Banking On Character

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Sometimes even gunslingers have to hang up their six-guns -- the trick is doing it before some young upstart finishes you off in a High Noon showdown. That was what happened a week after I spoke with Stockmans Bank chief executive Gary Wright. The bank announced it was being acquired by PremierWest (PRWT, Nasdaq) an Oregon-based banking company, for $90 million -- 25 percent cash, the rest stock. 

"We were just at a tough size, we were tweeners -- not small or big enough. Joining with PremierWest makes us a much bigger bank," Wright explained the day after the deal was announced. (The combined entity will have about $1.5 billion in assets approaching the size of Tri Counties.) "And anyway, a lot of our shareholders were getting older -- this was a good offer."

Essentially, company management was tired of struggling and sold out. During the interview ahead of the announcement, Wright said an extraordinary thing: The CEO mentioned the mistake he thought he had made. And he said it wistfully, almost regretfully: "Not dominating Elk Grove, this boomtown. Not putting a branch every few miles down every street here," he said.  "Expand, expand, expand or focus on profit. In hindsight, I wasn't aggressive enough."

Stockmans Bank moved to Elk Grove in the 1980s when it was a town of 15,000 with "one blinking traffic light." Today, it has 150,000 people and is a regional mega-town. Missing the chance to "own" the Elk Grove market probably doomed Stockmans to second-tier status. Doing it would have required bold and risky expansion. "It was a trade-off," Wright said, "and we made the wrong choice." Now, he said, he had a liquidity problem -- too much cash and a readiness to loan aggressively. "We get the best rate of return by doing successful loans," he added. But it was too little, too late. 

The CEO and his mother, who is also an investor, will do OK. (He says,"She was raised in the Depression. I think this is the only stock she has ever owned.") They have nearly 10 percent of the stock in what was once a federally subsidized Depression-era agricultural cooperative chartered to finance livestock purchases, but is now a bank headquartered in Elk Grove with $380 million in assets. 

Wright grew up in cattle country in Oakdale, went to Cal Poly San Luis Obispo, studied animal science and joined a farm cooperative called the California Livestock Production Credit Association. Started in 1933, it lent money cooperatively throughout the state for livestock and was headquarted in San Francisco. In the 1960s, it moved to Sacramento and later to Elk Grove. By the late 1980s, Wright and several associates wanted to convert the institution from an agricultural co-op into a bank. It took an act of Congress, and to this day the California progenitor of Stockmans Bank is the only one of the Depression-era agricultural co-ops to have made the conversion.

As it turned out, when Wright and his colleagues succeeded in changing the co-op into a bank, they were faced with a need to get deposits -- a co-op, after all, doesn't have any. They had $14 million in loans. It was also the recession of 1989. 

Whatever he did, it worked. On the day of its sale the bank had more than $370 million in assets, $210 million in loans, with total bank capital of $45 million, and 70 employees. The ownership consisted of 50 shareholders, many from the original livestock agency, a point Wright contended is an advantage: "Senior management have all been working together for decades."

They will be working for PremierWest now. The expanding Oregon company is entering the Sacramento regional market for the first time so there is no duplication of staff or branches. It intends to keep most of Stockmans' people and locations.

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