Valley Bank Closed Due to Loan Losses
State banking regulators late Friday closed West Valley Bank, a Woodland Hills institution with one branch in Tarzana, after an investigation turned up “significant” loan losses that the regulators said made the bank’s condition unsafe for its 2,700 depositors.
California Banking Commissioner Louis Carter immediately sold the bank’s business to First Interstate Bank Ltd., a newly chartered bank owned by Los Angeles-based First Interstate Bancorp., which also owns First Interstate Bank of California. A Superior Court judge was expected to approve the sale late Friday night, thus permitting West Valley’s offices to reopen as branches of the new bank Monday morning.
Officials of the Federal Deposit Insurance Corp., which insured individual West Valley deposits up to $100,000, took possession of the bank’s offices shortly after 6 p.m. and began an audit of its books.
Senior Deputy Banking Commissioner Howard Gould said most of West Valley’s losses resulted from its move last May into the insurance-premium financing business. In such financing, banks lend money to borrowers, usually businesses, who need help paying their insurance premiums. The loans typically are arranged by insurance brokers.
Gould said the state’s investigation indicates that some insurance-premium borrowers at West Valley Bank “may not exist.” When the problem was discovered by state banking officials during the course of a routine audit late last fall, the bank was forced to write off a portion of its insurance-premium loans, Gould said, resulting in the bank’s reporting a net loss of $2.6 million for 1984. The bank, established in 1978, had total assets of about $40 million and deposits of more than $34 million, he said.
Banking regulators have turned up no evidence that officers of the bank acted fraudulently, Gould said, but he added that state insurance investigators and the FBI are looking into the situation. Spokesmen for the Department of Insurance and the FBI could not be reached for comment late Friday.
West Valley Bank had about $6 million of “problem” loans, most of which involved insurance-premium financing, Gould said.
