Sonoma Valley Bank OKs more flexible structure

NORTH BAY – Sonoma Valley Bank’s shareholders recently voted to change the institution’s laws of incorporation to enable it to sell up to 2 million shares of preferred stock, which in turn allowed it to participate in a federal program to create new lending.

The change, said Sean Cutting, the recently named president and chief executive officer of both the bank and holding company Sonoma Valley Bancorp, will allow for more flexibility in managing the bank’s capital position.

And it allowed the bank to participate in the Treasury’s Capital Purchase Program and receive $8.5 million to add to its capital base. The bank had applied for and was approved to participate in the program at the end of last year, but because of the laws of incorporation, had to restructure.

“It was essentially an older article of incorporation,” Mr. Cutting said. “When the bank was founded, nobody really thought about it.”

The bank has roughly 1,600 shareholders. “Eighty percent of all outstanding shares voted,” he said. Of the 80 percent, there was a 75 percent yes vote.

He said many shareholders initially misunderstood about what they were voting. They thought they were voting on whether to participate or not in the Troubled Asset Relief Program that includes Capital Purchase, he said.

But he said the voting process raised shareholders’ awareness of the federal program that is widely misunderstood.

“It is a complicated subject,” he said. “There is a lot of public anger and frustration.”

With the bank’s loan-to-deposit ratio at 108 percent, he said Sonoma Valley has been lending in anticipation of the added funds.

“We have continued to make loans as we always have. Changing the laws allowed us to participate, but we were not waiting on the funds to keep doing what we have been,” he said.

The No. 1 benefit is the ability to raise capital in an otherwise difficult market, he said.

“The market continues to sag, and the lack of confidence is growing and growing. Being more conservative now is better. To live with some strings is better than not. My feeling is when you get passed the cookie jar, you take a cookie,” he said.

Mr. Cutting replaced Mel Switzer Jr., who retired last month after about 19 years as chief executive officer. Mr. Switzer will remain vice chairman of Sonoma Valley Bancorp and chairman of Sonoma Valley Bank.

Mr. Cutting joined the lending group of Sonoma Valley Bank as vice president in 2002. He was promoted to senior vice president and chief lending officer the following year and in January of 2008, was named president, chief lending officer and chief administrative officer of the bank.

“I appreciate the board’s confidence in me, and it is an interesting time to be elevated as CEO at a bank, but I am working hard to earn their faith,” Mr. Cutting said.