Valencia Bancorp Says It’s Selling a 70% Stake

Valencia Bancorp of Santa Ana said Thursday that it has signed a tentative agreement to sell a controlling interest to a private investor group to raise $7.5 million in desperately needed cash for the holding company’s ailing banking subsidiary.

The deal, if completed by the Sept. 15 deadline agreed on by both sides, would give the group of six investors control of 70% of the stock of Valencia Bancorp, whose only asset is Valencia Bank.

On June 3, officials of the Federal Deposit Insurance Corp. gave the 14-year-old bank 60 days to increase its capital by several million dollars. Valencia has not met the deadline, but a bank official said Thursday that the federal regulatory agency has not complained.

Hope to Satisfy Agency

Kenneth Slezak, Valencia’s senior vice president, said bank officials hope the tentative sale agreement will satisfy the agency’s demands.

The transaction must be approved by state and federal banking regulators and also is subject to Valencia’s ability to obtain bonding for its officers and directors, as well as to completion of the buyers’ financing arrangements.

The investors were identified as Roger V. Wise of Bowling Green, Ohio, and Timothy R. Wise, Peter McDermot II, Howard H. Hucks, Charles A. Elfsten and Wesley C. Bose, all of Southern California.

Elfsten, reached late Thursday at his home in Laguna Beach, said all the investors except Roger Wise are longtime Orange County residents and that most are in real estate development or related fields. He said all are investing through his company, Ocean Pacific Capital of Newport Beach.

Bank officials would not give any other information about the six men, and their attorney could not be reached for comment.

In an unusual disclosure, the announcement also said that Valencia Bank, which has less than a third of the capital that it needs to meet regulatory requirements for continuing operation, faces “administrative proceedings which could result in withdrawal of insurance” of deposits unless a sizable amount of money is pumped into its capital account from this or another deal.

Voluntary Disclosure

Slezak said Thursday that the disclosure was not required by the FDIC but was made at the insistence of Valencia’s attorney.

The tentative nature of the proposed new capital infusion was underscored by a statement in Thursday’s announcement that Valencia Bancorp “reserves the right . . . to pursue other opportunities to enhance the bank’s capital.”

Slezak said that Valencia officials are continuing talks with “several” other potential investors.

The holding company last year had agreed to sell the bank to a Peruvian banking concern “and we found we had all our eggs in one basket when that deal fell apart,” Slezak said.

Valencia Bank, with $114.86 million in assets as of June 30, has lost more than $5 million in the past 3 1/2 years, including $1.38 million for the first six months of 1985. The bank was operating with a capital-to-assets ratio of 2.29% on June 30, far below the 7.5% level demanded by the FDIC in May, 1984.

Problem Loans

In addition to the bank losses--which have come mainly from problem real estate loans--Valencia’s trust department has agreed to pay a group of 37 clients an estimated $8.2 million in principal and interest that they lost when their pension funds were illegally invested by several former trust department employees.

The trust department problems are not yet reflected in the bank’s financial statements, but if the settlement results in a loss, that ultimately will wind up on the bank’s books, further depleting Valencia’s capital.

During its 14-year existence, Valencia has had other suitors, but the closest it came to being acquired was when an agreement was signed in July, 1984, with Credito del Peru Holding Corp. The Peruvian bank holding company agreed to acquire Valencia for $11.7 million in cash and to pump up to $20 million worth of additional new capital into the bank.

Seized $5.2 Million

However, the deal was canceled at the beginning of April, when Valencia alleged a breach of contract and seized $5.2 million left on deposit by the Peruvian company.

Later that month Valencia Bancorp was sued by a group of doctors who claimed that the bank’s trust department had mismanaged their employee pension fund accounts.

HISTORY OF VALENCIA BANK

TOTAL ASSESTS NET INCOME 1980: $130.0 million $1.5 million 1981: $164.2 million $1.7 million 1982: $166.7 million $13,000 1983: $175.9 million ($1.9 million) 1984: $139.1 million ($2.0 million) 1985*: $114.8 million ($1.4 million)

*through June 30