It was another banner year of growth for most commercial banks in Orange County in 2004,but will it continue?
Orange County bankers hope so. Thanks to an improving economy and more spending by small and medium-sized businesses, deposits and lending activity are poised for more gains.
Whether banks do post a fifth consecutive year of deposit growth remains to be seen. Interest rates are expected to increase this year and the economic recovery has been steady, but not swift.
At the same time, businesses that cut back during leaner economic times are finding the need to invest in property, plant and equipment,all of which require cash, banks said.
For an outlook in the banking sector, the Business Journal spoke with top Orange County officials at three commercial banks operating here,Kim Burdick of Bank of America Corp., Kim Young of Wells Fargo & Co. and David White of Comerica Inc.
Bank of America reported 89 branches and 4,600 employees in Orange County for this year’s list of biggest commercial banks here (see page 35). Wells Fargo, meanwhile, said it has 83 branches and 2,542 workers in the county while Comerica has three branches and 160 workers.
Following are edited responses from the bank officials.
KIM YOUNG
President, Orange County
Wells Fargo & Co.
Irvine
Where will the bank’s expansion in Orange County come from this year?
We’re projecting to grow several major lines of business locally. Orange County is an important and dynamic market for Wells Fargo and we recognize the great growth potential with consumers and small businesses.
Additionally, Wells Fargo is committed to meeting the needs of Orange County’s growing diverse markets and will continue to focus on responding to the increasing demand of our multicultural communities for financial services.
Specifically, community banking, business banking and our mortgage operations are projecting the greatest expansion in Orange County.
Community banking is expected to add new banking stores, relocate or expand smaller locations into larger ones, increase the number of bankers located in our stores and substantially increase the numbers of licensed bankers inside our banking stores.
Small business is the heart of our economy and big business for Wells Fargo. As Orange County continues to lead the nation in business growth, our top priority is to retain and deepen our existing business relationships while aggressively acquiring new ones.
To do this we expect to continue to add relationship managers, commercial loan officers and business deposit consultants to meet the needs of Orange County’s diverse business owners.
The mortgage industry continues to be a growth industry. As Orange County’s multicultural communities grow, Wells Fargo Home Mortgage plans to respond by adding one more location and aggressively recruiting more bilingual, bicultural mortgage consultants throughout Orange County.
What’s your outlook for 2005?
We’re very optimistic. We expect Orange County will continue to build on its current expansion.
Employment growth is expected to rise slightly above the California average but slightly below the national average. Other than payroll growth being somewhat sluggish, most other indicators point to solid growth in the county.
On the downside, housing still continues to cause some concerns to our economy. Housing affordability and a lack of affordable housing supply are the county’s two major problems that must be addressed.
Wells Fargo views itself as a growth company and we expect 2005 to be a great year.
What big challenges face the banking industry?
There are several challenges:
Identity theft. This is the No. 1 consumer complaint and is a growing problem. Our customers are inundated with ongoing offers and scams.
Everyone pays the price, including financial institutions. Financial services companies have to find ways to work with customers to combat this problem. The solution is multilayered. Wells Fargo has invested time and resources to inform our customers on how to avoid identity theft while providing individuals with the right products and services that would minimize the risk of becoming victims.
Bankers need to collaborate with law enforcement to ensure cases are investigated, crooks are prosecuted and the consequences are tough enough to be a deterrent to would-be perpetrators.
Homeownership in California. As the affordability gap widens and the supply of affordably priced homes continues to be a challenge in California, lenders are trying to facilitate debate in Sacramento and Washington to develop legislation and provide resources to improve homeownership rates.
In Orange County, we have worked closely with a number of housing organizations to provide expertise, resources and funding. Just last year, Wells Fargo invested $1 million in the non-profit Neigh-
borhood Housing Services of Orange County in partnership with Orange County Affordable HomeOwnership Alliance.
The investment will finance programs that will enable low- to moderate-income working families to buy a home. We expect to continue to provide funding and expertise to solve this growing concern.
Balancing complex governmental regulation with meeting the needs of our customers. Bankers constantly have to balance customers needs and their privacy with complex requirements put on us with regulatory and legislative mandates like anti-laundering, immigration reform, privacy and anti-terrorism legislation, to name a few.
What’s your outlook for interest rates?
We expect the Federal Reserve Board to increase the fed funds rate by another quarter of a point.
Adjustable mortgage rates also will probably rise to slightly more than 5% by year-end. We also expect 30-year mortgage rates will rise, but by far less than adjustable rates.
DAVID WHITE
Executive vice president, Western division
Comerica Inc.
Costa Mesa
Comerica opened two new branches in Orange County in late 2004,in Huntington Beach and in Newport Beach. We plan to open two more branches in 2005,a second in Newport Beach and a new branch in Irvine.
We are having grand opening celebrations at the two new Orange County branches in mid-February. That represents a significant expansion of our presence,and commitment,in Orange County, especially southern Orange County.
Before October, we had one branch in Orange County, in Costa Mesa, with administrative and loan offices in Irvine and Costa Mesa.
Our Orange County offices for commercial lending,middle market banking, small business banking, and SBA lending,are in Costa Mesa.
Comerica’s success as a bank, and the success of our customers, depends on the quality of our relationships with our customers. Because of our longstanding customer relationships, our bank weathered the slow economy of recent years.
We have made a strategic decision to seek new business growth in California, and in Orange County in particular. We are a Detroit-based financial services company, but we expect that much of the new growth of our company in the months and years ahead will be in California.
Our business bank is at the heart of our business, but we anticipate faster growth in our small business, personal financial services, and wealth and institutional management. We will achieve this new growth by building our presence in key markets like southern Orange County with new branch offices.
The branches are entry points for banking services. Our research tells us more than 70% of small business and middle-market customers visit branch offices weekly.
The greater visibility and convenience in the new branches will help build on our relationships with business owners and executives to provide them with improved personal financial services and management of their wealth and investment portfolios.
Early indicators tell us that the strategy already is paying off as new deposits at the new branches are exceeding our expectations.
Our outlook for California, and for Orange County in particular, matches our investments: We see continued business growth. Since Comerica is in the business of financing business growth, that bodes well for us.
Our economists tell us that the California economy is growing, with Southern California outpacing Northern California.
What are the indicators we look at? Here are a number that are the basis for our optimism:
Incomes have been rising in line with the U.S.
Unemployment rates have continued to edge lower, dropping from 6.7% to 5.7%. Orange County has the lowest unemployment rate among the state’s large metropolitan areas,3.2%.
Information technology employment is now growing solidly (as opposed to the prior three years).
Businesses plan to increase capital spending in early 2005.
Housing prices appreciated an average 18.4% in California in the past year.
From September to October, the largest raw increase in payroll jobs in the U.S. occurred in California with 43,500 jobs, or 0.3% more. When measured year over year, California gained 126,000 jobs.
Non-residential construction awards rose 11.3% in California.
The biggest challenge facing the banking industry is to ultimately meet the needs of our customer.
The industry in recent decades has lost market share as a result of the development of the commercial paper market, various asset securitization techniques and competition from other financial intermediaries,credit unions, brokerage firms, investment bankers, equity funds, institutional money management companies,as well as accounting and law firms that offer advisory services to banking customers.
At Comerica, our response to this is to stress the concept of relationship management.
How does this work? By investing the time and energy of the institution’s primary resource,our people,to learn about the needs of our customers, be it their personal needs or that of the companies they control.
As an industry, we need to do a better job of meeting customers’ personal and business financial services needs. Despite the fact that there has been a lot of change, banks still are viewed as one of a handful of potential advisers, along with lawyers and accountants, to whom businesses turn for ideas and solutions, to help achieve success. As an industry, we need to make sure that we fill that important advisory role.
Building relationships has been Comerica’s strategy for years, and the challenges facing the banking industry give us new incentives to emphasize long-term relationships: listening to our customers, understanding their financial needs and coming up with solutions that help them be successful.
Comerica just raised its prime rate from 5.25% to 5.5%, joining other major banks in California. The prime rate, which was 4% in June, is used as a base rate for many business and consumer loans, such as home equity credit lines.
The increase means that some borrowers should expect to pay more this year as banks’ prime lending rates rise in tandem with actions by the Federal Reserve Board.
On the flip side of interest rates, our savers can expect to see yields continue to rise on money market mutual funds and bank certificates of deposit. We now offer 2% interest on our premium one-year certificates of deposit.
KIM BURDICK
Bank of America Corp.
Newport Beach
Where will the bank’s expansion in Orange County come from this year?
There are growth opportunities in a number of segments that we will expand.
Consumer: Last year we increased our number of household customers to more than 10,000. We expect to continue that trend at a slightly higher rate. Business: We expect double-digit growth in our business bank primarily achieved through customer acquisition. Wealth and investment management: We have combined our private, premier and investment management businesses under a single organization. We already have seen dramatic success in growing this business.
We will emphasize increased client acquisition where we have existing relationships with Bank of America.
What’s your outlook for 2005?
We think 2005 will be a good year for Orange County. Bank of America recognizes Orange County as one of the top 10 markets in the nation. We are going to continue to grow aggressively in this market.
What big challenges face the banking industry?
Changing regulatory environment. We take our role very seriously and expect to lead on issues of privacy and financial responsibility.
What’s you outlook for interest rates?
We feel the trend is generally up, approximately 1.5% (this year).
