Ailing California Still Has Strong Banks

SACRAMENTO, Calif. ( TheStreet) -- California, a state at the forefront of the real-estate boom and bust, had 15 banks that were in strong shape in the most recent reporting period.

The state has had 14 banks and thrifts shut by regulators this year and last, trailing only Georgia, with had 24 failures, and Illinois, with 17. California was home to 307 banks, and savings and loans as of June 30, the latest period for which there was complete information.

The most recent California failure was Affinity Bank, which was closed Aug. 28. The Federal Deposit Insurance Corp. sold Affinity's deposits to PacWest Bancorp ( PACW).

The largest failure in the state was IndyMac Bank, which had $31 billion in assets when it was taken into receivership in July 2008. That was also the costliest failure for the FDIC during the current crisis, with the agency's insurance fund bearing costs of $10.7 billion.

Other significant California bank and thrift failures included Downey Savings and PFF Bank & Trust, both of which were shut last November, with their deposits and branches acquired by U.S. Bancorp ( USB), and Vineyard Bank, which failed on July 18 and had its retail deposits acquired by Zions Bancorporation ( ZION).

Please see TheStreet.com's newly-enhanced interactive Bank Failure Map for a summary of failed banks and thrifts for 2008 and 2009.

Strongest California Banks and Thrifts

Based on June 30 financial reports, 15 California institutions were rated B-plus (good) or higher, down from 18 the previous quarter. In June 2007, there were 95 banks and thrifts in California rated B+ or higher.

California Banks and S&Ls Rated B+ or Higher (Millions of Dollars)
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TheStreet.com Ratings takes a conservative approach with bank ratings, and places the greatest weight on capital strength, credit quality and earnings stability.

Looking at the highest-rated California banks and thrifts, most had nonperforming asset ratios below 1%, and risk-based capital ratios greatly exceeding the 10% required for most institutions to be considered well-capitalized under regulatory guidelines.

The largest bank among the highest-rated in the state was Silicon Valley Bank of Santa Clara, a $10.7 billion subsidiary of SVB Financial Group ( SIVB).

Largest California Institutions

The following includes capital, earnings and asset-quality indicators for the 10 largest California banks and thrifts.

10 Largest California Banks and S&Ls (Millions of Dollars)
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Two of the nation's largest holding companies have subsidiary banks in the state with portfolios comprising almost entirely of residential mortgages, including Bank of America California NA, held by Bank of America ( BAC), which has remained profitable through the crisis, and JPMorgan B&TC NA, held by JPMorgan Chase ( JPM), which was organized in August 2008 and has also remained profitable.

The biggest bank in the state with a weak rating is United Commercial Bank of San Francisco, a subsidiary of UCBH Holdings ( UCBH).

United Commercial Bank was included in TheStreet.com's list of undercapitalized banks and thrifts as of June 30, with a tier 1 leverage ratio of 4.02% and a risk-based capital ratio of 7.92%. Those ratios need to be 4% and 8% to be considered adequately capitalized under regulatory capital guidelines. Well-capitalized banks are at least 5% and 10%.

Even after charging off $426 million in soured loans during the second quarter, United Commercial's nonperforming-loan ratio still increased to 10.44% as of June 30, up from 8.28% in the previous quarter. The annualized ratio of net loan charge-offs was 20.39%, and the bank's ratio of loan-loss reserves to total loans was 4.37% -- far behind the pace of loan losses.

United Commercial is operating under a regulatory cease-and-desist order. A filing with the Securities and Exchange Commission said earlier financial reports were inaccurate because fourth-quarter loan losses hadn't been fully recognized.

California Banks With Weakest Loan Quality

Eleven California institutions were included in the list of Undercapitalized Banks and Thrifts as of June 30.

There were 14 California banks and thrifts with nonperforming asset ratios that were higher than 10%:

California Banks and S&Ls with Nonperforming Assets Exceeding 10% (Millions of Dollars)
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OneWest Bank FSB was formed in March when an investor group purchased the former IndyMac Bank from the FDIC. While OneWest Bank had a relatively high nonperforming-assets ratio of 10.2%, it was strongly capitalized with a risk-based capital ratio of 28.33%, reflecting the FDIC's agreement to share in losses on residential mortgages acquired from the former IndyMac.

Free Bank and S&L Ratings

TheStreet.com Ratings issues independent and conservative financial-strength ratings on the nation's 8,300 banks, and savings and loans. These are available at no charge on the Bank & Thrift Ratings Screener.

--Reported by Philip van Doorn in Jupiter, Fla.

The writer owns shares in Riverside Banking Co., the holding company for Riverside National Bank of Florida, a former employer.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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