The three branches of Sonoma Valley Bank, seized by regulators Friday evening, reopened Saturday morning as branches of Westamerica Bank, a reassuring transition for the bank's customers but a devastating one for its hundreds of investors.
Beginning at 9 a.m., customers entering branches in Sonoma, Boyes Hot Springs and Glen Ellen walked beneath new banners installed overnight reading "Sonoma Valley Bank is now part of Westamerica Bank" before being warmly greeted by long-time tellers offering them plates of cookies.
Glen Ellen resident Pam Wagner said a teller she's known for years greeted her as usual Saturday morning and reassured her that everything would be fine. Wagner came away unconvinced.
"It's is very sad to see that a big bank is taking over a little bank," said Wagner, whose veterinary business has accounts with the bank. "It just makes me feel sick."
As an owner of a small business owner, she said the seizure fills her with dread that the longer the recession drags on the harder it is becoming for smaller businesses to survive against better capitalized rivals.
"We're all a little scared and a bit fragile," she said.
San Rafael-based Westamerica Bank purchased all the deposits and most of the assets of Sonoma Valley Bank in a deal brokered by the Federal Deposit Insurance Corporation. The bank had been given until Aug. 15 to raise $20 million but failed to meet the deadline.
News of the first Sonoma County bank to collapse since the economic downturn began in 2008 hit around 6 p.m. Friday.
Employees were informed during a companywide meeting hastily called by bank President Sean Cutting Friday evening. Dozens of regulators and Westamerica Bank employees then descended on the bank to secure its assets, begin transitioning the bank to Westamerica ownership, and prepare to quickly reopen the branches.
Robert Thorson, chief financial officer of the San Rafael-based Westamerica Bank, confirmed reports that employees were distraught by the news.
"Of course it was emotional. It's always going to be a difficult situation with something like that," Thorson said.
How the employees will be affected remains unclear. No decisions have been made about staffing levels, but Thorson said the bank was "looking for a high level of retention."
As tough as that uncertainly has been on the employees, investors are the ones bearing the brunt of the bank's demise.
From its founding in 1988, Sonoma Valley Bank was envisioned as one that would be owned by a wide spectrum of the community. The bank encouraged people to become "charter shareholders" with promotions to get free checking accounts when they spent $100 on 10 shares of stock, said Gina Cuclis of Sonoma.
"It almost feels like the death of a friend," she said.
Cuclis, who owns a public relations firm, and her husband liked the idea of joining "a local bank started by local people" and over the years increased their investment.
Several years ago they put $5,000 in Sonoma Valley Bank stock into each of their twin daughter's college funds, she said. The girls are now 17, just on the verge of needing the money, and the stock is worthless, Cuclis said.
"But there's a lot of people in this town that had a whole lot more money invested in this than us," she said.
Mel Switzer, Jr. who retired as CEO in 2009 but remained the chairman of the board of directors, said "there are well over 1,000 outside shareholders that have been impacted by this, and we're just devastated for them."
There were 2.2 million shares of common stock outstanding as of May 5, 21.5 percent of it owned by boardmembers and executives, according to bank filings. At a closing price of $1.11 Friday, that means $2.5 million in value was wiped out Friday.
But that's a pittance when compared to what's been lost since the stock's high of $31 in October of 2007. Since then $69 million in value has vaporized.
It didn't have to happen, Switzer said.
The bank was doing a good job of righting the ship, just not quickly enough to satisfy regulators, he said. It was unrealistic that the bank could raise $20 million between March and Aug. 15 in the current economic climate, Switzer said.
"We had lots and lots of interest. We just needed more time," he said.
Much like the Exchange Bank in Santa Rosa, which faced big losses when it expanded beyond Sonoma County to follow the housing boom into the Central Valley, Sonoma Valley Bank in recent years had made bigger commercial loans outside of the valley.
According to former board member Gerald "Jerry" Marino, one deal involved an $11 million loan to develop a self-storage facility south of Santa Rosa. The bank was forced to foreclosure and the losses were steep, Marino said.
Marino, who said he owns about 80,000 shares in the bank's holding company, Sonoma Valley Bancorp, described himself as a "thorn in the side" of the bank executives for years. Bank leaders set up performance bonuses for executives and other policies that enriched themselves at the expense of shareholders, he said.
While regulators have been hard on the bank in forcing it to revalue its assets, he blames its leaders for making unwise loans to developers with whom the bank had little history.
"They're blaming the FDIC but I blame the loan committee because the buck stops there," Marino said.
Cutting, who grew up in Sonoma and started at the bank as a loan officer in 2002, became chief executive of Sonoma Valley Bank in 2009, replacing longtime CEO Switzer. He could not be reached for comment.
Switzer maintained the bank was on the mend and had a plan in place, but just needed some flexibility from regulators.
"It's just tragic. Our board just doesn't feel this was necessary at all," he said.
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