SANTA BARBARA, Calif. - U.S. Bancorp wants to expand its California presence in a big way by gobbling up community banks.

Speaking at the bank presidents convention of the California Bankers Association last weekend, U.S. Bancorp's president and chief operating officer, Philip G. Heasley, said he wants his company to become at least the third-largest bank in the state. It currently ranks eighth there in deposit share, well behind Bank of America Corp., Wells Fargo & Co., and Washington Mutual Inc.

But the $81.5 billion-asset Minneapolis bank company does not acquire regional juggernauts such as $30.7 billion-asset Unionbancal Corp. It prefers family-controlled banks because retention of management, employees, and investors is easier, Mr. Heasley said.

"I'd rather do 55 community bank deals than one great big deal," he said. He later added, "Larger banks often have grown assets by buying other banks with plans just to flip the whole package to the next buyer."

Mr. Heasley is not alone in viewing California's community bank market as ripe for the picking. Executives from Community First Bankshares of Fargo, N.D., and the San Francisco investment group Belvedere Capital Partners also said they are interested in expanding in the Golden State.

Donald R. Mengedoth, president and chief executive officer of $6.5 billion-asset Community First, said it started to target California and other western states a couple of years ago.

He acknowledged that his company could not afford a bank large enough to compete in big cities with the big players already there. But Community First, which has bought 41 banks since its formation in 1987, could hold its own with acquisitions in smaller cities or rural towns, Mr. Mengedoth said.

"The California marketplace has attractive growth elements that will affect all communities in California over the long run," he said. "It's not just the major metro markets."

Mr. Heasley agreed. "California represents one of the two or three best banking markets in the nation," he said. "The economic growth in California and dissatisfaction with recent mergers leave us a lot of opportunities for internal growth … and expansion through acquisitions."

Belvedere Capital Partners raised $160 million in 1997 to purchase California community banks. The group has bought six of them in all and plans to close on a seventh, $215 million-asset Sacramento Commercial Bank, in February.

Belvedere allows community banks to retain their management and operate autonomously while gaining access to more products and services by being affiliated with other banks, said Richard J. Decker Jr., the group's president and a co-founder.

The formula has been successful, Mr. Decker said. This year the group plans to raise $500 million to buy banks.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.