Struggling under the weight of bad real estate loans, 1st Pacific Bank of California was seized by regulators Friday, making it the fifth San Diego financial institution to fail during the economic downturn.
The six-branch community bank, with about $320 million in assets, was sold by the Federal Deposit Insurance Corp. to City National Bank of Los Angeles, which agreed to take all of 1st Pacific’s deposits and the bulk of its assets.
Customers shouldn’t see any immediate changes, with the bank continuing to operate under the 1st Pacific name for now. Branches will reopen Monday under the control of City National, which has $20 billion in assets and 67 branches in California, Nevada and New York City.
The acquisition was City National’s second purchase of a troubled San Diego bank. In December, it bought Imperial Capital Bank of La Jolla in another regulator-assisted deal. Before buying these two banks, City National had offices in Carlsbad and downtown San Diego. It also operates a regional processing center in La Jolla and employs about 120 workers in the county.
1st Pacific joins San Diego National Bank, La Jolla Bank, Temecula Valley Bank and Imperial Capital as local failed institutions. Nationwide, 68 banks have been taken over by regulators so far this year. Last year, 140 institutions failed, the most since the savings and loan crisis in 1992.
In addition to the failures, some troubled banks have been forced to merge with rivals, often at the behest of regulators. They include nationwide giants with large footprints in San Diego County, such as Washington Mutual and Wachovia.
Two years ago, Washington Mutual was the third largest financial institution in San Diego County with about 15 percent of deposits. Wachovia and San Diego National Bank battled for sixth place, each with about 5 percent of local deposits.
With these institutions gone, there are only a handful of troubled banks remaining in the county. Assuming commercial real estate markets stabilize, it appears the worst may be over.
So now the institutions that remain are starting to assert themselves in the battle for market share, both locally and nationally.
JPMorgan Chase, which took over Washington Mutual, said last week that it plans to open 11 new branches in San Diego County this year, including some in Stater Brothers supermarkets. That would give Chase 89 branches in the county.
Next week, U.S. Bank will begin switching San Diego National branches to its brand. U.S. Bank acquired the longtime local bank in an FDIC-assisted deal last fall. It plans to close eight of the 27 former San Diego National branches because they’re located within a half mile of existing U.S. Bank branches. It also will shutter one U.S. Bank location.
Still, the Minneapolis-based institution will have 78 branches in the county when the change is complete later this month, up from 60 before. And it hopes to add new branches in the county in the next two years, said Karen Racusin, head of retail banking for U.S. Bank in the region.
“What we’re kicking around as a nice healthy market size is another 20 branches down there,” she said.
Last month, Wells Fargo completed the conversion of former Wachovia branches in the county. It purchased struggling Wachovia in 2009. Wells closed six of Wachovia’s 11 local branches. But it still has the largest branch network in San Diego County with 105 locations and is the deposit market share leader, according to the latest data from the FDIC.
Even smaller banks are finding opportunities in the changing landscape. San Diego Trust Bank hired the former manager of San Diego National’s Point Loma branch, which is closing. Next month, the community bank will open a branch across the street.
“A few weeks ago there was a report that said 67 percent of the clients of a failed institution end up leaving that institution when it’s acquired by another bank,” said Michael Perry, San Diego Trust’s chief executive. “If somebody wanted to be banking with U.S. Bank (in Point Loma), they would already be banking with them.”
For customers, the fallout from bank failures depends a lot on how the acquiring institution approaches its business, said David Ely, a finance and banking professor at San Diego State University.
San Diego National, for example, was an active hotel lender. San Diego National, Temecula Valley Bank and La Jolla Bank were also heavy commercial real estate lenders. Temecula Valley had a $300 million U.S. Small Business Administration portfolio.
If the banks that took over these institutions have different lending niches, it could create difficulties for some borrowers, Ely said.
But it’s too early to say how it will shake out.
U.S. Bank is attempting to make the transition as smooth as possible at San Diego National. Although 116 corporate positions were eliminated as a result of the merger, the bank does not plan any layoffs at the branch level. Employees at the closing branches will be moved to other U.S. Bank locations.
Jim Wening, San Diego market president for U.S. Bank, said the institution offers a broad range of lending and other services. In addition, U.S. Bank has national lines of business headquartered in San Diego, including a small business lending operation.
With 1st Pacific, the bank got into trouble with its land and construction loans to developers. The deteriorating loans drained the capital cushion that regulators require for banks. 1st Pacific was “under-capitalized” based on FDIC guidelines in its most recent regulatory filing.
Last year, 1st Pacific attempted to merge with First Business Bank, a much smaller but cash-rich community bank based in Ramona. The deal fell apart, however. Afterward, regulators ordered 1st Pacific to raise about $20 million in additional capital by March 31.
The bank said last month is was working with potential investors but had failed to meet the deadline.
Nice deposit franchise, brain-dead lenders. A bank I’m affiliated with bid on this in the FDIC auction but we lost – too conservative. There are several more San Diego-based banks likely to fail.
Nice deposit franchise, brain-dead lenders. A bank I’m affiliated with bid on this in the FDIC auction but we lost – too conservative. There are several more San Diego-based banks likely to fail.
Nice deposit franchise, brain-dead lenders. A bank I’m affiliated with bid on this in the FDIC auction but we lost – too conservative. There are several more San Diego-based banks likely to fail.
Nice deposit franchise, brain-dead lenders. A bank I’m affiliated with bid on this in the FDIC auction but we lost – too conservative. There are several more San Diego-based banks likely to fail.
Nice deposit franchise, brain-dead lenders. A bank I’m affiliated with bid on this in the FDIC auction but we lost – too conservative. There are several more San Diego-based banks likely to fail.
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