Ciaran McMullan, president and CEO of Suncrest Bank
Ciaran McMullan, president and CEO of Suncrest Bank

Small community banks keep hearing the same message — get bigger or find a buyer.

The management team at Suncrest Bank in Visalia, Calif., has bought into that message. The $195 million-asset bank has assembled a staff of veteran bankers with experience as some of the world's biggest agricultural banks as it looks to more than double its assets in the next few years through organic growth and acquisitions.

Suncrest made its intentions clear last month when it announced its first acquisition.

"There's no desire to be a seller," said Ciaran McMullan, Suncrest's chief executive and president. "If we continue to grow, continue to add value, continue to manage down our expense base, continue to hire the best people and continue to add to our product set … then there's no reason for us to be a seller. Our story is attractive to others."

Suncrest's management team is ambitious. They point to Great Western Bancorp, which jumped from $131 million assets in 1995 to more than $3.5 billion of assets when it was bought by National Australia Bank 13 years later, as an example of a small ag lender that made it big. (Great Western, which now has $9.7 billion of assets, has since been spun off.)

While small banks must grow to manage rising compliance costs, Suncrest's plans could prove difficult, industry observers said.

Competition has been intense for high-yielding assets, such as ag loans, and California bankers are likely prepared to fight to keep their customers, said John Blanchfield, a principal at Agricultural Banking Advisory Services. Such competition should make it difficult to grow organically.

"Where do they find the growth opportunities in the agricultural space?" Blanchfield said. "California agriculture is well understood and widely accepted by the banking community, so they have a plethora of banks servicing that sector."

In addition, commodities have performed so well in recent years that good production deals are hard to come by, said Curtis Covington, senior vice president of agricultural finance at the Federal Agricultural Mortgage Corp., also known as Farmer Mac. Farmers have built strong liquidity positions, so most ag lenders "would tell you that loan utilization in many sectors are well under historical levels," he said.

"Farmers can operate with their own cash, so they're probably less willing to consider changing banking relationships," Covington said.

Still, Suncrest has been able to more than double its assets in the last five years. It has focused on small business, commercial and agricultural loans in California's rural communities that bigger banks often overlook, McMullan said.

Suncrest, for instance, opened a branch in Kingsburg, Calif., a city of roughly 12,000 people. Citigroup recently closed a location there, making room for a player like Suncrest to serve the growing community, McMullan said.

"It's an ideal community for a bank like ours," McMullan added. "There could be a whole myriad of reasons why a large national bank makes a decision to pull out of a small town and not because you aren't able to a run a profitable business there."

Suncrest is also looking to hire strong bankers by offering them workplace autonomy and equity in the company. Market presidents have control over their balance sheets and hiring decisions, but they are also responsible for their regions' profitability. This is appealing to some bankers who may not have as much freedom at a larger bank.

Suncrest's team of experienced executives could help it with its growth plans, industry observers said.

McMullan, who joined the bank in 2013, is a former executive at National Australia Bank and a former Great Western chairman. Doug Tribble, the chief operating officer, also came from Great Western, while Peter Nutz, the chief credit officer, once held senior risk positions at Rabobank.

The executives' background in ag lending should be an asset, industry observers said. Agricultural loans have special risks, with each crop having its own nuances that must be understood, especially as California continues to suffer through a prolonged drought.

"You need to understand commodity cycles, government regulations and programs, the strengths and weaknesses inside a borrower's business," Covington said. "If you're going to do agricultural lending during good times, then you better be there during the bad times."

Suncrest could benefit from a regulatory environment that is putting pressure on smaller banks to sell, experts said. This could be particularly true in rural areas, where there are limited industries, and therefore fewer opportunities for a small bank to expand, said Chris Chouinard, a portfolio manager at 1C Investment Co.

"Small banks are figuring out what to do," Chouinard said. "If these banks haven't been able to [get bigger by] themselves, then they should be open to people approaching them and offering them a deal to join … a larger organization."

Suncrest's management is confident about the potential for more acquisitions. It already has a pending deal to buy the $66 million-asset Sutter Community Bank in Yuba City, Calif. There are at least a dozen banks in California's Central Valley alone that have less than $200 million of assets, McMullan said. Suncrest is also willing to buy branches to pick up market share.

"California is very well banked, despite the lack of de novos," McMullan said. "We hope that opportunities will open up to us by continuing to execute well."

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