For years after its founding in 1977, County Bank of Merced, Calif., hummed along as a tiny community bank, serving farmers and mom-and-pop businesses in and around the small San Joaquin Valley town.
Then in the mid-1990s, County Bank's growth began to take off as people and businesses started fleeing the crowded coastal cities for the less expensive inland valleys.
The region became home to some of the fastest-growing counties in the nation, and County Bank's assets went from $209 million in 1995 to $1.6 billion today.
"This is a hot market, with so many new types of businesses coming in and jobs being created, that we expect to grow our assets 15% every year for the next 10 years," said Thomas T. Hawker, the president and chief executive of County Bank and its parent, Capital Corp. of the West.
County Bank's executives are particularly excited about the new University of California, Merced, which opened in September. The campus is expected to accommodate 25,000 students eventually, and business parks with technology and life sciences firms are likely to spring up near campus to capitalize on the university's research projects.
Additionally, businesses are building call centers and distribution warehouses in the valley, each creating hundreds of new jobs.
County Bank will do some building of its own. It now has 20 branches and plans to open about 30 branches from Sacramento to Fresno over the next decade.
"That kind of saturation makes us very visible, and if you combine the physical presence along with the products and service we've got, we expect to be able to continue the growth rates that we've historically enjoyed," Mr. Hawker said.
County Bank is primarily a commercial lender. In addition to commercial real estate and other loans, it offers cash management, merchant card services, and online banking to business customers.
Most of its retail business is on the deposit side, but it also offers credit cards, consumer loans, and mortgages to individuals; collectively, they make up about 9% of the loan portfolio.
Don Worthington, an analyst at Hoefer & Arnett Inc. in San Francisco, said County Bank benefits from being one of the few community banks headquartered in the area.
"Their main competitors are the big banks, and since many people prefer to do business with a higher-touch community bank, Capital Corp. is in a pretty nice position right now," Mr. Worthington said.
County Bank is No. 1 in deposits in its home county of Merced, with a 38.69% share as of June 30, according to the Federal Deposit Insurance Corp. In the other counties that it serves, bigger rivals such as the $5.1 billion-asset Westamerica Bank in San Raphael, Calif., have much larger market share, but Mr. Hawker said County Bank's ranking should improve after it opens more branches.
The parent company has posted 25%-plus earnings growth in recent quarters, mostly because of the bank's loan and deposit growth. Third-quarter net income rose 37%, to $5.4 million, as loans increased 20%, and deposits, 18%.
Joseph K. Morford, an analyst at Royal Bank of Canada's RBC Capital Markets in San Francisco, said that Capital Corp.'s bottom line has also benefited from a steady increase in the bank's net interest margin. It was 4.75% at the end of the third quarter, versus 4.45% a year earlier.
Though competition for loans and deposits is ratcheting up in the central valleys, banks have yet to resort to the type of "irrational" prices seen in the coastal markets, Mr. Morford said.
"Deposit pricing has been a little more benign in the central valley, so Capital Corp.'s margin expansion has been pretty steady," he said.
Capital Corp. expects to boost its bottom line further in the next five years by generating at least $1 million a year in fee income from County Bank's year-old trust department, Mr. Hawker said.
The department currently has one office in Fresno and $15 million of assets under management. It expects to increase that to $100 million by 2010 after opening three additional offices in Merced, Modesto, and Stockton, mainly by targeting owners of the businesses it serves.
Not only is County Bank the only community bank in the region to offer trust services, it is one of the few banks with trust staff available daily, Mr. Hawker said. (Many of the trust officials at bigger banks are based in San Francisco and come to the region on an as-needed basis.)
"Since we have very nominal competition, we expect to do very well once the business is really up and running," Mr. Hawker said. "We don't get things like that thrown our way every day."
