When BT Alex. Brown held an investor conference on super community banking in New York this month, it trotted out some heavyweights-Sovereign Bancorp of Pennsylvania, $15 billion; Utah's Zions Bancorp., $9 billion; and New York's Albank Financial Corp., $4.5 billion.
But also invited to share the stage that day was Greater Bay Bancorp, which has less than $1 billion of assets.
Why Greater Bay?
"We think their story comes across real well in terms of the opportunities they have in the (San Jose/San Francisco) market," said Joseph K. Morford, a banking analyst at BT Alex. Brown in San Francisco.
The investors in the audience obviously agreed.
On the morning of Nov. 5, when Greater Bay president and chief executive officer David L. Kalkbrenner made his pitch, the company was trading around $46. The next day it shot up 11%, to $51.50.
Greater Bay, has become a darling of bank analysts. Created last November when Mid-Peninsula Bancorp, Palo Alto, bought Cupertino National Bancorp in a merger of equals, Greater Bay has flourished in Northern California's booming economy and emerged as one of the Golden State's most profitable banking companies.
Earnings have soared. They totaled $2.41 million in the third quarter, up 77% from a year earlier. Net income for the nine months was up 56%, to $610 million.
The result: Greater Bay's stock price has climbed nearly 73% since June and about 151% since last November's merger.
"Obviously they are benefiting from the strength of the local economy," said Mr. Morford. "But they are gaining market share by being much more visible."
Indeed, Greater Bay has been particularly aggressive in courting small businesses.
According to Mr. Kalkbrenner, 90% of the bank's customers are businesses with assets of $5 million to $100 million-a big group in entrepreneurial Silicon Valley. He said Greater Bay has been able to capture a large share of that market-loan growth is up 43% over a year ago-because it is now the largest independent bank in a market dominated by Bank of America and Wells Fargo.
Not that anyone expects Greater Bay to sustain its torrid loan growth. Though Mr. Morford said he expects Greater Bay's two banks will continue to prosper, he also said a more realistic percentage growth rate on its loan portfolio would be "in the teens."
Growth should also come with acquisitions, such as Greater Bay's pending purchase of Peninsula Bank of Commerce, Milbrae, Calif., Mr. Morford said.
Peninsula, with $122 million of assets, agreed in September to merge with Greater Bay, which has $778 million of assets. And like Mid-Peninsula and Cupertino, Peninsula Bank will retain its name and its staff, only it will now have the backing of a larger holding company.
One advantage to merging with Greater Bay is higher lending limits, said Mark F. Doiron, Peninsula's president and chief executive officer. At the moment, Peninsula's secured loan lending limit is about $4.3 million. Under the Greater Bay umbrella, Peninsula's lending limit will be nearly five times that.
"This is a new chapter in the life of Peninsula Bank of Commerce," Mr. Doiron said.
Of course, banks retaining their autonomy while tapping the resources of affiliated institutions is what super community banking is all about.
When Mid-Peninsula, which had assets of $268 million, decided last year to branch into trust services and Small Business Administration lending, it had two choices: Start from scratch-which often means losing money at the outset-or join forces with an institution already offering those services.
Mr. Kalkbrenner and Mid-Peninsula's board of directors chose the latter. That led them to Cupertino National Bank, which then had $353 million of assets and had recently expanded its trust department by hiring the trust employees of University Bank and Trust in Palo Alto, which itself was sold to Comerica Inc., Detroit.
"We had both reached the point that if we stood alone, we would have to go out and hire all new people," Mr. Kalkbrenner said.
Cupertino and Mid-Peninsula still operate independently, but back-office functions such as accounting, data processing, and human resources have been centralized, to save money.
The deal has apparently worked out well for both sides. Mid-Peninsula, founded in 1987, got access to Cupertino's small-business lending expertise and its growing trust department. Cupertino, founded in 1985, got access to the Northern Peninsula, a market it had coveted for years that includes San Mateo and South San Francisco.
"You never quite know how something like this is going to turn out, but if we had sat down in advance and structured something resembling a wish list, it could not have come out any better," said C. Donald Allen, Cupertino's chairman and chief executive officer.
The numbers seem to back him up. In the year since the merger deposits have grown 26%, to $698 million, and assets 25%, to $778 million. Trust assets under management have swelled from around $350 million to more than $550 million, and the company's efficiency ratio has improved from 65.2% to 55.6%.
So what does Greater Bay Bancorp do for an encore? Acquire similar banks in its market as well as the East Bay area east of San Francisco, where Greater Bay has no presence, Mr. Kalkbrenner said.
A longtime Crocker National Bank executive who lost his job in 1986 when Wells Fargo bought the company, Mr. Kalkbrenner knows how devastating mergers can be on employees and customers. So when he co-founded Mid- Peninsula Bank in 1987, he vowed that if it ever acquired a competitor, it would do so without firing most of the staff.
In super community banking "all the positive things that make a bank successful remain in place," he said. "We think it's a formula that can continue to be successful."