The life blood of most financial institutions is deposits, the liquidity, along with the rules, that permit lending, an important source of funds for consumers, small businesses and mere mortals. While deposits are growing, they are finite.

So San Diego County’s banks and credit unions are engaged always in a competition for the nearly $46.3 billion San Diegans have dropped into deposit accounts – savings, checking and certificates of deposits — as of June 30, 2003.

The Federal Deposit Insurance Corp. reports San Diego County banks held $37.9 billion among 63 banks at June 30. Those with 3 percent or more market share (and coincidentally, more than $1 billion in deposits) include Bank of America (17.99 percent), Washington Mutual (17.51 percent), Wells Fargo (14.46 percent), Union Bank (11.55 percent), California Bank & Trust (5.68 percent), San Diego National Bank (4.43 percent), U.S. Bank (3.79 percent), and World Savings Bank (3.22 percent). Analytical data is online at http://www2.fdic.gov/sod/sodMarketBank.asp?barItem=2

Meanwhile, the National Credit Union Administration reports another $8.4 billion was deposited in credit union accounts in San Diego County on June 30, says researcher John Stabler, assistant vice president of business strategies at California Coast Credit Union.

Market leaders among CUs include San Diego County Credit Union (24.57 percent), Mission (17.27 percent), North Island Financial (12.01 percent), California Coast (7.71 percent), First Future (7.40 percent), and University & State Employees of San Diego (USE, at 7.08 percent).

Thus, banks hold more than four times the amount of deposits as credit unions, though brick and mortar giants Bank of America, Washington Mutual and Wells make up about 50 percent of market share.

What’s more interesting is that credit unions are slowly gaining on banks and leading in the deposit growth rate. From June 30, 2002, to June 30, 2003, bank deposits grew about $4.3 billion, a rate of about 12 percent. Over the same period, credit union deposits grew about $1.2 billion, or at a rate of about 16 percent. That means FDIC-insured institution’s deposit market share in San Diego County shrank from 82.3 percent to 81.8 percent, while NCUA-insured accounts grew from 17.6 percent to 18.1 percent.

Having worked in a business bank, Ed Daley, CEO of the San Diego Firefighters Credit Union and a Credit Union Alliance of San Diego member, has a unique perspective on this big and quiet rivalry.

“CUs pay a higher rate of interest than banks even in a low-rate environment,” he explains. “The business banks cater to business folks. They go for the larger loans and larger deposits and don’t want to mess with the smaller amounts.”

In the consumer loan arena, “banks like Washington Mutual are consumer driven. They’ve come to the realization that the consumer is important and they’re making more of a push for the consumer than they have in the past.”

Credit unions also are compelled to cater to consumers because there’s no access to secondary market capital, Daley says. “Banks can acquire growth.”

Credit unions also are under pressure to hold down costs. “If you’re going to add a fee, for example, that fee doesn’t go to shareholders as it does with a bank; that fee is taken from members. The bank’s business is to increase shareholder value—that’s what makes us (credit unions) a better deal for consumers.”

Another CU CEO says higher rates on deposits are driven by the need to make loans. “Credit unions are inclined to need deposits and be competitive on rates to get those deposits,” says Marla Shepard, CEO of First Future CU, among the county’s larger credit unions resulting from the merger of the former Santel and Kearny Mesa CUs.

First Future is testing the water in the business loan market. “We booked our first (business) loan this summer,” Shepard says. “We look to take in loans of $1 million to $5 million, and once we have that in place and it pays for itself then we want to start SBA lending.”

Shepard doesn’t see any problem attracting business lenders to her shop. “CUs are an attractive place to work,” she says. “There’s not the pressure to produce high volumes. Loan decisions can be made quickly; we don’t have to send it to San Francisco and we can be very responsive.”

At least one banker isn’t surprised at the credit unions’ increasing success in attracting deposits. “You can break the market into two pieces,” says Vince Siciliano, president and CEO of 1st Pacific Bank. “You have Wells, BofA and the other big banks and then you have 15 or 20 community banks. With the large banks, their service quality is going to be different than what you get at a credit union.”

Siciliano also says that because of their tax-free status and lack of shareholders, credit unions are likely to offer more competitive rates on loans and deposits. “If you’re at BofA your rates are going to be less on the deposit side than you get with a credit union,” he says.

So credit unions can get as fat as their community bank counterparts just by becoming skilled at plucking low-hanging fruit left by big banks, regardless of market share.

“It’s exactly parallel,” Siciliano says.

Of course, fat is relative. By definition, community banks aren’t.