Last year was horrendous for many American banks, including several based in the Northern San Joaquin Valley and nearby foothills.
Five local banks lost a combined $40 million in 2009, and asset values at four of those banks dropped, new financial reports show.
Bad commercial real estate loans, particularly for subdivisions that went bust, are blamed for most the losses.
As a result, a Tracy bank plans to merge with its Colorado affiliate, a Sonora bank is selling stock to raise extra capital, a Manteca bank has stopped loaning money for land purchases and two Stockton banks have
significantly written down the value of their assets.
Local control soon may be lost for some of these community banks.
Locally owned and managed banks play a key financial role in communities. They are an important source for small-business loans. Their local headquarters provide relative high-paying jobs. And the profits they make tend stay in the community, circulating through the local economy.
So losing a locally based bank can be a big blow to the community, eliminating an important source of financing at a time when other lending institutions are making it harder to get loans.
About 140 U.S. banks failed in 2009, and another 20 have already gone under this year, including four Friday.
"The whole industry had a catastrophic 2009," said Don Woods, chairman of Community Bankshares, which is the bank holding company for Tracy's Community Banks of Northern California.
The Tracy bank lost $13.3 million last year, and the value of its assets plunged 18.8 percent to an average $148 million. That bank has lost money every quarter for the past two years.
To shore it up, Woods said the Colorado-based Community Bankshares in January shifted money to the Tracy bank "to make it well capitalized."
Woods told The Bee on Wednesday that his company would file paperwork this week with the Federal Reserve System to merge the Tracy bank with Community Banks of Colorado.
"This is a merger of two banks within our holding company," said Woods. He said the Tracy bank "will become a distinct operating unit within another bank," and there will be no operational, staffing or name changes.
The merger is expected to be complete by June.
The consolidation will benefit the Tracy bank, Wood said, because "now it's going to be part of an organization that's got over $2 billion in assets."
Stockton bank needs capital
Expanding assets and working capital is something several local banks need to do.
"We're looking for capital," acknowledged Rick Simas, president of Stockton's Pacific State Bank. He said his bank is considering merger options with other banks, and it is "working very hard" to avoid failure.
Pacific lost nearly $18.6 million last year, and its asset value dropped 7 percent to an average of about $401 million. It has lost money for five consecutive quarters.
"We're trying to get rid of real estate loans, which are the cause of the losses," said Simas, who grew up in Modesto and took over Pacific last year.
Simas said Pacific also lost $13.1 million during the last two years because it had invested in other banks that failed, along with Freddie Mac and Fannie Mae investments that went bad.
"I always thought it would be fun to be president of a bank, but I'm not having much fun now," said Simas, who previously had worked for Merced's County Bank, which failed last year.
Simas said bank regulators are watching Pacific's operations closely, but regulators haven't launched any formal enforcement proceedings against the bank.
"It's a very tough economy. We're only going to do as well as our (loan) customers," said Simas. Many local businesses are hurting and their property values are declining, he said, noting how that hurts banks that hold loans with those businesses.
"The federal government is broke. The state is broke. And I don't see a lot of good things economically," Simas said. "I don't think there's any way to get around the pain."
Sonora's Mother Lode Bank is trying to ease its fiscal pain by attracting more investors. This month it launched a private stock offering to raise $3.2 million.
"We're still considered an adequately capitalized bank," said Mother Lode's President Charles Milazzo. "Our liquidity is very, very strong."
But the 5-year-old Mother Lode Bank lost nearly $2.9 million last year, which pushed its net income-to- assets ratio down to a negative 4.41 percent. That is among the worst income ratios for any bank its size in America, according to the Federal Financial Institutions Examination Council's Uniform Bank Performance Report for 2009.
Last summer the Federal Deposit Insurance Corp. issued a cease-and-desist order that accused Mother Lode of unsound banking practices, including "operating with inadequate capital in relation to the kind and quality of assets held."
Bank working with FDIC
Mother Lode has been working to comply with the FDIC order to fix its finances.
"Last year was an absolutely terrible year," Milazzo acknowledged. He said bad loans in Tuolumne and Calaveras counties had to be covered, which required the bank to set aside sizable assets.
"Each bank has it's own strategy for recognizing loans they consider substandard," Milazzo said. "We've been very, very aggressive in our write-downs to be sure there's no surprises. I know our bank is doing the right thing. ... We have put aside as much as we can."
Milazzo said he is optimistic the bank will rebound: "We're very much here to stay."
Manteca's Delta Bank National Association also will survive, assured its President Warren Wegge.
Delta lost more than $3.9 million last year, and its asset value plummeted 18.7 percent during 2009.
"We're still solvent," Wegge said. "We will not have a significantly profitable (2010). We might even lose some dollars ... but we'll be fine."
Wegge said bad loans stuck Delta with $4.4 million in foreclosed property, including a condominium development in Turlock and 24 empty subdivision lots in Modesto's Village I.
That defaulted Modesto development, along Fine Avenue, "was one of the largest hits the bank has taken in its history," said Wegge, but he wouldn't say how much Delta lost on that defaulted loan.
The foreclosed condominiums on Turlock's Vermont Avenue, however, had a value of $2.4 million, according to property records filed last December.
Because Delta lost so much on housing development deals, Wegge said, "anything related to land we won't even look at now."
Stockton's Community Bank of San Joaquin also had two big loans go bad last year, which contributed to it losing $2.3 million and having its assets shrink by 3.8 percent.
One of those bad loans, a Modesto commercial deal worth more than $1 million, is in the process of being foreclosed, according to Richard Dodge, San Joaquin's chief financial officer. He said the other $1 million-plus loss was for a Calaveras County deal. He wouldn't reveal any more about those bad loans.
"We are confident we have those assets appropriately valued and written down on our balance sheets," said Dodge, who describe his bank as "a healthy institution."
"We're confident we're going to return to profitability in 2010," Dodge said.
Bee staff writer J.N. Sbranti can be reached at email@example.com or 578-2196.