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Tuesday, Dec 6, 2022

Proposed Deal Could Solve Temecula Valley’s Woes

Temecula Valley Bancorp’s agreement with investors that would boost its capital by $210 million, and comply with regulators’ orders, could be the answer to its prayers, but the arrangement still requires further review from investors and, perhaps more importantly, bank regulators.

Temecula Valley Bancorp, the holding company for Temecula Valley Bank, with $1.5 billion in assets, said June 1 that it signed a letter of intent with lead investor Bancroft Capital of Manhattan Beach, along with other institutional investors, including Orient Property Group of Los Angeles, to inject up to $210 million in two equal amounts into the troubled lender.

The first $105 million would go to increase the bank’s equity, while the other $105 million would pay for a pool of problem loans and other nonperforming assets that would be contained in a separate entity from the Temecula-based bank.

Temecula Valley said in its press announcement that the deal with investors is subject to completion of due diligence and satisfaction of certain other conditions, which were not revealed.

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“We feel that this is an excellent, viable opportunity and we hope to have a definitive agreement signed within 30 days,” said TVB CEO Frank Basirico.

New Entity

The deal entails establishing a so-called “bad bank” that would be separate from the bank and contain most or all of the bank’s problem assets, including a hefty number of construction and land development loans, and a rising tide of foreclosed real estate.

“This is a way for Temecula Valley to shed itself of its bad loans, by selling them for pennies on the dollar so they can rid themselves of those assets,” said Mike Perry, chief executive at San Diego Trust Bank.

As of March 31, TVB reported $182.3 million in gross nonperforming assets, including $35.7 million in real estate owned. As of Dec. 31, TVB reported holding $146.5 million in nonperforming assets.

The most recent figure means 12.2 percent of its assets are nonperforming, requiring the bank to put aside higher loan loss reserves. As the bank increases reserves, that comes off the bottom line, resulting in higher net losses, which shrinks its capital.

Bank regulators closely scrutinize the capital levels of all banks, but especially those that are losing lots of money and are in danger of failing, and have ordered Temecula Valley to improve its capital base.

TVB, with 11 branches, including seven in San Diego County, has been losing money in the past year, as increasing numbers of construction and land development loans, many of them to borrowers in the Inland Empire, sour and default.


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