Seven years ago Columbia Banking System was a struggling $20 million-asset bank in Longview, Wash., burdened by bad loans and brought to its knees by losses.
Then Arnold Espe came along.
And in just a few short years the jovial, sandy-haired banker turned this basket case of banking into the largest publicly traded independent bank in the state.
Assets have grown, mostly through internal growth, to $590 million at yearend. In the 33 months through last September, as a sluggish state economy held Washington banks' average growth rate to 10.9% a year, Columbia's assets grew three times as fast.
"We don't see that slowing down much," said Mr. Espe, a Washington native. "We're definitely far-and-away out ahead. ... I can't think of another small bank that has grown very rapidly in the whole state."
Mr. Espe and president William Philip have done it by bucking much of the current thinking in community banking, and setting their sights high.
At a time when many of the nation's small banks are touting the benefits of niche banking, Mr. Espe remains a firm believer that Columbia can provide big-bank products and services to its business and professional customers while still offering that classic community bank feel.
Except that it avoids mass marketing, Columbia is trying to be all things to all people.
"Unlike most other community banks in the United States, we do it all," he said. "It's pretty hard not to offer a pretty complete range of products. Our customers really demand those services.
"From the beginning, we recognized that our competition was going to be the major institutions, as opposed to other community banks. That's where our market share has come from."
Besides traditional loan and deposit products, the bank over the years has offered a full financial menu, including some products usually offered only by larger institutions. The menu includes private banking, investment services, credit and debit cards, cash management, and even international banking, through a correspondent relationship with U.S. Bancorp of Portland, Ore. The only product Columbia doesn't offer, Mr. Espe said, is trust services.
Columbia is "pretty exciting," said Joseph Morford, bank analyst at Alex. Brown & Sons in San Francisco. "They've done it by being a classic community bank."
Mr. Espe attributes Columbia's growth to a style of decentralized banking that appeals to local residents. For example, Columbia gives branch managers authority to approve many loans. Although the bank offers an automated telephone banking system, it encourages customers to feel comfortable calling the branches directly.
In fact, Mr. Espe rejects pundits' claim that customers want home and telephone banking, not branches and tellers.
"It's all bunk. It's not true," the affable banker said. "We're a long way from where customers are willing to completely dehumanize and depersonalize the business - and I'm willing to hang my hat on it."
Columbia officials have also stressed a level of customer service that goes beyond the "lip service" that Mr. Espe said most other community banks offer. His bank even picks branch managers who know the community and are active locally.
"That's the only way you can serve the individual well," Mr. Espe said. "This isn't just some philosophical notion we have about how you ought to operate."
The strategy has paid off in market share. In its original market, Cowlitz County, Columbia has 6.46% of the deposits. In Pierce County, home to Tacoma, the company has just over 5%. It has less than 1% of the market in greater Seattle but plans to expand there.
Certainly, Columbia's record has been helped by the improving economy in the greater Seattle area, which is projected to grow at twice the national rate for the next three years.
Formerly dependent on Boeing, the local economy has diversified, benefiting from an influx of high-technology companies and the growth of foreign trade with the Pacific Rim.
Mr. Espe has also demonstrated that Washington isn't the only place his concept of community banking works. In the fall of 1990, about the same time he was getting involved with Columbia, he co-founded Anchorage-based Northrim Bank, which has grown to $226 million in six years while gobbling market share from Alaska's two big banks.
Columbia's success has stemmed from a combination of careful planning and timing.
Columbia Banking System came out of the merger of Columbia National Bank with First Federal Savings, which was also based in Longview, on the Columbia River border with Oregon, and which had $80 million of assets.
In the fall of 1990, Mr. Espe led a group of investors who bought 80% stakes in the two suffering institutions. Over the next year the investors worked through the loan problems, closed or sold branches, and reorganized the two struggling institutions. They eventually eked out a modest profit- and then set their sights higher.
Taking advantage of the thrift's branching powers, Mr. Espe in 1991 moved its headquarters north, to the more visible Seattle suburb of Bellevue. The goal was access to a major market with more opportunity for higher profits and growth. One year later, he took the thrift public.
Then opportunity came knocking.
In January 1993, KeyCorp bought the state's largest independent bank, Tacoma-based Puget Sound Bancorp. Mr. Philip had led the $4 billion-asset target, which had dominated Pierce County and was growing in Seattle.
The sale caused a lot of dissatisfaction among loyal customers-and triggered a corporate and philosophical reorganization at Columbia over the next few months.
After bringing Mr. Philip and other former Puget Sound officials on board, Mr. Espe converted Columbia National to a state-chartered bank, moved its headquarters to Tacoma, and merged it with the thrift. Then he launched a major three-year expansion primarily in Pierce County, with 11 new branches.
