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Valley Community Bank downgraded; name change planned at First National Bank

July 1, 2011

Santa Cruz Sentinel by Jondi Gumz (6/28/11)

SANTA CRUZ -- BauerFinancial, the independent rating service, has downgraded Valley Community Bank from four stars, excellent, to three-and-a-half stars, good. A year ago, the bank had the top rating, five stars.

Based in Pleasanton, Valley Community Bank was the only lending institution serving Santa Cruz County to see its rating slip this quarter.

Nonperforming assets have increased from 5.4 percent to 8 percent, the highest ratio of any bank serving the county.

According to BankTracker, a project of the American University School of Communication, bank lending nationwide is down 9 percent compared to 2008, a consequence of the financial crisis. Bad assets held by banks declined in the first quarter but are still three times as high as in 2007, due in large to foreclosures and developers who have not repaid loans.

Banks are being pressed by regulators to set aside reserves against potential losses, leaving them less money to loan, according to analyst Greg McBride of Bankrate.com.

In reporting a $455,000 first-quarter loss, Richard Loupe, Valley Community's president and chief executive officer, said the bank "continues to aggressively recognize and deal with our problem loans."

He pointed out the bank's risk-based capital ratio was 14.47 percent, well above the 10 percent level that regulators consider well capitalized.

Pacific Capital Bank, which owns First National Bank of Central

California in Watsonville, was upgraded by Bauer from one star, troubled, to two stars, problematic, as nonperforming assets dropped from 17.8 percent to 4.7 percent.

The bank has been profitable since September after receiving a $500 million infusion of capital, according to spokeswoman Debbie Whiteley.

A rating based on the past four quarters is "not an accurate picture of the company," she said.

First National Bank, founded in 1984, will be branded July 11 as Santa Barbara Bank & Trust, a name used by 31 of the 47 branches. The old signs will be taken down the week of July 5.

The switch is about marketing efficiencies and brand awareness, Whiteley said, noting the transition was "smooth" at San Benito County branches in May and hasn't affected business.

BauerFinancial rates 915 banks in the nation as problematic or troubled banks, which represents an improvement from the height of the recession two years ago, according to Bauer president Karen Dorway.

The situation in California remains challenging, with 17 percent of banks troubled and problematic compared to 12 percent nationwide and 39 percent with the top two ratings compared to 61 percent nationwide.

Union Bank remains the only five-star bank serving Santa Cruz County.

U.S. Bank and CitiBank joined Santa Cruz County Bank and Comerica with four-star ratings.

U.S. Bank and CitiBank each had three-and-a-half stars the prior quarter.

Over the quarter, non-performing assets declined from 3.8 percent to 3.5 percent at U.S. Bank and from 2.4 percent to 1.7 percent at CitiBank.

Liberty Bank, which has branches in San Lorenzo Valley, saw nonperforming assets increase from 6.5 percent to 7.9 percent but had a positive quarter after posting a loss for 2010.

All six of credit unions serving Santa Cruz County were in the black for the first quarter, including Santa Cruz County Employees Credit Union, which ended 2010 with a loss.

Bay Federal Credit Union, which has been offering financial education to its members, saw nonperforming assets drop below 1 percent compared to a peak of 2.3 percent two years ago.

 

 

 

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