The banking industry -- both on a local and national level -- seems poised on the brink of greatness in 2004. But, observers will also tell you that forecasting the future of banking is just about as hard as predicting the weather.

George Chamberlin

"While, economically, the horizon continues to brighten, banking executives cannot ignore the storm clouds circling the industry," said Paul Wirth, managing partner of Deloitte & Touche's U.S. Banking Practice.

"A tidal wave of regulatory changes and anti-money laundering will continue to draw time and resources," Wirth added. "At the same time, to remain competitive, banks will need to reinvigorate technology budgets that have sat dormant for years, and redouble their efforts to reduce costs through offshoring."

However, another theme that has washed across the San Diego banking community in past years is likely to resurface again this year. Look for another round of merger mania.

Last year saw the completion of the $2.3 billion buyout of Golden State Bancorp -- parent of California Federal Bank -- by international giant, Citigroup (NYSE: C). It was just the latest in a series of acquisitions that affected consumers in San Diego County in recent years.

Among the deals were purchases by U.S. Bank, headquartered in Minneapolis, Minn., of two local banks: Peninsula Bank in 1999 and North County Bank in 2000. And, Zion's Bank of Utah purchased Grossmont Bank in 1998.

"Many smaller locally based institutions salivate at the news of a bigger bank moving into their neighborhood," said Greg McBride, a financial analyst at Bankrate.com. "They stand ready to swoop up the disgruntled customers that are inevitably left in the wake of any such merger. Marketing efforts are switched into high gear, promoting the lower fee-friendly mindset of the local bank. Or highlighting the anonymity of the out-of-town bank."

But San Diego-based banks are not resting on their laurels. A number of deals were announced last year that take their services to other communities outside of the region.

Imperial Capital Bank announced in December that it would expand its commercial real estate division into Arizona, Texas and Georgia. The bank is a wholly owned subsidiary of ITLA Capital headquartered in La Jolla.

And, First Community Bancorp of Rancho Santa Fe is buying Harbor National Bank in Newport Beach. The $35.5 million deal will combine Harbor National's three branches with First Community's Pacific Western National Bank system. It also manages 13 branches of First National Bank.

One area where local banks attempt to claim superiority is in providing business loans and services. Banks in San Diego County -- large and small -- helped 1,022 local companies receive loans from the Small Business Administration worth more than $271 million.

"Small- and medium-sized businesses are the lifeblood of the San Diego economy," said Ronald Perry, senior vice president at 1st Pacific Bank, which reported record SBA lending activity in the past fiscal year. "Community banks like ours play a huge role in helping these businesses, which are often not on the radar screen at larger banks."

However, the SBA lending process for businesses across the county has unexpectedly come to a shrieking halt. The agency shut down its 7(a) loan program shortly after the first of the year because of a surge in applications for financing. This leaves more than 1,000 loan applications -- including many from San Diego County -- in limbo.

"Our clients are on hold," said Dennis Stytz, who heads up the SBA program at Southwest Community Bank. He said one client whose loan is pending approval is planning to use the fund to open an MRI medical imaging center. Other clients include entrepreneurs anxious to open everything from a tanning booth store to an ice cream shop.

"In the long run, this may be just a bump in the road," said Frank Mercardante, president and CEO of Carlsbad-based Southwest Community Bank. "However, in the meantime this creates a potentially difficult situation for borrowers who cannot proceed with plans to start or buy a business."

Mercardante and other banking officials say they have contacted members of the County's Congressional delegation to intervene with the SBA. The agency says it will need Congress to provide additional funding to meet the growing demand for loans to assist small businesses.

"Entrepreneurship in the United States continues to thrive at a very high level, even in the wake of the world economic decline," said Heidi Neck, who authored a study on new businesses for the Kauffman Foundation.

But, nothing is as important to the future of the banking industry as the health of the mortgage lending business. Refinancing activities totaled $2.2 billion in 2003 and represented 66 percent of all mortgage loan originations. By comparison, the Mortgage Bankers Association predicts that refinancings will only account for 22 percent of total originations by 2005.

Local and national banks had to gear up for the increased lending activity. Unfortunately, they are now faced with downsizing. Washington Mutual (NYSE: WM) announced last month it would cut 2,900 jobs in early 2004 because mortgage demand has fallen dramatically.

"The health of the real estate financing market is directly dependent on job creation, and we anticipate significant job growth through 2004 and into 2005," said Douglas Duncan, chief economist for the MBA. "Rapid economic growth and higher incomes associated with productivity growth will generate job creation and bring employment levels up to 133 million by 2005."

So, as is often the case, the future of the San Diego County bank industry is, in every way, linked to the overall condition of the nation's economy. And, despite some storm clouds, things are actually looking pretty sunny.