Health of San Joaquin Valley banks gauged

More than 80 of America's banks have failed this year, including one in the Northern San Joaquin Valley, as the recession takes it toll on financial institutions.

Are more locally owned banks in trouble?

Perhaps. But others are healthy.

Banks recently filed their second-quarter financial statements, which made public in-depth data on how they're faring. And at least two financial rating agencies have scored this region's banks and credit unions, issuing stars based on their perceived stability.

Some of the region's banks earned top marks, including Lodi-based Farmers & Merchants Bank of Central California, also known as F&M Bank.

A couple scored poorly. One was Tracy's Community Banks of Northern California.

Either way, bank and credit union deposits are safe. They're insured by federal agencies up to $250,000.

"Customers don't have to worry about the safety of their money," assured David Barr, spokesman for the Federal Deposit Insurance Corp. "Customers are protected."

But when locally owned banks fail, their communities suffer.

County Bank, Merced's only local bank, went belly up in February. Its assets and 39 offices were taken over by Westamerica Bank, but its stockholders and dozens of employees were out of luck.

Locally owned and controlled banks are vital for the financial health of a community, said Kent Steinwert, F&M Bank's president. Steinwert said community banks help create wealth in their home region because they employ more local people, make more local loans, purchase more local products, support more local charities than do banks whose headquarters are elsewhere.

"Local banks have a very strong penchant for investing in their community to make it a better place to live," said Steinwert, whose bank is owned by 1,470 valley families, including many in Stanislaus County. The bank has four branches in Modesto and three in Turlock. "We are very fortunate. About half of our loan portfolio is agricultural, and ag in the valley remains very strong."

F&M Bank garnered the highest possible ratings for financial strength from and Bauer Financial. In the fiscal quarter that ended June 30, the bank reported that less than 1 percent of its loans and leases are behind on payments.

Tracy bank 'below average'

On the opposite end of the scale, Tracy's CBNC received the lowest possible rating from Bauer and And it reported that 37.64 percent of its loans and leases are not current on payments. FDIC statistics show CBNC's bad debt rate is higher than 99 percent of its banking peers.

"Bankrate believes that, as of March 31, 2009, this bank exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, well below standard capitalization and near normal liquidity," according to the CBNC analysis posted on

Since March 31, financial disclosures made public by the FDIC show the Tracy bank's troubles have continued. During the quarter that ended June 30, its net income decreased 10.38 percent, its assets declined 26.01 percent and its percentage of noncurrent loans and leases rose.

CBNC will be able to "weather the economic storm," its chairman, Donald Woods, said in a statement e-mailed last week to The Bee.

Woods said his bank is well-capitalized and, if necessary, it will be financially supported by its parent company, Community Bankshares Inc., which has $2 billion in assets.

Woods dismissed the poor ratings his bank has received.

"Due to the complexities of analyzing the financial strength of a bank, the companies providing the ratings are only able to use public information, which is only a portion of the data needed to evaluate the financial condition of a bank," Woods wrote. "Therefore, many factors are overlooked or left out of the analysis."

"Earnings at CBNC have been impacted in the last year, as they have in all banks, due primarily to provisions to the loan loss reserve that have been made in accordance with regulatory guidelines and prudent banking practices," Woods explained. "Loan loss reserves are created to protect against future losses that may occur, not to identify current losses as they occur."

Woods said "the higher the loan loss, the better able the bank to withstand further economic strains. CBNC maintains a strong loan-loss position which provides the ability to weather the economic storm."

Real estate loans hurt

Virtually all American banks have struggled with the economy.

"This is a very difficult market in California," said Douglass Eberhardt, president of Bank of Stockton, which includes Modesto Commerce Bank and Turlock Commerce Bank. "You can't be in banking in California without being in real estate."

Real estate values have plummeted throughout the state, and particularly in the Northern San Joaquin Valley. So banks that loaned a lot of money for building development, such as Merced's failed County Bank, haven't done well.

Eberhardt said Bank of Stockton's loan portfolio is "very diversified," and it didn't make subprime mortgage loans. Because of that, he said, his bank has fared better than most in California.

The real estate downturn has posed more problems for Oak Valley Community Bank, the only Stanislaus County-based bank.

During the three months that ended June 30, Oak Valley lost money. Provisioning for loan losses of $2.1 million and write-downs of $846,000 because of real estate foreclosures decreased the bank's income.

"While we are of course disappointed to post a net loss for the quarter, core earnings are stronger than ever and the bank is well-positioned for economic recovery," said Ron Martin, Oak Valley's chief executive officer.

Six loans in trouble

Oak Valley President Chris Courtney said "the number of problem loans is six," including three home developments that haven't done well.

Courtney said all the property foreclosed on has been "written down appropriately and all nonaccrual loans are adequately reserved in light of current market values."

All things considered, Courtney said, "we're tickled pink" with how well Oak Valley is doing.

Judging by analyst ratings, most of the region's credit unions are doing OK.

Modesto's Community Trust Credit Union was the lowest-rated institution, getting Bauer's bottom rating as of March 31. But in June it merged with Self-Help Federal Credit Union to increase its financial strength.

Bee staff writer J.N. Sbranti can be reached at or 578-2169.