Bank Crisis Hits Home

Christine Mason McCaull and Chip Roberson did their business banking at Sonoma Valley Bank, one of eight banks seized and sold last week by regulators. They wanted to do business locally, but 118 mostly small local banks have been seized this year.

Image: File

If small towns like Sonoma, California, are players in the global economy on the upside, they’re also seeing the downside of a slow-moving national banking crisis, a fact that has come home to roost in this community about 40 miles north of San Francisco.

On Friday around 6 p.m., federal regulators shut down Sonoma Valley Bank’s three branches in the historic wine country town of Sonoma, Boyes Springs and Glen Allen, and turned its assets over to a new owner, WestAmerica Bancorp. Sonoma Valley was one of eight banks seized by regulators last week, and among 118 seized so far this year.

“It almost feels like the death of a friend,” Gina Cuclis of Sonoma told the Press-Democrat of Santa Rosa, California. Cuclis, owner of a public relations firm, and her husband had invested $5,000 in Sonoma Valley bank stock in each of their daughters’ college funds. They were attracted by the ethos of a bank that was funded by local people, for local people.

Sonoma, as reported in Portfolio.com earlier this year, is an example of a small town with deep connections to the global economy that go far beyond its reputation as one of the world’s great wine-growing regions.

“That was our bank. This ‘too big to fail’ thing and the bailout prompted us to choose an alternative when we opened the accounts for WideAngle after the company was split (this spring).” Christine Mason McCaull wrote in an email exchange with Portfolio.com this morning. “We were encouraged by Ariana Huffington’s Move Your Money Project to be part of a movement that brought banking back to a local level,”

Portfolio.com is following Mason McCaull and her business partner, Chip Roberson, as part of the Great Global Business Adventure as they grow their social-media metrics software and consulting firms.

And McCaull writes that she isn’t just saddened to see the local bank fail, but angered that banking Goliaths were bailed out, prompting FDIC Chairman Sheila Bair to observe in 2009 that small banks wouldn’t be able to compete with the bailed-out giants.

“Now that irritates me—maybe even radicalizes me—to see the handouts to the big banks who then took exorbitant executive bonuses and suffered no substantial consequences, while people trying to bring back local banking autonomy, decisionmaking control, high levels of service, and day-to-day support without the high fees are forced out of business,” Mason McCaull writes.

Roberson wrote that the loss of the bank was a blow to his home community and a personal loss as well."

I am deeply disappointed in the collapse of SVB. It was a very well-loved bank with deep roots in our community—Sonoma Valley. Now there is no bank in our valley that is based in our valley. Unlike other banks which have a presence in Sonoma Valley, SVB was a member of our community who not only sponsored our kid's sports teams, but also was the go-to bank when a charitable fund needed to be established. They also had strong representation in and support for the Spanish-speaking community," Roberson wrote. "My family and businesses were spread out over several other banks (e.g. Chase, BofA, and Wells Fargo), and after the Move Your Money Project started, I moved them all to SVB. While I didn't get online banking or ATMs with the same bells and whistles, I did get a bank that would call me on the phone when something odd came through (like a large check to a new payee). I was just glad to be in business with a local bank that still seemed to serve our community rather than one that views it as another source of fees. They also had a consistency in staff from year to year that was nice."

The story of Sonoma Valley Bank is one playing out over and over in a year where regulators expect to close many more banks than last year’s 140.

As with other small banks hit by the crisis, Sonoma carried too many bad real estate and commercial loans on its books when the economy went south.

Sonoma Valley Bank had been limping along for some time. As of June 30, the bank had total risk-based capital of 6.59 percent, according to figures from San Francisco investment bank Stone & Youngberg and and research firm SNL Financial. Regulators consider at least 10 percent to be well capitalized, the San Francisco Business Times reports.

The $337 million Sonoma bank’s nonperforming loans stood at 15.58 percent of total loans and loan loss reserves were 4.84 percent as of June 30.

And as mentioned, Sonoma Valley wasn’t the only bank to be seized by regulators last week. ShoreBank, of Chicago, an institution with the motto “Let’s change the world” and an emphasis on lending to businesses in low-income neighborhoods, was taken over by a new institution called Urban Partnership Bank. With 15 branches, ShoreBank was the largest of the closures last week.

All told, four banks in California, two in Florida, and one in Virginia were shuttered by regulators. The banks in addition to Sonoma Valley and ShoreBank closed included: Los Padres Bank of Solvang, California; Butte Community Bank of Chico, California; Pacific State Bank of Stockton, California; Imperial Savings & Loan Association of Martinsville, Virginia; Independent National Bank of Ocala, Florida; and Community National Bank of Bartow, Florida.

Bair has said repeatedly that the number of banks her agency will seize this year will exceed last year’s 140.