Federal regulators have given Sonoma Valley Bank until Aug. 15 to significantly improve its financial condition, according to an agreement announced Monday.
In mid-April, the FDIC formally directed the bank to raise up to $20 million. Although a limit of 30 days was part of that order, Sean Cutting, bank president and CEO, said the bank was working with regulators on a more realistic goal.
The new agreement extends the deadline and gives the bank specific performance standards it must meet in the meantime.
“We entered into a consent order with our regulators that formalizes steps which are already underway and that we and our regulators feel are necessary to maintain the bank’s financial health,” Cutting said in a statement.
Regulators will measure the bank’s progress in two categories. One is its Tier 1 Capital Ratio, a formula involving equity and risk-weighted assets. The first-quarter figure was 4.1 percent; the FDIC has established 10 percent as the acceptable minimum.
The other key gauge is the bank’s Total Risk Based Capital Ratio. It must improve from 5.4 percent, its first quarter number, to at least 12 percent, also by Aug. 15.
The bank has also been directed to take specific actions to improve the quality of its loan portfolio, including adoption of new policies and procedures to monitor risk.
Sonoma Valley Bank has suffered major loses on unpaid development and construction loans. Last July, it announced its first quarterly loss in 10 years. As the economy contracted, so did bank equity, which ultimately fell below the government threshold.
Loses totaled nearly $20 million in 2009 and $2.9 million in the first quarter of this year.
The agreement also stipulates that the bank have and retain qualified management, and prepare and submit progress reports.
Customer deposit accounts are unaffected by the regulatory arrangement. Deposits remain fully covered by FDIC insurance to at least $250,000 per depositor. In addition, non-interest bearing transaction accounts and qualified interest bearing (NOW) checking accounts are fully guaranteed by the FDIC for an unlimited amount of coverage.