Sonoma Valley Bank has until Aug. 15 to improve its financial health, according to an agreement with federal regulators announced Monday.
Last month, government regulators gave bank executives 30 days to either raise more money from investors or find another bank willing to buy Sonoma Valley Bank.
Regulators on Monday announced they had essentially granted the 22-year-old bank an extension, according to the agreement signed by managers at the Federal Deposit Insurance Corporation and the state's Department of Financial Institutions.
Sonoma Valley Bank has taken huge loan losses as a result of the real estate downturn and recession. It lost $19.2 million last year and another $2.9 million during the first three months of this year, according to its financial statements.
Under the terms of the agreement, regulators established firm guidelines for bank executives to follow.
By Aug. 15, the bank needs to raise about $20 million in order to improve its capital ratios, said Sean Cutting, bank president and chief executive officer. It is working with a national investment bank to attract potential investors or a buyer.
Ongoing turmoil in the stock market and continued concerns about the economic recovery make finding investors and improving the bank's financial health a difficult task, Cutting said.
The bank is also required to notify regulators regarding changes to senior management, and it is required to reduce the number of troubled assets on its books, among a cadre of other requirements.
"It is a difficult time to do all these things," he said. "But we believe it's doable."
Sterling Financial Corp, which owns Sonoma Bank in Santa Rosa, received a similar notification from regulators last year and was supposed to meet a December 15 deadline, but it has been granted more time and continues to raise funds from investors.
While the Sonoma Valley Bank agreement appears to provide it with additional time, regulators stated they could also take action against the bank at any time — including seizing the bank.
If a bank is seized by the government, it usually reopens the next business day under the control of another bank that has taken it over, according to the FDIC.
Each customer account is insured by the government up to $250,000 for an individual, or $500,000 for a joint account. Customers with questions about whether their accounts are adequately insured should speak with a banker.
Last year, 140 banks failed in the United States.
As part of its agreement, Sonoma Valley Bank must improve two key measurements of a bank's financial health.
It must increase its tier 1 capital ratio to 10 percent by Aug. 15. This ratio measures the size of the bank's equity and cash reserves, compared to the risk and size of its assets. The bank's tier 1 capital ratio was 4.1 percent at the end of March.
It also must increase its total risk-based capital ratio to 12 percent or higher. As of March 31, its ratio was 5.44 percent.
Founded in 1988, Sonoma Valley Bank operates three branches in Sonoma, Glen Ellen and Boyes Hot Springs. It reported $363 million in assets at the end of March.
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