California Dreaming

*This feature is part of the 2025 RankingBanking report. 

In a June 2023 interview, Fox News personality Sean Hannity asked California Gov. Gavin Newsom why so many residents were leaving the state for places like Florida. Newsom disputed the assertion. “Per capita, more Floridians move to California than Californians moving to Florida,” Newsom responded.

Hannity’s question played into a broader narrative that the California economy has been struggling. A housing affordability and availability crisis has long plagued the state, leading residents to leave for other states, according to the Public Policy Institute of California. More recently, wildfires have stressed the insurance sector. Raids by U.S. Immigration and Customs Enforcement have tightened the state’s workforce. Undocumented immigrants make up 8% of those workers, per a June 2025 study by the Bay Area Council Economic Institute. The group believes mass deportations could cost the state $275 billion in wages and economic activity; agriculture, construction and hospitality would be among the industries affected.

But many signals point to the overall strength of the California economy. In April, Newsom announced the Golden State, with a nominal GDP of $4.1 trillion, had eclipsed Japan as the fourth largest economy in the world. The Bureau of Economic Analysis reported in March that California’s income growth outpaced the U.S. at 6.5% year-over-year, and the state boasted a higher per capita income, at $85,518, than the national figure of $72,425.

There’s a lot driving that growth. Silicon Valley forms the state’s technology hub. Most of the fruits and nuts enjoyed by Americans — including almonds, pistachios and grapes — are grown in the Central Valley. Tourism, entertainment and trade are important economic pillars.

“Our image in the press is of a state that is in complete free fall,” says Christopher Thornberg, founding partner at Beacon Economics in Los Angeles. “This is an economy whose largest problem remains a lack of workers.” Sure, population growth has stalled in some areas of the state, and metros such as San Francisco and Los Angeles have experienced declines. But other areas are growing.

There’s “lots of income growth, lots of job growth,” Thornberg adds. “That’s an environment where banks succeed. It’s as simple as that.” This year, seven of the top 25 banks in Bank Director’s RankingBanking study — more than a quarter of the list — are based in California.

“There’s several big metro centers [and] a large concentration of wealth” in the state, says Andrew Terrell, a managing director at Stephens who covers West Coast banks. Commercial real estate deals tend to be bigger. For banks in the state, that creates an environment for strong profitability and efficiency. Those factors alone don’t guarantee success; several banks headquartered in the state underperformed in the ranking, which is based on profitability, credit quality and capital adequacy. But institutions such as $76 billion East West Bancorp, headquartered in Pasadena, and almost $3 billion West Coast Community Bancorp, further north in Santa Cruz, have figured out how to unlock growth in the California economy.

Helping Customers Weather Uncertainty
East West got its start serving Asian immigrants in the Chinatown community in Los Angeles. It grew over the decades after CEO and Chairman Dominic Ng began leading the bank in 1991, expanding into San Francisco and San Diego, and across the U.S. in New York, Boston, Atlanta, Chicago, Houston, Dallas, Seattle and Las Vegas. East West also operates offices in China and Singapore.

But California is home and an important contributor to East West’s performance. Los Angeles County accounted for 44% of the bank’s office CRE loans at the end of 2024, and other parts of the state accounted for 27%. Two-thirds of retail CRE loans are in California, and it’s the same breakdown for multifamily. “It’s a very diverse economy, a combination of many small businesses and a lot of immigrants,” says Ng. He cites the film industry and Silicon Valley, along with the so-called Silicon Beach tech scene in Los Angeles.

However, the Trump administration’s tariff war has already stymied supply chains and inflated costs in the state, leading California to file a lawsuit in April that challenged the president’s authority to enact the tariffs. But East West is no stranger to navigating the impact of tariffs on the bank and its customers. The Trump administration first imposed a range of tariffs in 2018, many of which covered goods from China, according to the Peterson Institute for International Economics. President Joe Biden kept those tariffs in place. Following his inauguration early this year, President Donald Trump added to that burden, with China retaliating — tariffs imposed by both countries hit 125% in April, according to the World Economic Forum. Trump and Chinese President Xi Jinping resumed negotiations in June, and CBS News reported the two countries had agreed to a deal. That could be good news for California — and East West. The U.S. imported $439 billion in Chinese goods in 2024, according to the Office of the U.S. Trade Representative, and exported $144 billion in goods to China.

When Trump introduced tariffs during his first term, “it was quite a shock to importers,” says Ng. East West saw an opportunity to help clients. “We started talking to each and every one of our importer/exporter clients, and assessed the risk and helped them out,” he says. That included talking some clients out of aggressive growth plans, and lending conservatively. “We don’t know whether Walmart [or] Target will be able to pass on the additional tariff cost to the consumers or [if] you’re going to have to eat the difference,” he explains. “We ended up taking not one penny of losses from our importer/exporter customers.” The bank gained clients, as well.

Fast forward to 2024. Many of East West’s clients began preparing during the presidential campaign in anticipation of a bigger tariff fight, by moving manufacturing facilities or building up inventory in the U.S. Tariff exposure was limited to around 500 commercial customers as of April, or 1% of East West’s C&I book.

East West’s direct exposure to China remains more of a “headline risk,” says Terrell. “It’s around 5% of total loans in mainland China. There’s some trade finance exposure that’s relatively nominal.” East West also has a well-capitalized cushion to protect against losses, he adds, which helps assuage investor concerns. With a 9.61% tangible common equity ratio at the end of 2024, it’s the most highly capitalized bank among those above $50 billion in assets in the RankingBanking analysis and the top-ranked bank in that asset class. Terrell adds that the recent economic volatility has benefited some areas of the business, driving foreign exchange income and wealth management fees. East West recorded fee income of $310 million in 2024, a high for the bank, according to the bank’s investor presentation in January.

Terrell adds that East West — due to its size and reputation with Asian Americans — has generally enjoyed a price advantage versus peers. Yet, they’re willing to increase deposit rates to boost growth as needed. East West runs an annual Lunar New Year certificate of deposit special; in 2024, the bank increased the interest rate to around 5.25%, leading to $2 billion in deposits, according to earnings transcripts. That deposit growth, Terrell explains, helped fund asset growth through the rest of 2024. Over 2024, average deposits grew 9%, and the bank’s net interest margin declined slightly, from 3.48% to 3.24%. In 2025, East West dropped the Lunar New Year special to 4.18% for a six-month CD and 4.08% for a nine-month CD; its NIM improved to 3.35% in the first quarter.

A high level of service builds loyalty and pricing power, which helped the bank’s net interest margin and cost of funds as interest rates began rising. “If you are mostly interested in rate, you should go to the other bank,” says Ng. “We feel that our services would deserve us to earn a premium.”

CRE Headwinds
Ng clearly sees the bank as an adviser to its clients, and working with customers during the tariff war illustrated the bank’s commitment to deep relationships. Lately, East West has been working with its CRE clients. They’re looking at maturities over the next two or three years and considering various interest rate scenarios. They’re working with customers to buy time, if needed.

Like a lot of banks, CRE is East West’s bread and butter, and California is a big state with a lot of highly valued commercial real estate, notes Ng. “There are a lot of commercial real estate developers, investors, in the state of California, and we don’t necessarily like to do business with every one of them. We pick and choose the ones that we want,” he says. Many of those clients have long-term relationships with the bank. The loans have an average loan to value under 50%, he adds, and the borrower provides a personal guarantee.

CRE stress in the state has largely centered around San Francisco and Los Angeles, says Timothy Coffey, associate director of depository research at Janney Montgomery Scott. That includes offices as well as restaurants and businesses that depend on 9-to-5 office workers.

But there are signs of improvement, says Lonnie Hendry, chief product officer at Trepp. “You’re starting to see people come back to San Francisco,” he says. “In the first quarter of 2025, we saw about a billion dollars’ worth of office issuance in San Francisco in the CMBS market.” Behind New York, that made San Francisco the second largest market for issuance, he adds. “It was a really positive sign for an office market that has been decimated.”

But higher interest rates remain a challenge, as do insurance costs for retail and commercial mortgages, including multifamily. Those concerns were rekindled with the Los Angeles fires in January. “Underwriting loans and understanding what insurance costs are going to be year to year is problematic,” says Hendry. “It used to be that insurance was a somewhat nominal line item on the operating statement, and now it’s front and center.”

Suburban markets aren’t experiencing the same level of stress, says Coffey. That’s advantageous to most bank balance sheets. “Banks don’t really play in those central business districts,” he says. “They’re not going to supply a loan on a 40- to 50-story office building.” The typical bank, however, is well positioned to serve smaller markets. And there are a lot of those in California.

Small & Growing on the Central Coast
West Coast Community Bancorp, founded in 2004, is one of those banks. Almost two-thirds of its loan portfolio is comprised of CRE loans, per the bank’s first quarter earnings presentation. Located in Santa Cruz County, less than an hour’s drive from Silicon Valley along California’s Central Coast, the bank gained around $1 billion in assets after acquiring 1st Capital Bancorp in October 2024. The deal strengthened the combined bank’s market share in neighboring Monterey County.

“These are not small towns … but it’s also not San Francisco or even Sacramento,” says CEO Krista Snelling. “They’re smaller communities, and it’s easier to get your arms around and know the people in the towns, and that goes a long way.” She has seen some decline in CRE in her markets, including stress about repricing at a higher interest rate. West Coast Community is monitoring debt service coverage ratios and including that metric in stress testing. So far, they’re not seeing charge-offs on significant loans; in the RankingBanking study, only 0.03% of West Coast Community’s assets were nonperforming. “One of the benefits of being a community bank is, we only do business here, so we know these markets really well,” she says. “More often than not, somebody on the leadership team or the board of directors knows the borrower.”

Snelling sees that focus on local banking as a core strength. West Coast Community reported in the first quarter that it held 15% of deposits in Santa Cruz County, on par with JPMorgan Chase & Co. and Bank of America Corp. West Coast Community has an estimated 8% of deposits in neighboring Monterey County. “We are everywhere. We are out in force at every event. We are supporting every nonprofit. We are on all the boards,” says Snelling. “You just know everybody. And everybody goes, ‘Gosh, I can bank with some anonymous people down the street, or I can bank with these people who are my neighbor.’”

That market share drives a low cost of funds and a “pretty decent” yield on loans, she says. Many of those loans are variable rate, meaning the bank benefited when interest rates started to climb in 2022, says Snelling. The bank has a mix of CRE and commercial and industrial loans, which often carry a deposit relationship with them.

Monterey and Santa Cruz are both affluent communities, with Monterey well-known for its golf courses and Santa Cruz for its beaches. Those attractions bring tourists. “We have the Santa Cruz beach boardwalk, and it’s so beautiful here,” Snelling says.

The bank also enjoys close ties to local agriculture. “The bulk of the lettuce and the strawberries that you eat,” she says, “come from Santa Cruz County and down into Salinas,” in Monterey County. She says so far, ag clients aren’t suffering much from the recent tariff war and immigration raids. “All this political uncertainty is tough, but we haven’t seen issues come up in our ag clients, yet.”

West Coast Community has also seen a lot of growth from Silicon Valley, accounting for almost half of the bank’s new deposits in the first quarter. That was accomplished by hiring a team focused on C&I lending. That doesn’t mean West Coast Community is banking tech companies or venture capital firms; it’s instead banking the businesses that work with those sectors. Still, compared to the bank’s home markets, “it’s more competitive,” she explains. The bank holds less than 1% of Santa Clara County’s deposits, where the bank has a location in Cupertino. But it’s growing. “When you hire the right people who have those relationships, there’s a lot of trust that team has built over the years in their careers,” she says. “People bank with the people that they like and trust.”

Snelling joined West Coast Community four years ago as CEO; she’d previously been chief operating officer and CFO at Five Star Bancorp, another top performer in this year’s ranking. Ng has led East West for decades. But both banks have leveraged their markets to drive sustainable and conservative growth, and both executives say they’ve turned away deals that weren’t in the best long-term interests of the bank.

“We had made the decision to prioritize profitability over growth,” says Snelling. “We purposefully did not slap billboards up on the freeway advertising, ‘Come to us, and we’ll give you 4.75% on your money market account.’ You can grow like crazy if you want to do that, but your margins are not going to be the same.”