Solvang-based Los Padres Bank was seized by federal regulators Aug. 20 in the second tri-county bank failure of the financial crisis.
The Federal Deposit Insurance Corp. took Los Padres, a subsidiary of Harrington West Financial Group, into receivership. San Diego-based Pacific Western Bank — the same bank that acquired Ventura-based Affinity Bank when it failed in 2009 — will assume the company’s 14 branches, $870.4 million in assets and $770.7 million in deposits.
Pacific Western will pay the FDIC a premium of 0.45 percent to assume all of Los Padres’ deposits. It also entered into what’s called a “loss-share agreement” with the FDIC on $579.8 million of Los Padres’ assets. According to a Pacific Western release, the FDIC will absorb 80 percent of losses and share in 80 percent of loss recoveries.
“The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers,” the FDIC said in a news release.
Former Los Padres branches will open as Pacific Western branches on Monday, Aug. 23. Los Padres depositors can continue to access their accounts by using ATM or debit cards and writing checks over the weekend. Loan customers should continue to make payments as usual.
Los Padres was the fifth largest banking company based in the Tri-Counties. The bank struggled for months to meet regulators’ capital requirements. Federal regulators placed it under a “prompt corrective action” — a final warning before seizure — on July 26, giving it five days to get its capital levels back up, be merged or acquired, or be seized by the feds.
The bank lost $45.4 million in 2009 but earned $74,000 in the first quarter of 2010.
“We keep working each and every day and have several viable alternatives that we’re working on,” Craig Cerny, Harrington West’s CEO, told the Business Times a few weeks before the FDIC stepped in. “It’s business as usual. We’re trying to recapitalize.”
The bank had been struggling for months to boost its capital, selling its Kansas City branches to Arvest, an Arkansas-based company, for book value plus a $4.1 million cash premium. That cleared $96.2 million in loans and assets from Los Padres’ books as well as $94.9 million in deposits.
According to its first-quarter call report on March 31, the bank had $901 million in assets. Its tier one core capital ratio was 5.37 percent and its risk-based capital ratio was 7.35 percent at the end of the first quarter.
A review of its first-quarter balance sheets shows Los Padres was deeply entrenched in the housing market, with an average of $742.7 million in mortgage loans and mortgage-backed securities on its books. That compares to just $44.9 million in non-mortgage loans.
“We’ve been through a hellacious economic and housing decline,” Cerny told the Business Times.
Los Padres had 157 full-time equivalent employees at the end of the first quarter, according to FDIC filings.
It is only the second bank in the region to be seized by regulators in the past 20 years, after Affinity Bank, which was taken over in August 2009 after it also failed to shore up its capital levels, but the vast majority of tri-county banks were unprofitable in 2009.
Before that, the last round of bank seizures in the Tri-Counties happened in the early 1990s, during the savings and loan crisis. In April 1990, regulators seized Santa Barbara Savings, according to press reports at the time. In 1991, Santa Barbara-based County Bank, which had $1.2 billion in assets, came under federal control after losing more than $70 million.
• Check the Aug. 27 print issue of the Business Times for more on this story.