technologies Inc. running on Unisys Corp. hardware.

Mr. Gehb said the bank has considered outsourcing its data processing but has rejected the option for now. "Everything is operating so smoothly now, we don't see the need to" outsource, he said. "We're able to control our own destiny with the system we have."

California Bancshares has also recently installed a 24-hour telephone voice-response system to allow customers to make inquiries and transfer funds. While the service is handled centrally at the data center, each of the nine banks is given a separate toll-free number, to cream the perception that customers are dealing with their local bank. "That's the message that we want to always present to our customers," said Mr. Gehb.

Until now, executives said, a primary goal has been to consolidate acquisitions and put the different banks on common systems. They concede that some technology enhancements are needed. Mr. Gehb noted, for example, that a number of the banks do not have platform automation systems.

"As we do more and more acquisilions, it' s becoming more of a shortterm goal than a long-term goal," said Mr. Colmery. "We want to ensure that the equipment we put in our acquired banks fits our longterm strategy."

That's a major concern to California Baneshares, which has made three acqnisifions this year alone. In March, the bank completed its acquisition of $168 million-asset Modesto Banking Co. The institution has also agreed to buy the Bank of Livermore, which has $77 million of assets, and the $263 million-asset Old Stone Bank of California in Hayward. When the deals are completed, California Baneshares' assets will grow to $1.45 billion.

Meanwhile, Mr. Colmery and Mr. Gehb are keeping a lookout for additional acquisitions.

"When you acquire a bank you are really looking at three things: credit, the market area and the market share within that area, and management," he said. "You would clearly like to get all three. You hit a home run if you do."

The bankers are looking at areas contiguous to their existing markets. "We would like it to be within a reasonable distance of where we are," said Mr. Colmery.

That would include the San Jose area to the south, Sacramento to the north, and deeper into the Central Valley, an agricultural region where the bank already has a presence. Mr. Colmery also said California Bancshares is committed to operating its banks independently, despite the higher costs. "We think it is made up on the from end because you've got local community banks that are very responsive to that community," said Mr. Colmery.

It' s a way to provide consistent personal service. One bank president, he noted, has recently celebrated his 40th anniversary with the institution. Analysts also see merit in the strategy. "The trade-off they benefit from is improved marketing opportunities and strong market presences in the communities," said Mr. Mofford.

Then there is the possibility that California Bancshares itself may be an acquisition target. "That's often brought up," said Mr. Colmerywhen asked.

"We continue to run a good independent bank, provide great returns to our shareholders," he said. "If that' s attractive to another institution, then so be it. But that' s not our goal in life, to be sold."

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