SAN DIEGO -- Craig Collette, president of one of California's best performing community banks, makes no bones about how difficult the state's banking environment has been.
The last two years were "the toughest time of my career," said the president of Landmark Bank in La Habra, which specializes in small-business lending. "But I can say that we are starting to breathe a little bit."
Indeed, the breaths may be shallow, but it is about the best community banks in California can do. As about 50 bank presidents from around the state gathered here under the palms of Coronado for the California Independent Bankers annual retreat, their numbers were a bit smaller, their hair was a bit grayer, and their ideas\about banking in the Golden State had changed forever.
The group, the western arm of the Independent Bankers Association of America, lost 10 of its 200 members to failure in the last year. In the last 18 months, 28 banks have failed in the state, mostly in Southern California.
"Those who are left are survivors," said A. Wade Francis, president of the Long Beach bank consulting firm Unicon Financial Services Inc.
Yet, for all the problems, there was little talk of overzealous examiners or bum credits. Interstate branching even seemed a distant challenge, superseded by the need to find new niches and new income streams.
In a round table interview with four bankers from the state, what emerged was a view that California still has much to offer community banks that made it through the recent troubles. But the banks must be innovative and look beyond the traditional lines of business.
For Mr. Collette's Landmark Bank, the bright spot has been merchant credit card processing. The bank services about 450 retail, light manufacturing and professional establishments in the La Habra area. The business generates a steady balance of $15 million in demand deposits and a steady stream of fee income.
Richard Korsgaard, president of Mariner's Bank in San Clemente, an Orange County burg that has seen its share of bank failures in the last year, said he believes in the next three years at least one new superregional bank will enter the California market. Such an occurence, he argued, will increase competition dramatically among regionals and community banks alike.
"That means that we have to renew our focus on what we do best," he said. "It's not so much a matter of finding new niches as it is finding new ways to serve the people who use banks a lot."
The people "who use banks a lot" are high net-worth individuals, small businesses and the burgeoning senior population. "We need to do more to please these people," Mr. Korsgaard said.
For Mariner's Bank, that means providing a battery of products from special deals on large deposits to custom home construction financing. For instance, the Irvine Co., Orange County's mammoth residential and commercial developer, offers 10% discounts to home buyers that can arrange custom home construction financing within 10 business days.
Mariner's Bank can regularly approve such loans in less than two weeks; while larger banks almost never can.
Mr. Korsgaard said more community banks should consider starting seniors clubs. Mariner's started its seniors club in January and it already has generated $3.5 million in deposits, half of if from new customers.
"It's beneficial for us, but they don't get into it for the banking," Korsgaard said. "They get into it for the trips, the interaction and the social aspect of it. We've even had a couple of budding romances."
Thomas Hawker, president of County Bank of Merced, said more community banks should cater to California's multitude of ethnic groups.
"More community banks have to look at different programs and products to address this change," he said.
County Bank recently added a Spanish language option on its telebanking service, a seemingly small detail, but one that is generating both business and good press in Merced, he said.
Mr. Hawker said County Bank also recently bought an asset management subsidiary that is offering uninsured investment products that manages about $10 million. He said the time is gone when a bank can ignore the lure of mutual funds for its deposit customers, and that community banks should find ways to offer this option to their customers.
James Holly, president of the Bank of the Sierra in Porterville, has staked his future on a diverse menu of products that his small bank does very well: credit cards, mortgage banking, agriculture lending and small-business lending.
"We have an ag department, but we're not a farm bank," he said. "We have a credit card center, but we're not a credit card bank. We have an SBA department, but we're not an SBA bank."
All four bankers agreed on a need for small banks to deal with the huge overhead their large competitors don't have.
"We need to recognize that we're entering related but new areas all the time," Mr. Hawker said. "The onus is on us to find higher margin businesses that we can do better than the competition."
Mr. Collette said he thinks technology will allow small banks to be more efficient -- but only if they embrace it completely.
"I'm always impressed by our technology," he said. "But I'm convinced that if we don't continue this process 0f technological change we will be left behind.'
He offers his own bank's successful efforts at adopting new technologies as a possible model. In 1992, his executives put together a "wish list" of things they wanted to do more efficiently. Then, Landmark went out and found the technology to accomplish those specific goals. The result was a mixture of outsourcing and in-house operations, and a sharply more efficient loan approval process.
"My taste of technology has lead me to conclude that we have to do better," Mr. Collette said.