Grossmont Bank Buys Failed California Heritage
The deposits and some of the assets of failed California Heritage Bank were bought Saturday by Grossmont Bank, thereby ensuring that the insolvent bank’s two branches--which were seized by regulators Friday night--will be open Monday morning.
It will be “business as usual,” pledged Grossmont President Donald K. Clague, who arrived with three of his employees at California Heritage’s main branch in Hillcrest shortly before 3 p.m. Saturday.
Federal regulators seized control of California Heritage after state banking officials had declared it insolvent. The bank’s net worth, or the excess of its assets over liabilities, had plummeted to nearly zero, and its assets had dwindled to less than $23 million, a 23% drop since Dec. 31.
Grossmont, the only bank to submit a bid to buy California Heritage, will pay $400,000 for the failed bank’s $18.7 million in 3,502 deposit accounts. The Federal Deposit Insurance Corp. (FDIC) agreed to the purchase Saturday morning, and San Diego Superior Court Judge Gilbert Harelson signed an order approving the deal in the afternoon.
Grossmont, the county’s fourth largest independent bank, with about $210 million in assets, will also purchase some of the failed bank’s loans and assets for $12.5 million. Bank officials have about 30 days to determine which of the loans they will assume.
Grossmont Bank is owned by Mexico City-based Bancomer Holding Co., but only two of the bank’s 10 board members have direct ties to Bancomer. The bank, formed in 1972, has about 220 employees, seven branches and a net worth-to-assets ratio of about 10%, well above the 7% required by bank regulators. That net worth ratio will drop to about 9% after factoring in the California Heritage purchase, Clague said.
To facilitate the transaction, the FDIC, which insures each deposit account up to $100,000, will pay Grossmont $9.3 million for $10.2 million of the failed bank’s assets and loans, officials said Saturday.
The FDIC will take “most if not all of the non-performing loans,” according to Bill Olcheski, an FDIC spokesman based in Washington, D.C. “We start them out with a clean bank; they start with good loans.” When a team of 50 state and federal regulators took control of 11-year-old California Heritage Friday night, it was the 108th bank closure in the United States this year and the sixth in California. It was the third such closure in San Diego in the past 12 years. Pacific Coast Bank was closed in 1982 and U.S. National Bank was shut down in 1973.
A handful of regulators will remain at the bank for the next few weeks to liquidate assets, but will remain “out of view from the public,” said Scott Jones, the FDIC’s “closing manager” overseeing the California Heritage seizure.
After discussing the transition process with Jones for about an hour Saturday afternoon, Clague assembled the failed company’s 17 employees in the bank lobby.
“We’d like to welcome you all to Grossmont Bank,” he said. “I know (the bank closure) is extremely frustrating and it has hurt many of you very deeply.”
Joanne Galleher, Grossmont’s chief financial officer, thanked the staff for working over the weekend, and, after she distributed a stack of job applications to California Heritage workers, the employees applauded.
Regulator action against California Heritage had been expected. Since 1983, the bank, which was owned by Mesa Bancorp, had been operating under FDIC-imposed sanctions because of a high volume of bad loans, poor lending practices and extraordinarily high compensation and fees to directors and associates.
Canadian real estate investor Milton Sorokin had proposed a $1.7-million cash infusion, but the deal was mired in controversy and delays. By the time the bank was seized, even Sorokin’s investment would have left California Heritage’s net worth far short of the regulatory minimum.
