Executive Summary

Northern California (NorCal), the focus of this Industry Report, encompasses 48 counties with a population of 15 million people. In addition to its many profitable community banks, NorCal is home to the nation’s high-tech industry, world-class universities, very productive agricultural regions, and some of the most expensive housing markets in the county. We define NorCal as the region situated between Nevada and the Pacific Ocean, and stretching north from the northern borders of San Luis Obispo, Kern, and San Bernardino counties to Oregon.

This Industry Report highlights key performance ratios and valuation metrics of 26 publicly traded, NorCal community banks with assets between $800 million and $20 billion using June 2021 quarter (except as noted) financial data.

We believe banks in this size range are large enough to operate efficiently and small enough to deliver personalized services. These stocks typically trade “under the radar screen” – they are not widely followed by brokerages or institutional investors for several reasons, including fairly low market caps and little trading volume.

The pandemic has emphasized that banks across all asset sizes face major and lasting tests, which include a greater need for scale. As part of this “survival of the fittest challenge”, NorCal’s community banks should actively consider expanding niche businesses and fintech applications; and/or pursuing merger partners. We believe several NorCal banks and their investors would benefit from merger-of-equals (“MOE”) transactions to gain the requisite scale to better compete.

June 2021 quarter results for our highlighted banks were generally good. Credit remains excellent and many banks had lower, or even negative, loan loss provisions. Some NorCal banks took advantage of near-perfect interest rates and other favorable market conditions to issue subordinated debt (“sub debt”) and preferred stock, which have been favorably received by the market. Environmental, Social, and Governance (“ESG”) bonds are also good options for issuers and investors in many instances.

PNC FIG Advisory recommends that sensitivity models tailored to individual banks can best identify additional capital needs and, if so, what form of capital is best suited for current and longer-term strategic plans.

Banks that are considering strategic plans and/or capital management initiatives should track proposed tax, supervisory, and regulatory policies changes. For example, House Democrats proposed a new 26.5% top Federal tax rate vs. the current 21% rate. Although the final changes and their ultimate impacts cannot be determined at this time, preliminary indications signal that bankers should consider most proposals as anything but business-friendly.


  • Interest rates and spreads are moving higher. This could be a temporary move, but as of September 27, 2021, the spread between 2 and 5-year Treasury notes rose to 68 basis points vs. 14 basis points a year-ago. We generally regard 2 and 5-year Treasuries as proxies for funding costs and investment yields, respectively.
  • Although one size does not fit all, some strategies that should work well in the current environment include deleveraging through the prepayment of FHLB advances, selling lower-yielding securities, purchasing whole loans, and investing in higher-yielding sub debt issuances of other financial institutions.
  • Although data is obscured by PPP loan run-off, it appears loan growth remains tepid. Besides customers’ excess liquidity, uncertainties associated with supply chain delays, potential tax rate hikes, and other fiscal matters changes may reduce near-term capital spending and further dampen loan demand.

For more information, please visit pnc.com/fig or contact PNC FIG Advisory by calling 1-610-351-1633.

Flying Under the Radar: Small and Micro-Cap Banks in Northern California