State, U.S. Officials Shut Valencia Bank

Valencia Bank of Santa Ana was seized and declared insolvent by federal and state regulators Friday, succumbing to three years of losses totaling more than $10.4 million.

The closure, the first in California and ninth nationwide this year, capped three unsuccessful efforts by Valencia’s directors in the past two years to find a buyer for the bank, which had $101 million in assets at the end of 1985 and is the county’s oldest independently owned bank.

Valencia is the eighth Orange County bank to fail since 1982.

About 40 examiners from the state Department of Banking and the Federal Deposit Insurance Corp., which insures deposits up to $100,000, moved into Valencia’s black-glass building shortly after 6 p.m. Friday to begin counting cash, reviewing the bank’s books and changing the locks.

The future of the 15-year-old bank was in doubt Friday night as regulators continued their search for one or more buyers.

“We will make every effort to merge this institution into a healthy institution,” said Scott Jones, FDIC closing manager. “Right now we just have to wait for the dust to settle. But negotiations are going on to see if the bank can reopen Monday under a new name and it can be business as usual,” he said.

“Our main goal is to make the deposits viable as soon as possible,” Jones said. The average deposit was about $10,000, Jones said. At the end of 1985, total deposits amounted to nearly $99.2 million.

Plagued by problem real estate loans that began going sour three years earlier, Valencia Bank reported a 1985 loss of $2.7 million. Earlier annual losses of $5.7 million in 1984 and $2 million in 1983 drained Valencia of its capital and reserves.

Valencia officials could not be reached for comment.

Only a few customers trickled in before the closing, and most did not know about the impending FDIC takeover.

Michael DuFour of Anaheim, who arrived to get $50 from an automated teller machine, learned of the closing and said, “I better get $100 in that case.”

Lisa Tomionni of Santa Ana deposited a number of checks for her employer. “He thought about closing his accounts today but decided against it. For me, I don’t care. My account is small.”

No buyers have been found in spite of FDIC efforts in the last week or so to persuade some large, financially healthy bank to assume Valencia’s assets. A major stumbling block, executives from area banks said, is that regulators want the purchasing bank to have at least $7.5 million in excess capital, and most independent banks do not have that much extra capital.

The fact that regulators would close Valencia seemed inevitable for most of the past year. Only the timing was left as a surprise.

“We’ve had the fear of closing for the last year, “ said Brea-based financial institutions consultant Gerry Findley.

Valencia’s demise was not caused by any apparent fraud, insider dealing or other major improprieties, Findley said. Still, in June the bank chose to settle a lawsuit over alleged trust department mismanagement for about $8 million. The bank had sued several former trust department officers over what was described as an “isolated” incident.

“They got to where they are because they made some pretty bad (business) decisions, especially in relation to expansion,” Findley said. But the top management team, he said, “worked so hard (last year) at trying to salvage this thing.”