Is Your California Bank Financially Safe?

Following our recent looks at troubled banks and S&Ls in Florida and Georgia, we're shifting our focus to California.

The state of California has been at the forefront of the housing crisis, with a lot of coverage on the thousands of foreclosures in Riverside County (and others) and continued chatter about option-payment adjustable-rate mortgages.

These mortgages allow borrowers to choose from a few options for their loan payment. If they take the lowest payment option, the monthly payment is lower than the interest accrued the previous month, which makes the loan balance increase. A rising loan balance can be brutal in a declining real estate market.

While we're going to look at banks headquartered in California, we need to mention Wachovia (WB) and its ill-timed purchase of Golden West Financial in 2007. Most of Wachovia's current problems stem from the portfolio of option-ARMs, more than half of which are to California borrowers, inherited from Golden West. Wachovia's option-ARM portfolio totaled $121 billion as of March 31.

Here are the 10 institutions out of California's 319 banks and S&Ls with the weakest asset quality as of March 31:

In order to be considered well-capitalized, a bank or S&L needs to have a leverage ratio of at least 5% and a risk-based capital ratio of at least 10%. 

Four California institutions were considered below well-capitalized per regulatory guidelines as of March 31. These included the three bolded ones above, as well as County Bank of Merced (held by Capital Corp. of the West (CCOW).)