Risk-based capital ratios of 12 percent to 13 percent are the new normal for community banks, according to Montecito Bank & Trust Chairman Michael Towbes.

Speaking to community leaders at a United Way of Santa Barbara County luncheon on July 13, Towbes recounted how he and co-founder John O’Keefe had a hard time raising $1.25 million for Montecito Bank & Trust’s initial capitalization in 1975. Today, the bank has roughly $950 million in assets and its capital position was so strong it declined to take government TARP money.

“The more we saw of TARP, the less we liked it,” said Towbes, adding that he expects a “tough couple of years” ahead for the economy but no double-dip recession.

He said his bank and others are willing to lend to qualified borrowers, but he expects loan demand to remain soft. “Many small businesses are concerned about staying afloat,” he said.

Towbes also said that while Congress and Federal Reserve officials are telling banks to make more loans, bank examiners are extremely tough on financial institutions over loan standards. The new financial services reform bill making its way through Congress is going to encourage community banks to maintain higher capital ratios, Towbes said, and increased FDIC charges will put pressure on bank profits.

“For banks under $500 million in assets, regulatory costs are high,” he said.

Montecito Bank & Trust was one of just two banks in Ventura and Santa Barbara counties to post a profit last year; the other was County Commerce Bank, based in Oxnard.