In turbulent year for regional banks, Santa Cruz County Bank keeps growing

Last year was a turbulent one for smaller community banks. Rapidly rising interest rates caught some off-guard, leading to a run on deposits and the high-profile failure of several regional banks, including two in the San Francisco Bay Area. That spooked some customers, who moved their deposits to bigger banks and more lucrative savings and investment accounts, squeezing profits for small banks even further. Five regional banks failed in 2023, the most since 2017.

Santa Cruz County Bank wasn’t immune to these challenges. But the community bank, which celebrates its 20th anniversary on Saturday, Feb. 3, has weathered such storms before and did so again in 2023 by doubling down on what it sees as its strengths: its relationships with the local community. 

“The No. 1 thing for us is that all of the decisions are made here in this market,” said CEO Krista Snelling. “Every decision that affects this market is made here by people who live and work here, and policies are set here. Our board of directors lives here. We know our market better than a bank where policies are set elsewhere.”

Started in 2004 by a group of business leaders who wanted a locally owned and operated bank, Santa Cruz County Bank now operates eight locations in three counties, holds $1.79 billion in assets and ranks as one of the region’s top Small Business Administration lenders.

When Santa Cruz County Bank merged with Lighthouse Bank, another Santa Cruz-based community bank, in 2019, not only did it add more locations but it also helped the bank expand its offerings and make technological investments. Along the way, the financial institution’s leadership has helped guide the bank through two recessions, a global pandemic and rising inflation — all while remaining locally owned and operated. 

The merger with Lighthouse Bank “put the bank at over a billion dollars in assets combined, which is very much a milestone point for banks,” said Snelling. “It comes with additional regulatory scrutiny – because you’re basically entering the next phase of sizes for community banks – but that increased size has allowed us to increase the sophistication of the products that are offered.”

Essentially, the bigger the bank, the bigger the loans it can make – and as a community bank, all of the money deposited at Santa Cruz County Bank is reinvested within the three counties it serves: Santa Cruz, Monterey and Santa Clara. The company’s most recent branch opened in Salinas last year, giving the company a bigger footprint in Monterey County. 

While community banks like Santa Cruz County Bank tend to be smaller, they make up a sizable portion of the nation’s commercial real estate, small business and agriculture lending. According to the government agency that oversees banks, the Federal Deposit Insurance Corporation (FDIC), community banks account for just 15% of the banking industry’s total loans, but hold 30% of all commercial real estate loans, 36% of small business loans and 70% of agricultural loans. 

About 36% of Santa Cruz County Bank deposits are personal accounts; 74% are businesses. As a community bank, all of the money deposited at Santa Cruz County Bank is reinvested within the three counties it serves. 

Last year, Santa Cruz County Bank formed a holding company, West Coast Community Bancorp, to give the bank more flexibility in terms of the types of transactions it can offer and options for further growth. For one thing, a holding company is allowed to acquire and operate other banks; it’s also permitted to do things like own mortgage companies, which Santa Cruz County Bank can’t do. While there are no current plans for these activities, according to Snelling, setting up a holding company gives the bank the option to do so in the future.

This reorganization didn’t change the company’s day-to-day operations, and it remains headquartered in Santa Cruz. That also means it can really work with community members to provide a personal touch and offer more customized loans.

Snelling credits that strong community tie, coupled with the company’s diversified customer base, with helping it grow even amid concerns like the fallout from the collapse of Silicon Valley Bank. That failure was largely attributed to its heavy concentration in serving high-tech, startup and venture-based companies, which can be a volatile sector.

Santa Cruz County Bank maintains a diverse, stable mix of clients without significant concentrations in any one industry and significantly exceeds the regulatory levels for being considered “well-capitalized,” according to bank officials. In other words, it has enough capital to sustain any unanticipated losses.

The FDIC defines a depositor as any client representing over 2% of a bank’s total deposits, but “we do not have any clients that are that big,” said Snelling. “Our base is very diversified, which is one of the things that we talked a lot about when the Silicon Valley Bank thing was going down. We got calls from [worried] clients and we said, “Hey, let us explain to you how we’re different.’” 

Reaching out directly to alleviate potential customer concerns was hugely helpful, she said. In fact, she was dining at a restaurant in Capitola Village not long after and a server recognized her from her photo and thanked her for the email the bank sent out to customers in the wake of Silicon Valley Bank’s failure, Snelling recalled. 

Looking ahead, Santa Cruz County Bank is very focused on growing in Monterey County, where it currently operates two branches, including one in Salinas opened last year. The bank also has an office in Cupertino and grew its loan portfolio in Silicon Valley by nearly $60 million last year, according to its annual report. While Snelling said the bank isn’t ruling out additional geographies, its leaders believe there’s still more opportunity here and in neighboring Silicon Valley for growth.

While the bank’s deposit market share (the measure of the size of a bank compared to the total amount of deposits held by all banks in a given market) in California declined in the past year, Snelling believes that as a community bank, Santa Cruz County Bank really offers something unique for the region because the money it holds is reinvested in the community where its patrons live.

“If your deposits are with a major bank, who knows where that money is being deployed?” said Snelling. “We only lend here … put your deposits with us because we’ll make sure it gets reinvested back, that we’ll loan it out to businesses and individuals who need it to help keep this community growing and vibrant.”

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