'David suffering for Goliath's sins;' also, 2 in top Bauer rank

There are two fewer locally based banks in the North Bay than there were at this time last year.

Tamalpais Bank was shut down by the Federal Deposit Insurance Corp. and purchased by Union Bank. Napa Community Bank, previously under the parent company of Capitol Bancorp Limited of Lansing, Mich., was sold to Rabobank, a Roseville-based community bank.

The changes, which both allowed a larger institution to gain a presence in markets where they saw potential, come as community banks are under increasing pressure from regulators that many say is depressing lending.

“David is paying for Goliath's sins,” said Ray Byrne, president and chief executive officer at North Coast Bank in Santa Rosa.

He said community banks, which traditionally have been given more freedom to operate in the local markets they know best, are being monitored more, required to issue more reports and are subjected to added inspection and examinations.

“Creating more governmental monitoring will eventually cost the consumer more money in the long run to pay for the greed on Wall Street,” he said.

He stressed community bankers are being restrained from working with clients they know. He said the regulators are not seeing the difference between a good business owner with longstanding credit history and a bad loan made by a careless loan officer.

“There is no room to think like a community bank,” he said.

Other financial industry veterans are seeing the same thing.

“When I think of financial institutions and the business owners I deal with and the problem of access to capital, I realize how difficult it is out there,” said Linda Kachiu, partner at Zainer Rinehart Clarke, a CPA firm in Santa Rosa.

“Because of the big guy regulation, the regulators are making lending so hard and it is from the top-level banks that the squeeze is coming from.”

The trend toward fewer local institutions is widespread.

Since the beginning of 2008, 252 banks have been shut down by the FDIC. Each bank was purchased by another institution, many of which have purchased multiple smaller banks.

In comparison, from 2000 to the end of 2007, 27 banks were closed.

In the North Bay, there are several other banks that are under pressure from their regulators, both locally based and banks that just lend here.

Sonoma Valley Bank has been given strict deadlines of when its regulators want to see certain capital ratios as has Sonoma Bank’s parent company, Sterling Financial, based in Spokane, Wash.


Bauer Financial Inc. has been analyzing and reporting on the financial condition of the nation's banking industry since 1983. Bauer gives a rating of zero to five stars to banks based on financial information in quarterly reports.

According to the Bauer website, the quarterly data is “subjected to a thorough analysis and is compared with historical data for consistency. Upon completion of the analysis, a star-rating is assigned based on a scale of zero to five stars with five stars being the strongest.”

Of the banks based in the North Bay, Bank of Marin and First Federal Savings & Loan Association received a five-star rating. Both banks are based in Marin.

Westamerica, Luther Burbank Savings, Summit State Bank, Circle Bank and AltaPacific Bank received four-star ratings.

Bank of Napa received a three-and-a-half-star rating.


Bank of Marin Bancorp was ranked 42 on the Top 200 Community Banks list as published by U.S. Banker magazine in its June issue.

“We are honored to be on the Top 200 Community Bank list again, and pleased to rank in the top 50 leading community banks in the nation," said Chief Financial Officer Chris Cook. “Our rank speaks to the bank’s history of performance and is a direct reflection of the hard work of our employees who focus on what’s best for our customers, shareholders and the community.”


The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. issued final guidance on June 21 to make sure financial institutions were following safe practices when it comes to incentive compensation.

The guidance was originally proposed by the Federal Reserve last year. The other three regulating bodies are joining in issuing the final version.

Firms are submitting plans to the Federal Reserve outlining steps and timelines for addressing outstanding issues to ensure that incentive compensation plans do not encourage excessive risk-taking.

"Many large banking organizations have already implemented some changes in their incentive compensation policies, but more work clearly needs to be done," Federal Reserve Governor Daniel Tarullo said. "The Federal Reserve expects firms to make material progress this year on the matters identified as we work toward the ultimate goal of ensuring that incentive compensation programs are risk appropriate and are supported by strong corporate governance."

The guidance was designed to make sure incentive compensation arrangements at banking organizations tie rewards to longer-term performance and do not undermine the safety and soundness of the firm or create undue risks to the financial system.

Federal Reserve staff and the other regulators will prepare a report after 2010 on trends and developments in compensation practices at banking organizations.


Submit items for this column to Jenna V. Loceff at jloceff@busjrnl.com, 707-521-4259 or fax 707-521-5292.