Santa Rosa and the North Bay are not the first areas many people think of when they think of Tri Counties Bank, but President and CEO Rick Smith wants to change all that.
Opening its lone Sonoma County and North Bay Branch after a merger with North Valley Bank in 2014, Tri Counties has looked for ways to expand its loan business in the area, particularly in the agricultural sector.
With a small number of banks and financial institutions holding much of the market share in Napa, Sonoma and Marin counties, Smith acknowledged it can be an uphill battle that requires a direct approach.
“The hardest thing to break down is you’re a new bank, there’s a lot of competition and it’s just getting the opportunity,” Smith said, noting that in his estimation, less than 10 banks make up over 70% of all deposits in Sonoma County.
Smith said his bank has approximately $6.5 billion in assets and over $4 billion in loans with about a 75% ratio. He added looking to agriculture in an area like the North Bay could be a way to expand the bank’s loan book.
Farm loans make up less than 1% of the bank’s portfolio, but loans to the agricultural industry can include commercial and industrial loans, about 6% of its book, and construction development loans, around 5%.
The bank targets more than just farmers however according to Smith. Tri Counties seeks to make loans to a broad swath of the agricultural sector, including specialty equipment manufacturers, beer makers, the wine business, bottling concerns, and more, he said.
Offering services to ancillary businesses serving the agricultural industry would likely bring Tri Counties into competition with similar banks, according to Tim Coffey, vice president of research at FIG Partners LLC. “There’s a lot of different facets to the agriculture business,” he noted, including marketing, distribution and various support industries. “Other banks have found success there, like Bank of Marin.”
Tri Counties Bank’s strategy has long been to serve both business and consumers, Smith noted, acknowledging that his bank’s sole branch in the North Bay is more business-focused.
Smith also said that about 75% of the bank’s revenue comes from business customers, while Coffey noted Tri Counties is looking to expand on its success lending to business and business owners by focusing on agriculture.
Commercial real estate makes up almost half of the bank’s loan portfolio but that could be changing as a result of a strong economy, Coffey said.
“Because of valuations in real estate, some of (the bank’s) borrowers are starting to sell their property, which means the loans go away,” Coffey said. “They’re searching for ways to grow the loan portfolio that doesn’t grow the risk profile of the business.”
However, Julianna Graham, senior vice president and North Bay area manager of Tri Counties Bank, said the bank’s commercial real estate business is doing well. “As far as commercial real estate, we’re not seeing any slowdown; in fact, there’s a lot more growth,” she said.
Graham, who previously worked in agricultural lending, said the agricultural expansion is more in the outreach phase, focusing on enterprises including the wine industry and connected business as the main agricultural engine of the North Bay.
Entrenched lenders in the agricultural industry would continue to be a problem regardless of strategy, Coffey said.