Agriculture may not be a growth industry for thousands of rural banks- but someone forgot to tell the executives at Farmers and Merchants Bank of Central California.

While most of its peers are holding the line or even reducing their reliance on agricultural lending, the Lodi-based bank has more than doubled its loan portfolio since 1993, to $69 million.

"We're a kind of a throwback bank," said Doug Eddy, first vice president of credit administration, who supervises the bank's agriculture portfolio.

Old-fashioned or not, F&M may well hold lessons for other enterprising small banks that want to build their ag lending businesses in the coming years.

In the past four years, the $603 million-asset bank aggressively priced loans to gain market share from local farm credit banks. And in a textbook example of community banking, it was small enough to react quickly to market opportunities and build a niche for itself-in dairy and winery lending.

"I would say our success has been the result of loan officers that really understand the customers they are going after," Mr. Eddy said.

Farm experts say there's no reason why F&M's achievements can't be copied. Randy Allen, president of RWA Financial Services, an agriculture consulting firm in Austin, Tex., said the key for agriculture bankers is to "leave their desks, get up and change the way they're doing things."

He said community bankers need to incorporate education and farmer outreach into their marketing strategies, helping farmers cope with the changes in their industry. In so doing, he argues, they will be in the best position to capitalize on opportunities when they arise.

"If they stand still, the bank across the street or in the next county will eventually eat their lunch," Mr. Allen said.

F&M hasn't let that happen. The bank, situated in a rural community in California's fertile Central Valley, has pushed the agricultural portion of its total loan portfolio to 25.7%, up from 14.4% in 1993, according to Sheshunoff Information Services.

What's the bank's secret?

First, Mr. Eddy said, F&M's reputation for soundness and stability has instilled loyalty that attracts relatively cheap deposits, often in excess of federal insurance. The bank in 1993 had only 40% of its deposits invested in loans, thereby leaving plenty of room to grant loans at competitive prices.

Though most other rural banks have similar liquidity, Mr. Allen said, they simply don't use it to compete on price and build up the loan portfolio, being content to leave deposits in lower-yielding but still profitable securities.

"In order to make a success in agriculture, you have to have the capacity, capability and the will to compete on price," Mr. Eddy said. "With the Farm Credit System around, most farmers know they can get good rates. But they also want someone who will stick with them for the long haul, and we feel we can do that, too."

Second, F&M saw a niche and went after it. To the south of Lodi lie some of the state's best dairy farms. In 1993, the bank decided to compete for these high-quality clients, and discounted accordingly. Most of the dairies that are now F&M clients used to be with the local farm credit bank.

F&M also saw an emerging market among growers of premium wine grapes. In recent years, as demand for wine surged and disease reduced the wine grape stock in Napa Valley to the north, farms in the Lodi area were converting their spreads to vineyards.

F&M saw this trend early and made sure it had loan officers who knew the business. Three years later, the bank has a huge and highly profitable chunk of the local premium wine grape market.

And as the bank's farm portfolio burgeoned, so did its bottom line. The privately owned bank's return on average assets was 1.33% for the first nine months of 1996, up from 1.19% in 1993.

"We saw the opportunity, with our place in the community, to get a lot of that business," Mr. Eddy said. "And we got it."

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