cpiller@sacbee.com
The bank lost more than $5.5 million last year, including more than $3.5 million in the fourth quarter. According to Oakland-based Foresight Analytics, Granite Community holds $14.2 million in loans that are in default or close to default – about four times the bank’s reserve fund to cover such losses.
“They do face a takeover at some point in time unless they can improve their capital situation,” said Bert Ely, a banking industry analyst in Alexandria, Va., who reviewed the bank’s most recent government filing for The Bee. Ely said the bank reported an unusual burden of bank-owned real estate – a result of area foreclosures – and a perilous dependence on construction and commercial real estate loans.
“It’s quite possible that their losses … will wipe out their capital and render them insolvent,” said Ely.
Last March, just 30 U.S. banks or thrifts faced such severe problems, according to data from Foresight, a market research firm. All but one have since been seized by regulators. As of September, 56 banks or thrifts struggled with challenges as extreme as Granite Community’s current plight; since then, 41 of those have failed.
After a bank failure, depositors are safe, protected by insurance for up to $250,000 each, but shareholders lose their investments and local commerce could suffer.
“Our special marketplace, south Placer County, has been impacted dramatically” by the recent economic downturn, said David R. Kaiser, Granite’s chief executive. “We’ve been aggressive at recognizing problems. We haven’t tried to sugarcoat anything.
“We see a fairly bright future,” he added, noting that remaining challenges are “not a bottomless pit.” Kaiser said he hoped to increase lending to small businesses this year as the economy recovers.
The Granite Bay lender, founded in 2002, is among several small local banks that have been hammered by the region’s exceptionally severe real estate bust and ill-fated lending practices. Just five of the 15 commercial banks based in the Sacramento area made money last year.
Granite Community did not receive funds from the federal TARP bailout, unlike the second-biggest regional loser in 2009, Community Business Bank in West Sacramento. It lost nearly $4.2 million – more than its entire $4 million bailout.
Last year, The Bee examined Community Business Bank’s unusually high level of insider lending to its own directors and their family members. Since then, the West Sacramento lender has sharply reduced its loans to officers and directors.
Mark Day, Community Business Bank’s chief financial officer, said tax disadvantages due to his bank’s status as a relatively new institution worsened its 2009 losses. He did not respond to a question about whether the bank still intends to repay its bailout funds, as officials said last year it would.
Sacramento’s River City Bank lost $3.3 million in 2009, Five Star Bank in Rocklin lost nearly $2.3 million, and Community 1st Bank, a Roseville lender that also got TARP funds, lost $1.2 million.
Granite Community’s condition is by far the worst of any local bank, according to leading financial rating companies. It’s the second lowest-rated bank of its size in California and is in worse shape than more than 98 percent of peers nationally, according to Bankrate.com. Bauerfinancial.com gave Granite Community zero stars – the lowest possible rating.
In 2008, Granite Community entered a formal agreement with its chief regulator, the U.S. Comptroller of the Currency. The agency required the bank to increase capital reserves to cover bad loans. But the bank’s condition has since deteriorated, as demand for housing and commercial development collapsed.
Granite Community is trying to raise $6.5 million from investors to return its capital holdings to levels demanded by regulators. So far, the bank has taken in about $2.2 million, Kaiser said, which is being held in escrow until other funds are raised.
Raising enough capital “is definitely an uphill battle” for a small, struggling bank in today’s economic climate, Foresight’s Matthew Anderson said. Takeover by a larger, healthier bank might be another option, he said.
“Someone putting capital in has to ask,” Ely said, “is this bank insolvent, and if so, am I throwing good money after bad?”
