Oregon's Bank of Salem is taking its low-overhead, high-yield approach to a new market for the first time since it opened six years ago.

The $45 million-asset bank plans to open a Portland branch in November. It has received regulatory approval to do business there as Bank of Portland, said chief executive P.C. "Pete" Vrontakis.

Opening a branch is a big step for Bank of Salem. Its modus operandi has been to run as lean as possible, offering only eight products out of one office that employs eight people. Its ratio of noninterest expenses to total assets is 1.25%, better than at any other U.S. bank of similar size, according to Sheshunoff Information Services.

The strategy has paid off. Last year Bank of Salem had the best combined lending and profitability record of any community bank in the country, according to American Banker research. It has continued to perform well, racking up a return on assets of just over 3% - with no delinquencies.

Mr. Vrontakis said he would have been happy to stick to the status quo, but the lure of Portland, only 47 miles north, proved too strong. The Portland metro area is home to about 1.5 million people, five times more than Salem's population. It is also the location of more than half of the deposits in the state.

"It was a tough decision," he said. "I always wanted a single-unit bank, but ... it didn't make sense not to do it."

Bank of Portland will follow the same formula as Bank of Salem, Mr. Vrontakis said, concentrating on construction loans and deposits raised through above-market rate certificates.

The new unit will offer the same six products that Bank of Salem has been offering since 1990, he said. Besides business loans and certificates, they are: first mortgages, money market funds, and personal and business checking accounts.

Bank of Salem's staff members now average 15 years of banking experience, and Mr. Vrontakis is seeking five similarly seasoned people for the Portland office, he said. Some of the prospects he is considering are former First Interstate Corp. employees cut adrift after the company was acquired by Wells, Fargo & Co.

Mr. Vrontakis says that new lending business will offset costs incurred by the expansion, including a lease on the building as well as employee and equipment costs.

"All we need is a fraction of a small percentage to do well," he said.

Jim Bradshaw, vice president of research for Portland-based Pacific Crest Securities Inc., expressed confidence Bank of Salem would succeed in its new market.

"I think they'll do really well because they go after a small niche - construction lending - and do it very, very efficiently," he said.

The biggest challenge will be competing for deposits, Mr. Bradshaw said. Rates are higher in Portland than in Salem.

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