Foreclosures bleed area's local lenders

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.