RankingBanking 25 - Flipbook - Page 10
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CRE stress in the state has largely centered
fornia’s Central Coast, the bank gained around
around San Francisco and Los Angeles, says
$1 billion in assets after acquiring 1st Capital
Timothy Coffey, associate director of depository
Bancorp in October 2024. The deal strengthened
research at Janney Montgomery Scott. That in-
the combined bank’s market share in neighboring
cludes offices as well as restaurants and business-
Monterey County.
es that depend on 9-to-5 office workers.
But there are signs of improvement, says Lonnie
“These are not small towns … but it’s also not
San Francisco or even Sacramento,” says CEO
Hendry, chief product officer at Trepp. “You’re
Krista Snelling. “They’re smaller communities,
starting to see people come back to San Francis-
and it’s easier to get your arms around and know
co,” he says. “In the first quarter of 2025, we saw
the people in the towns, and that goes a long way.”
about a billion dollars’ worth of office issuance in
She has seen some decline in CRE in her mar-
San Francisco in the CMBS market.” Behind New
kets, including stress about repricing at a higher
York, that made San Francisco the second largest
interest rate. West Coast Community is moni-
market for issuance, he adds. “It was a really
toring debt service coverage ratios and including
positive sign for an office market that has been
that metric in stress testing. So far, they’re not
decimated.”
seeing charge-offs on significant loans; in the
But higher interest rates remain a challenge,
RankingBanking study, only 0.03% of West Coast
as do insurance costs for retail and commercial
Community’s assets were nonperforming. “One of
mortgages, including multifamily. Those concerns
the benefits of being a community bank is, we only
were rekindled with the Los Angeles fires in
do business here, so we know these markets really
January. “Underwriting loans and understanding
well,” she says. “More often than not, somebody
what insurance costs are going to be year to year
on the leadership team or the board of directors
is problematic,” says Hendry. “It used to be that
knows the borrower.”
insurance was a somewhat nominal line item on
Snelling sees that focus on local banking as a
the operating statement, and now it’s front and
core strength. West Coast Community reported in
center.”
the first quarter that it held 15% of deposits in
Suburban markets aren’t experiencing the same
Santa Cruz County, on par with JPMorgan Chase
level of stress, says Coffey. That’s advantageous
& Co. and Bank of America Corp. West Coast
to most bank balance sheets. “Banks don’t really
Community has an estimated 8% of deposits in
play in those central business districts,” he says.
neighboring Monterey County. “We are every-
“They’re not going to supply a loan on a 40- to
where. We are out in force at every event. We
50-story office building.” The typical bank, howev-
are supporting every nonprofit. We are on all the
er, is well positioned to serve smaller markets. And
boards,” says Snelling. “You just know everybody.
there are a lot of those in California.
And everybody goes, ‘Gosh, I can bank with some
anonymous people down the street, or I can bank
Small & Growing on the Central Coast
with these people who are my neighbor.’”
West Coast Community Bancorp, founded in
That market share drives a low cost of funds
2004, is one of those banks. Almost two-thirds
and a “pretty decent” yield on loans, she says.
of its loan portfolio is comprised of CRE loans,
Many of those loans are variable rate, meaning the
per the bank’s first quarter earnings presenta-
bank benefited when interest rates started to climb
tion. Located in Santa Cruz County, less than
in 2022, says Snelling. The bank has a mix of CRE
an hour’s drive from Silicon Valley along Cali-
and commercial and industrial loans, which often
