“The factors that determine whether or not a company becomes truly great, even in
a chaotic world or an uncertain world, lies largely in the hands of its people.”
Great by Choice, Collins and Hansen
We continue to believe that quality people working together with a well conceived plan will not only enable us to work through what I call the Great Recession of 2008, but move beyond that and lead to greater financial success. We have what I would call an unrelenting drive to seek new talent while at the same time retaining the high quality staff we presently have. We have been doing that for years now and at this point in time we have the highest talent factor ever. We are engaged in the process because we know that the great differentiator between our Bank and our competitors is the quality of the people we have at every level in the bank.
One positive aspect of the economic collapse has been the availability of high caliber talent not available in the past. We have seized the opportunity and have been able to add quality staffing at all levels of the Bank while retaining the quality people we have. The effects of doing this will be evident in the years ahead. There will be no quick end to the chaos and uncertainty that have been so prevalent the past few years, but with a talent laden staff we can confront our circumstances and prevail.
"We do not believe that chaos, uncertainty, and instability are good; leaders, organizations, and societies do not thrive on chaos. But they can thrive in chaos."
Great by Choice, Collins and Hansen
For the year 2012 we continue on with the recovery from the Great Recession of 2008. This has been a painfully slow process now for over four years and a process conducted in an environment of chaos and uncertainty.. If there was a ground zero for the housing collapse certainly the San Joaquin Valley from Stockton to Bakersfield would be a part of that. Our market footprint is that of the South San Joaquin Valley from Fresno to Bakersfield. Now as we approach 2013 there are signs of improvement in the housing market and other economic indicators too. On the other hand, the agricultural markets within our footprint have been very strong the past five years aided by a weak dollar that has enabled an export market, particularly in Asia. The exception here would be the Dairy Industry that has a special set of challenges. The agricultural credit market has very real opportunities for us and we are building a stronger presence there. Small business credit and mortgage credit markets here are strengthening too and we will be more active in those areas as the economy continues to improve.
One aspect of our overall banking operation not often discussed is the diversity and stability of our deposit base. Total deposits at year-end were $1.174 billion domiciled in our 25 traditional offices and one Internet only office. Only $15 million of that base were wholesale brokered deposits and then only to accommodate a bond leverage strategy now almost matured. Total deposit accounts numbered over 90,000 which further demonstrates stability and diversity. In Tulare County where we are headquartered we are now the market leader in deposits followed by Bank of America, Wells Fargo a distant third, and then a host of other banks. This would be one of the few counties in California where the local independent bank has the leading market share. If we had the same market share in the other three counties in our footprint we would have total deposits of over $4.000 billion dollars showing surprising unrealized potential! We will be working on this going forward!
While our deposit growth has been strong, the real challenge has been loan growth. We have met this challenge in 2012 by greatly expanding our Mortgage Loan Warehousing program, and providing a basis to continue that expansion into 2013. This program is now housed in the Real Estate Industries Center which is well staffed for the challenge. In that Center we also have other real estate loan products that are experiencing renewed demand. Earlier I commented that we are making a strong move in agricultural credit. We are doing so by adding staffing and developing unique to us ag credit products as well as offering traditional ag credit products. Small business credit demand is increasing throughout our footprint as the economy shows signs of recovery. I should note that Bakersfield and Kern County are particularly vibrant with expanded oil production. Tulare, Kings and Fresno Counties are also showing signs of renewed loan demand.
Nonperforming assets continue to be a challenge for us. We made good progress throughout 2012 until the fourth quarter when two large relationships totaling about $28 million were designated nonperforming. Both relationships are well collateralized, and are being closely followed internally. While we are confident of a satisfactory resolution of both loan relationships it remains to been seen how it will all work out. Both loans are well reserved. Other nonperforming loans receive the same close following and with an improving economy we think there will be ongoing resolution in this area.
We view the year 2012 as a pivotal year for our Bank, balancing the building of a new and diversified loan portfolio while resolving issues in the legacy loan portfolio, both challenging undertakings but well within our capabilities. Additionally, we have the capital to support both activities and to continue to grow our Bank internally or externally, or both. There is much that remains to be done.
James C. HollyPresident, CEO and Director