The recession that derailed the careers of dozens of community bankers in the San Francisco Bay area hit the Sacramento Valley last week, a region that until now has been spared the worst of California's economic malaise.
First Commercial Bank, the largest community bank in Sacramento, put its chief executive and its chief credit officer on administrative leave after an examination by the Federal Deposit Insurance Corp. and California bank regulators.
First Commercial Bank At a GlanceHeadquarters: SacramentoAssets: $352 millionBranches: EightChairman: Manuel Perry Jr.Nonperforming 10.87%asset ratio:Return on -2.04%assets:Return on -27.95%equity:
The reason for the move, according to several sources, is the slow pace at which First Commercial is resolving its troubled real estate assets. Both men are expected to sever their ties with the company they have run since 1985, though Manuel Perry Jr., chairman, would not comment on the status of their employment.
"We were recently examined," said James E. Culleton, interim chief executive of First Commercial until a permanent replacement can be hired. "They found some real estate loans, the liquidation and sale of which had not gone on schedule."
First Commercial was founded in 1979 by a group of Sacramento businessmen and grew fast in 1982 when it purchased 13 branches of the old California Canadian Bank. At the end of 1993, the bank had $352 million in assets, down from a high of $422 million in 1991. It now operates nine branches, but they stretch from San Diego in the far south to Roseville north of Sacramento.
Intractable Problems
"They've just had loan problems, and they haven't been able to resolve them, plain and simple," said one Sacramento banker.
First Commercial's loan problems go back at least three years. In 1991 its nonperforming assets were at a whopping 8.69% of total assets, at a time when most community banks that bet heavily on the real estate market were just realizing their problems.
In 1992 nonperformers hit a peak of 13.45% of assets, and fell back to 10.87% at the end of last year, when massive writedowns caused a $7 million loss for the year.
Mr. Culleton said "100%" of the bank's problems are in troubled real estate loans, most of them residential. He said the bank didn't bet heavily in commercial real estate.
Mr. Culleton said the bank is actively liquidating the real estate, and has had "some recent success." California has become a hotbed of troubled real estate investors, buying their goods mostly from banks.
Possible Capital Shortage
However, First Commercial indicated in a statement that it could face a capital shortage after its most recent examination. Mr. Perry said the regulators likely would force the bank to take additional writedowns and make "substantial additional provisions" to its loan-loss reserve.
As a result, he said, the bank likely would be categorized as undercapitalized for regulatory purposes.
"The examination results aren't final yet," Mr. Culleton said. "A lot of our second-quarter results depends on that."
