More and more banks are clamoring for market share in the small towns of the West, where populations are exploding amid a continued exodus from expensive coastal cities.
One up-and-comer hoping to carve out its own piece of the rapidly growing markets of southern Oregon and northern California is PremierWest Bancorp in Medford, Ore.
The parent of Premier West Bank has nearly doubled its assets, to $803 million, since it was formed in 2000 by the merger of two Oregon banks. It has bought two more banks since then and is scouting for more deals from Eugene, Ore., to Sacramento as it aims to double its assets again by 2008.
"There's $15 billion in deposits from Eugene to Sacramento, and the region continues to grow," said John Anhorn, PremierWest's president and chief executive.
The company would like to get a share of at least 10% in each of the cities or towns that lie along Interstate 5 in that region. But it is up against stiff competition for loans and deposits from big banks, from regionals such as the $4.9 billion-asset Umpqua Bank of Portland, Ore., and from community banks. The jostling is especially fierce among 35 banks in Sacramento.
Mr. Anhorn and outside experts, however, say PremierWest can succeed because it is still small enough for the top executives to visit personally with customers and make quick decisions, yet large enough to offer a variety of services and decent-sized loans.
Families, businesses, and wealthy retirees are steadily fleeing metropolises along the West Coast to the quieter and more affordable communities in the inland valleys of California and its northern neighbor. According to the U.S. Census Bureau, many cities and towns in this region had population growth of 20% between 1990 and 2000 and are reporting continued growth this decade.
PremierWest has a 10.3% deposit share in its home county of Jackson. That puts it at No. 4 behind Washington Mutual Inc. of Seattle, U.S. Bancorp of Minneapolis, and Umpqua, a unit of Umpqua Holdings Corp.
But it has a ways to go to accomplish its goals in the region's other markets. In Shasta County, Calif., where Redding is the county seat, PremierWest is No. 8 in market share, with 2.36%.
To increase its visibility, the bank is building branches and loan production offices, which later may be converted into branches, Mr. Anhorn said. In December it opened a branch in the Sacramento suburb of Woodland, this month it opened a loan office in nearby Roseville, and by yearend it plans to open four more branches - two apiece in Oregon and California.
James Bradshaw, an analyst at D.A. Davidson in Portland, said PremierWest still has a lot of room to grow. Umpqua would have to make increasingly larger deals to grow at PremierWest's pace, he said. "Umpqua's internal annualized rate of growth is 14%, and these guys are smaller, more nimble, and can easily grow north of 15%," Mr. Bradshaw said.
PremierWest was created in May 2000 when the $169 million-asset Bank of Southern Oregon in Medford bought the $117 million-asset United Bancorp in Roseburg. Mr. Anhorn and longtime colleague Richard Hieb had been hired by the Bank of Southern Oregon's board in 1998 to jump-start its asset growth.
The renamed company wasted little time entering new markets. In April 2001, PremierWest bought the $92 million-asset Timberline Bancshares Inc. in northern California. In January 2004 it bought the $173 million-asset Mid Valley Bank in Red Bluff, Calif.
All the banks that PremierWest bought had some type of problem that had stymied growth. Mid Valley had credit quality issues and the other two had struggled to control overhead; the efficiency ratio at United's Douglas National Bank was 98% at the time it was bought, Mr. Anhorn said.
But by this time he and Mr. Hieb, PremierWest's chief operating officer, were old hands at reviving banks. Nearly 5% of Bank of Southern Oregon's loans were classified as noncurrent when they took over in 1998; two years later that figure had been cut by more than half.
In the late 1980s Mr. Anhorn and Mr. Hieb were hired by Western Bank in Coos Bay, Ore., which had also been grappling with credit quality. By 1997 they had more than tripled the bank's assets, to $950 million (they sold it that year to Washington Mutual).
PremierWest did not set out to buy and turn around distressed banks, but the acquisitions have proven to be good ones, Mr. Bradshaw said.
"They would have liked to buy quality, but they found out that quality was really expensive," he said. "But they've been able to work through these problems, and the financial metrics are coming together now - people are beginning to notice this thing."
Indeed, the stock price hit an all-time high of $13.50 in December, up nearly 30% from the beginning of 2004. Mr. Bradshaw attributed much of the late-year surge to heavy insider trading and blamed its recent decline - it was trading at $11.39 midday Wednesday - on a drop in community banking stocks over all.
The company has also posted impressive net interest margins consistently. Last quarter it was 5.72%, well above the average of 4.26% for banks with assets of $500 million to $1 billion, according to the Federal Deposit Insurance Corp.
Mr. Anhorn said customers are willing to pay for the more personalized service - even from senior officers like himself, who routinely stop in at their place of business. They also appreciate that the bank makes prompt lending decisions because of these visits, "and that really pays off in our margins," he said.
