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Sunday, Apr 14, 2024

Pacific Western Discovers One Bank’s Failure Can Be Another’s Gain

Another California bank was seized by federal regulators Aug. 28, bringing the number of failures in the state to nine this year, including Temecula Valley Bank in July. The tally for the nation as of last month was 84.

Pacific Western Bank, the second largest bank based locally, took most of the assets and deposits of Affinity Bank, based in Ventura, after the Federal Deposit Insurance Corp. deemed Affinity’s capital levels inadequate.

Pacific Western, the main unit of parent PacWest Bancorp, has raised $150 million this year for acquisitions, but it really didn’t need much of those funds for this FDIC-assisted deal.

In fact, Pacific Western received $79 million in cash for Affinity’s assets and deposits, and should see its own capital levels rise thanks to the transaction.

Affinity’s bulging portfolio of problem loans eventually spelled the demise of the 10-office bank, according to recent quarterly reports. As of the second quarter, Affinity had 10 percent of loans in nonaccrual status. For the first six months of the year, the bank lost $41.3 million, compared with a net loss of $10.6 million for the like period of 2008.

Those losses caused Affinity’s total risk-based capital to dwindle to 3.38 percent, compared with June 2008 when its ratio was actually above 10 percent, meaning it classified as a well-capitalized lender.

Pacific Western Bank is already counting on the Affinity deal to generate a net after-tax gain of $45 million. That, combined with the lower risk associated with the problem loans it’s taking (due to the loss sharing arrangement with the FDIC), will also boost the bank’s already healthy capital ratios.

PacWest Chief Financial Officer Vic Santoro said he wasn’t certain what the bank’s capital ratios would be following the transaction, except that these would rise.

Pacific Western intends to maintain all of Affinity’s offices, as none overlap with any of Pacific Western’s branches; it also gains two offices in the Bay Area, the first time it’s entered that market. The bank will likely retain most of Affinity’s 150 employees, Santoro said.

After the deal, Pacific Western’s assets are $5.7 billion, $4.2 billion in deposits, with 66 branches, including 19 in San Diego County.

Apparently, many of Affinity’s deposit customers were aware of the bank’s woeful condition and yanked cash from their accounts in the past few months. Deposits dropped from $905 million at the end of June to $870 million as of Aug. 28, according to FDIC reports.

The FDIC estimated Affinity’s failure will cost the agency and its shrinking insurance fund $254 million.

The FDIC also reported that the number of troubled banks in the nation at the end of the second quarter was 416, up from 305 troubled banks at the end of March.

That’s the largest number of banks on that list since June 1994, when the total was 434.

While the FDIC doesn’t disclose the name of the troubled banks, it’s quite likely that two local banks that have been operating below required capital levels are there.

Imperial Capital Bank and San Diego National Bank have taken heavy losses this year that have severely depleted their capital, with both reporting they’re seeking new investments.

SDNB said its parent, FBOP, is working on a recapitalization plan that’s expected to be in place by the end of this month. ICB is already in violation of a regulatory order to increase its capital as of last month.

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BofA Reports New Hires:

Bank of America, the Charlotte, N.C., bank that’s the largest in the nation, has been so busy refinancing and making new home loans this year, it increased its local staffing by 50 employees, said John Frazza, regional sales executive.

The new jobs include underwriters, processors, sales and support staff, and increased the total for Frazza’s unit to 450 workers.

BofA, which acquired Countrywide Financial last year, did 500,000 refinancings and new mortgages in the first half of the year, with more than half of that in conventional, fixed-rate mortgages, Frazza said.

Altogether, BofA’s local employment, including its 76 branches, was 1,954 as of June 30, said Market President Rick Bregman.

While some lenders may be hunkering down, BofA “is open for business and has a desire to look at every loan opportunity out there,” Bregman said.

The bank, which reported making $78 billion in commercial non-real-estate loans in the second quarter, is particularly active in Southern California in terms of lending to the health care industry, hospitals, universities and nonprofits, Bregman said.

BofA obtained $45 billion from the federal government last year through the Troubled Asset Relief Program and desires to repay the government, but has yet to do so, said spokeswoman Colleen Haggerty.

Send any news of local financial services companies to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at 858-277-6359.


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