Local Banks Keep in Check With Economy, Forge Ahead for 2008

For Greg Garrabrants, chief executive officer of San Diego-based Bank of Internet USA, now is a good time to be selective with assets.

While many financial institutions are trying to fill the gaps left by America's home loan mortgage crisis in 2007, Garrabrants and his team see lots of opportunities

"Having a strong balance sheet and portfolio capacity is important right now," Garrabrants said. "We really focus on lower value loans. Most banks will give similar home equity rates as long as they are less than 80 percent in value. I don't mind giving up a little bit of rate to get a better quality loan."

The Bank of Internet, which had $1 billion in assets in 2007, plans on increasing that to about $1.1 billion in 2008, according to Garrabrants.

"The bank has a certain amount of capital and we like to keep that so we have a strong safety net," he said.

The Bank of Internet, which has 50employees, hired 15 people in 2007, and Garrabrants said the bank may hire a few more in 2008.

He said it's tough to predict how strong the local banking and financial services market will be in 2008. He said it really depends on each institution.

Garrabrants did say, however, that there is good local talent available in the banking industry right now since some banks have scaled down their staffs.

As for the Bank of Internet, he said business will be steady in 2008.

"I'm very optimistic about where we are," Garrabrants said. "We don't have credit quality concerns that are going to substantially impair our ability to take advantage of some of the asset opportunities. We like our business model because it's a low-cost business model. If asset yields go up our costs don't go up, so we can put that money toward our bottom line."

For 1st Pacific Bank of California, 2008 will be a moderate growth year, just like 2007, according to bank President Vince Siciliano. The publicly traded community business bank, based in San Diego, had about 30 percent growth in 2007, mainly due to its $24 million acquisition of Landmark National Bank in Solana Beach. The merger gave 1st Pacific an additional 20 employees in 2007 (with a total staff of 100), Siciliano said. 1st Pacific also hired a couple of employees in 2007 for its new downtown office, which will open in early 2008.

But the bank doesn't plan on hiring any more employees in 2008, Siciliano said. He expects the bank's revenues to grow about 10 percent in 2008.

"The whole banking industry has struggled with the downturn in the economy overall and the reduction in margins," Siciliano said. "The whole market has become considerably softer. If the economy grows slowly then there's less new business for everybody. That means growth comes out of competition. That will increase competition and will have an impact on margins and profitability for local banks.

"Frankly, when times are slow and banks compete hard, it can lead to credit quality problems if banks aren't careful," he said. "Our outlook for 2008 will be modest growth and we will continue to focus on the quality of what we do in terms of services, earnings for shareholders, keeping a strong portfolio and positioning ourselves for a nice rebound when the economy comes back in 2009 or 2010."

Mulling The $64 Million Question

Michael Perry, chairman, president and CEO of San Diego Trust Bank, doesn't see a quick economic rebound in 2008. Since there is a lot of uncertainty still out there in the market, Perry said he and his team are tightening their belts.

"When there's so much uncertainty, it's hard to predict what's really going to take place," Perry said. "The $64 million question is, 'What is going to be the duration of the economic slowdown and how severe is it going to be?' We get a new round of negative news every day. As far as the banking industry is concerned, nobody can say what the Federal Reserve (Board) is going to do with interest rates. There are a lot of variables. It will be a challenging environment. It's going to be a bit of a bumpy road ahead."

Perry said San Diego Trust has positioned itself quite well despite major hiccups in the U.S. economy in 2007. The bank had double-digit growth in assets in 2007 totaling $100 million. San Diego Trust also increased its staff by 40 percent in 2007, hiring six people. Those employees came from the merger between Wells Fargo and Southwest Community Bank. Perry said the talent pool will continue to grow in the local financial services market due to possible future mergers and layoffs. He said if more talented people are available in 2008 then San Diego Trust may increase its staff

"If there is a group of talented individuals who are familiar with a certain market then we will definitely look to capitalize on that opportunity," Perry said.