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Sources Say ‘Challenged’ 1st Pacific Bank of California Is in Play

Several local banks are poring over the books at 1st Pacific Bank of California for possible purchase, say sources close to the Business Journal.

Though neither the target bank nor buyers mentioned would confirm discussions, President Ron Carlson said the bank has hired New York investment bank Sandler O’Neill & Partners to help raise capital and explore a merger.

When asked if his bank was allowing banks to do due diligence, Carlson said, “I can’t comment on any stuff like that.”

Potential bank sellers and buyers often sign confidentiality agreements when exploring a merger and an acquisition.

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However, local bankers say a sale wouldn’t surprise them, given its recent losses.

Last month, the $400 million bank restated its 2008 financial results, raising 1st Pacific’s net loss to $21.8 million, mainly from one $7 million charge-off.

The bank’s nonperforming assets at the end of 2008 were $13.6 million or 3.54 percent.

Its leverage capital ratio fell to 5.39 percent, above the 5 percent minimum required by regulators to be classified as adequately capitalized.

“They’re facing the same challenges that every other commercial bank in California is facing, and they built their portfolio on real estate,” said Frank Mercardante, president of Discovery Bank in San Marcos.


Neither Confirms Nor Denies

The $171 million Discovery said it was being sold to Irvine-based CommerceWest Bank last month in a deal valued at about $10 million, and said it expected to close in the second or third quarter.

Paul Rodeno, president of Security Business Bank of San Diego, denied his bank was among the suitors for 1st Pacific’s hand. SBB was supposedly in talks with 1st Pacific last year, but Rodeno wouldn’t confirm or deny that happened.

“We don’t have anything going on with them,” Rodeno said. “But obviously, they have their challenges.”

SBB obtained $15.8 million in additional capital through the U.S. Treasury Department’s Troubled Asset Relief Program, giving it additional money for possible acquisitions.

California Community Bank and First Business Bank were also mentioned as possible suitors. Both declined to comment.

Larry Hartwig, president of California Community, based in Escondido and with $175 million in assets, said he’s “is always keeping our eye out for what makes sense to benefit our shareholders.”

Although 1st Pacific’s financial condition has deteriorated, it does not face regulatory orders like Discovery Bank.

It also has eight branches with about $300 million in deposits, which would help, if the bank does enter into sale negotiations, Mercardante said.

Regents Bank President Dan Yates said the current turmoil in the financial industry has prompted private investment banks to approach healthier banks with the purpose of providing capital to buy banks in trouble.

As the economy shows few signs of life, Yates expects the number of bank failures and mergers, whether voluntary or involuntary, to rise.

“It’ll be a year before things bottom out, and we’ll see more mergers happening,” he said.

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