Bank Fails in Orange County; 2nd in 8 Days

After a three-year struggle for survival, South Coast Bank of Costa Mesa was closed Friday by the state Banking Department, which said the bank’s capital was dangerously depleted.

It was the second Orange County bank failure in eight days and the fourth in California this year. Nationwide, 25 banks have been closed this year, including one in Oregon on Friday night.

A California banking official said the closing of South Coast, following by one week the failure of Capistrano National Bank of Santa Ana, marked the first time in the state’s post-Depression history that two banks have collapsed in such a short period.

The bank will open Monday under new ownership and no depositor will lose money.

Becoming Routine

The shutdown also showed how blase Southlanders are becoming about bank failures.

By 5 p.m. Friday--an hour before the bank was served with the court order declaring it closed--trucks from two Los Angeles television stations were stationed in the parking lot at South Coast’s Costa Mesa headquarters.

As soon as the bank was closed, reporters began interviewing customers who were leaving or just arriving. One couple, Edward and Sandy Chapman of Santa Ana, said they had heard earlier in the day that the bank might be closed. Chapman said he and his wife came by with a camera to take pictures because “I’ve never seen a bank closing before. I wanted to come see it.”

Another customer, Diane Weeks of Costa Mesa, was calmly munching an apple as she tried the front door minutes after the closing. Voicing surprise when a newspaper photographer took her picture, Weeks asked what was happening. Told the bank had been closed by regulators, she smiled and walked away, remarking, “Oh, well, I only have $400 in there.”

Playing to the television crews and photographers who were covering the closing, a group of bank employees briefly put up a hand-made “Hi, Mom” sign on the front door before gathering inside the closed bank to hear a short speech by chief liquidator Herbert Chin. Minutes later, the rest of the federal officials and the locksmith arrived.

The Federal Deposit Insurance Corp., which was named receiver and liquidator of the bank within minutes of the closing Friday, marched a group of 30 bank liquidation specialists into the Costa Mesa office about 6:30 p.m. About 90 minutes later, the agency announced that Harbor Bank of Long Beach had won a competitive bid to take over South Coast’s $26.8 million in deposits and some of its operations.

Two Offices to Reopen Monday

Subject to court approval of the deal, Harbor will open South Coast’s Costa Mesa and Fountain Valley offices under its own name Monday morning.

Because of the acquisition, all of South Coast’s depositors automatically will become customers of Harbor and none of the depositors will lose any money--even if their account balances exceed the $100,000 maximum covered by federal deposit insurance, state and federal officials said Friday.

The failure rate among independent California banks this year--four in 3 1/2 months--is well ahead of last year’s, when a total of six failures ranked the state third in the nation among states with bank collapses. With 79 failures nationally, 1984 was the worst year for bank closings since the Depression, but federal regulators have said they expect as many as 100 bank failures this year--many of them in Midwestern farm states.

State banking analysts, however, said the shutdowns in California this year do not signal the beginning of a new era of bank problems but represent the wrapping up of a chapter that began in 1981 when the Southland real estate industry entered a major economic slump and a large number of banks that were heavily involved in real estate lending found themselves with growing numbers of loan defaults and property foreclosures.

South Coast, which was founded in 1975 and had grown to $60 million in assets by early 1982, had almost $17 million in foreclosed real estate on its books by the middle of that year.

It had less than $30 million in assets and only $26 million in deposits when the order to close from state banking Supt. Louis Carter Jr. was delivered to South Coast President Carl Tinder shortly after 6 p.m. Friday.

In a statement issued late Friday, an FDIC spokesman in Washington, D.C., said South Coast’s collapse was caused mainly by losses on real estate loans made by “former management,” an indication that the agency does not hold Tinder responsible for the bank’s problems.

Tinder, formerly vice president of Maritime Bank of California, was named president of South Coast in November, 1983, long after the bank’s real estate lending policies had backfired and its loan losses had begun to mount.

Gerry Findley, a longtime analyst of the California independent banking industry, said Tinder did everything possible to save the bank, “but it got to the point where it just had too much on its books that it couldn’t collect interest on. That was bleeding them to death. The die had been cast by the time Tinder got there, although he probably didn’t think so.”

Tinder, in fact, put together two preliminary agreements with outside investors whose cash would have improved South Coast’s condition. Both deals fell through, however. The last one--with an unidentified Arizona investment group willing to pump $2 million into the bank--was canceled less than a month ago when the state refused to approve it because the investors failed to comply with requests for information about the investors.

Tinder’s preliminary deal-making, however, prolonged the bank’s existence, as did his ability to help persuade South Coast’s directors and senior officers to show their faith in the institution last summer by purchasing a total of $600,000 worth of stock.

The insider stock purchase boosted the bank’s flagging capital base and probably added six months to South Coast’s life, sources said.

Not Insolvent

Details on the bank’s capital were not available Friday, although the state made it clear that South Coast was not closed for insolvency but for operating in a depleted financial capacity that endangered depositors’ funds.

Still, in its Dec. 31 financial report to the state, South Coast said it had only $1.18 million in capital, of which $365,000 was set aside in a reserve against future loan losses. The bank’s capital-to-assets ratio--a critical measurement of a bank’s financial stability--was 3.6% on Dec. 31, far below the 7.5% level that the FDIC had demanded of South Coast more than a year earlier.

Because of its long history of financial troubles, South Coast’s collapse Friday did not surprise many people--including the bank’s customers.

James Salleny of Tustin made the last deposit of the day at South Coast--a $3,000 severance the manufacturing engineer had collected when he was laid off his job just an hour earlier.

‘I’m Not Surprised’

But Salleny, who barely cleared the front door before he heard from a television reporter that the bank had been closed, said the situation didn’t bother him.

“I’m not surprised because I’ve heard during the past few weeks that the bank was in trouble. The president told me they were operating from week to week. I’ll just wait until they reopen. I’m not worried,” Salleny said.