One thing the CEOs of high-performing banks have in common is an aversion to the type of risky loans that were common during the economic boom that preceded the recent mortgage market meltdown.
Home Bank of California holds the No. 1 spot on the list of Top Five Performing San Diego Community Banks compiled by the San Diego Business Journal. The ranking is based on return of assets over the three-year period ending June 30. Byron Webb III, president and chairman of Home Bank, said one way to avoid problems is to make sure your loans are backed by sound economic principles.
“We focused on a particular niche,” said Webb. “That was commercial real estate. We are attempting to broaden our customer base and offer a wider array of products. Our approach in underwriting was always focus on the property and our collateral’s ability to service the debt. We would look at historic and forecasted rent. We would basically back into the size of the loan we were willing to make.”
In Good Position
Webb said his bank has been able to weather the mortgage market decline well.
“I would not say we have escaped unscathed,” he said. “We have our share of problem loans as well. Our loans are almost exclusively first trust deed loans.”
A spokesman for Armed Forces Bank of California, N.A., the second-ranking bank on the performance list, could not be reached for comment.
Gregory Garrabrants, president and chief executive officer of Bank of Internet USA, the third bank on the rankings, said his institution worked to minimize risky loans and properly position assets. Because an Internet bank has less overhead, it can pass more savings on to customers, he said.
“We survived a very tough credit crisis,” Garrabrants said. “We are very strong financially, and we continue to be innovative going forward. If you go to us for a refinance mortgage rate, it is going to be a very competitive rate. We push for low costs throughout what we are doing.”
Online Banking
Online banking will grow, he said. “You can do everything you need to do through online banking. I am not sure what the purpose of a branch is anymore.”
The Internet bank maintains a strong call center so customers can speak to a representative, when necessary, he said.
Regents Bank, N.A. is ranked fourth on the bank performance list. President and CEO Dan Yates said having an experienced management team has been a big asset during the current recession.
“Our chairman and chief credit officer have worked together for 30 years,” Yates said. “The two of them are involved in 90 percent or more of all the credit decisions. You have continuity that goes through a lot of economies, a lot of life experience that goes into loan decisions.”
The current regulatory climate has made all banks more cautious, he noted.
“There is more scrutiny,” he said. “There are numerous changes and guidelines that have come down from Washington that all banks are subject to.”
Yates thinks the economy has begun to turn around. “Part of our recent growth has been a result of the overall economy that we have been positioned to move up with.”
Strategic Lending Moves
San Diego Trust Bank ranked fifth on the list. “We made a couple of key decisions a few years back, toward the end of 2006,” said Michael Perry, chairman, president and CEO of San Diego Trust. “We saw a bubble forming in the housing market. We disengaged from the construction lending market. We stayed out of the residential mortgage lending altogether.”
Many banks failed to see the meltdown coming and were left scrambling to stay in business when the recession hit the region hard in 2008.
“It was April or May of 2007 when someone said the subprime (crisis) has come and gone, it is all behind us now,” Perry recalled. “We didn’t believe it.
“People have figured out that there is a big difference from bank to bank,” Perry continued. “They are looking for those banks on a sound financial footing, consistently profitable, and there are only a handful of banks that can make that claim these days.”