Valencia Bank Losses Rise; FDIC Aid Asked

Financially troubled Valencia Bank’s losses continued to mount during the third quarter, and the once-thriving bank’s holding company has asked the Federal Deposit Insurance Corp. for financial assistance, according to a recent filing with the Securities and Exchange Commission.

In addition, Santa Ana-based Valencia Bancorp reported in its quarterly statement to the SEC that it has “begun a search to supplement (the bank’s) management in order to have a management team acceptable to the FDIC.”

The holding company also reported in the filing that the FDIC, which has authority over Valencia and most other independent banks because it insures their deposits, has ordered Valencia to increase its capital and meet certain other criteria or face a loss of insurance coverage.

The report, filed with the SEC on Monday, reveals that Valencia Bancorp lost $666,000 for the third quarter, bringing its losses for the first nine months to $2.05 million. The bank holding company--whose primary asset is Valencia Bank--lost a total of $7.6 million in the previous two years.

The bank has been trying to shrink its assets as part of a plan to increase the ratio of its capital and reserves for loan losses to its assets, according to the report. Yet while its assets shrank 22% to $104.8 million on Sept. 30 from $133.5 million at the end of last year, its capital-to-asset ratio also fell, to 1.7% from 2.8% on Dec. 31, 1984. The ratio was 2.4% on June 30, 1985.

$7.5-Million Sale in Doubt

The FDIC has ordered the bank, among other things, to increase its capital and reserves to 7.5% of its total assets. And in April, the state superintendent of banks ordered the company to add $9.8 million to its capital.

Valencia Bancorp announced in August that a group of six investors was negotiating to purchase control of the bank for $7.5 million and that the sale, if completed, would relieve most of Valencia Bank’s financial and regulatory woes.

But in the report to the SEC, Valencia Bancorp said that delays in completing the transaction have occurred and “resulted in the Bancorp becoming less confident that the sale will, in fact, be accomplished.”

However, the bank and its holding company are pursuing talks with other possible investors, the report said. In addition, since Sept. 30 the bank has added $450,000 to its capital funds from settlement of a claim against a bond company.

Valencia executives could not be reached Thursday for comment.

The company admitted in its report that it was in violation of the orders and that “failure to cure an impairment of capital in a timely fashion could result in the California State Banking Department . . . taking possession of the bank.”

Compliance Reported

The report says, however, that Valencia officials believe that “if the sale of shares . . . is completed or another means is found to augment sufficiently the bank’s capital, and a pending application for a quasi-reorganization is granted by the department, the requirements of the order to restore capital could be met,” enabling Valencia “to settle ongoing bank regulatory proceedings, . . . to meet minimum capital guidelines . . . and to continue in operation.”

The bank holding company said it has complied with most of the state and federal orders, including an elimination of certain assets, revision of lending and collection procedures and adoption of a plan to control overhead and other expenses. A decrease in operating expenses, for instance, came mainly from a reduction in branches and a cut in staff to 134 employees from 223 at the end of last year.

The bank also has applied for financial assistance from the FDIC under a little-used program authorized in federal law. The report did not detail how much money the bank was seeking or what it planned to do with the money.