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Local bank activity shows lending slowdown may be over

With the economy continuing to improve, banks and credit unions throughout San Diego County revved up their lending last year, lending a total of $31.7 billion, or $1.9 billion more than the year before, based on data collected from the Federal Deposit Insurance Corp. and the National Credit Union Administration.

The lending slowdown that accompanied the Great Recession seems to have ended, with loan volume increasing an average of 9.5 percent at the 14 banks headquartered in San Diego County and 9.9 percent at the county's 22 credit unions. Statewide, bank loans grew by 9.2 percent, which ranks as the fifth-highest growth in the nation.

“As the local economy continues to expand, we are experiencing heightened interest in our core banking products and services,” said Steven Borg, corporate marketing director of San Diego's California Bank & Trust.

Borg said that at his bank, the biggest boost seems to be coming from small businesses. Earlier this month, the $11 billion bank launched a new website which, among other things, puts a greater focus on commercial real estate financing options.

In general, banks throughout Southern California performed better than the national average last year, with sharp improvements in loan quality and returns on assets, according to data released last month by the Federal Reserve Bank in San Francisco.

The Fed data showed that Southern California banks averaged a 0.93 percent return on assets during 2013, compared to an average of 0.88 percent throughout the entire state and 0.87 percent in the nation. In San Diego County, the returns at some financial institutions were much stronger, including Home Bank of California at 2.32 percent; San Diego County Credit Union, 1.41 percent; California Bank & Trust, 1.28; California Coast Credit Union, 1.21; North Island Credit Union, 1.11; Cabrillo Credit Union, 1.06; and the University and State Employees Credit Union, 1.05.

In recent remarks, Teresa Halleck, CEO of San Diego County Credit Union, which had a 1.41 percent return on investment, attributed its performance to the "high-quality” lending activities and "prudent portfolio management,” as well as efficiencies that Chief Financial Officer Ashlee Micale has developed for introducing new products and services. Earlier this month, Micale was named as nonprofit CFO of the year by The San Diego Business Journal.

But throughout the county, the improving performance in the financial sector also reflects the growing number of borrowers who are paying down their loans.

At locally based financial institutions, the amount of "non-performing assets" – such as loans with payments that were more than 30 days overdue – slid by 24 percent last year, dropping from $332 million in 2012 to $252 million in 2013.

Statewide, only 0.2 percent of loans last year were overdue by more than 30 days, compared to 0.8 percent throughout the nation. At such institutions as Rancho Santa Fe Bank & Trust in San Marcos, Escondido Federal Credit Union, La Mesa’s LMCC Employees Federal Credit Union and the San Diego Firefighters Credit Union, the rate was 0.1 percent or less.

Bauer Financial, a financial analysis firm based in Florida, gives high scores to nearly all San Diego financial institutions, based mainly on their capital ratios.

In its most recent round of rankings, Bauer listed all but four local institutions as “recommended,” including 19 local institutions with five-star “superior” ratings and 12 rated as “excellent.”

Point Loma Credit Union, which last year had one of the county’s lowest returns on assets at 0.17 percent, got a three-star “adequate” rating. Neighborhood National Bank received a one-star “troubled” rating, but that is tied to its status as one of 85 federally designated “community development financial institutions” aimed at providing loans to low-income neighborhoods that lack access to other sources.

Because of the bank’s federal designation, it is not subject to the same capital rules that other banks are. Two other institutions were not rated: Oceanside’s Faith Based Federal Credit Union, which is too small for Bauer to rate, with just $1.1 million in assets, and Rancho Santa Fe Bank & Trust, a loan specialist that Bauer does not cover because it does not take deposits.

Bauer says that on average, California’s financial institutions have improved sharply throughout the past year.

In its latest report, it lists 67 percent of banks and 79 percent of credit unions throughout the state as "recommended," with only 9 percent of banks and 4 percent of credit unions – mostly in the financially struggling Central Valley – as being "troubled” or “problematic."

In comparison, Bauer recommends only 45 percent of the banks in neighboring Arizona, with nearly 17 percent ranked as troubled or problematic, although its credit unions are rated slightly higher than California's.

Largely because of the Central Valley's economic problems, California still lags the national average for banking health. Throughout the nation, 73 percent of banks and 76 percent of credit unions are rated as “superior” or “excellent,” with 9 percent of banks and 3 percent of credit unions at the lower end. The best-ranked states are Alaska, North Dakota, New Hampshire and Vermont, where from 83 to 98 percent of institutions earn the top scores and zero are troubled or problematic.

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