Loan, Operating Losses Conspire to Close Doors at Valley State

Valley State Bank in Encino was closed Monday by the California Superintendent of Banks because significant loan and operating losses had exhausted the bank’s capital.

Capital Bank of California in Century City will purchase the assets of the failed bank for $46.7 million from the Federal Deposit Insurance Corp. The acquisition must be approved by the Los Angeles Superior Court.

Assuming approval is given, the five Valley State branches will reopen today.

Capital would assume $76 million in 8,800 deposit accounts and secured borrowings.

Valley State has been plagued by loan losses in recent years and had been under orders by the FDIC to raise $3 million in capital by Wednesday.

But through Aug. 31, Valley State had lost $1.4 million.

$600,000 Embezzled

Some of Valley State’s problems stem from its foray into the precious metals business. The bank lent money to investors who bought rare coins or metals.

In December, bank officials discovered that $600,000 had been embezzled by an employee from its precious-metals operation.

Valley State, which opened in 1979, had a deficit of $495,000 last year. It lost $1.7 million in 1985 and a total of $976,035 in 1983 and 1984.

Valley State would be Capital’s second bank acquisition in less than a week. On Friday it took over Commonwealth Bank in Torrance after it was closed by the state Banking Department.

At the end of last year, Capital Bank had assets of $117 million.

Ends Talks on Merger

Last May, Capital and Valley State had reached tentative agreement to merge. But last Friday, Valley State said it had ended merger talks.

Also on Friday, Valley State announced that its president, Jules Huppert, had resigned.

Valley State Chairman John C. Bedrosian and Huppert did not return phone calls from The Times.

On Thursday, officials from the FDIC and state Banking Department were examining Valley State records in the bank’s 11th floor offices until 8 p.m.

Charlotte Uyeda and Joseph Phelon, examiners with the state Banking Department, and Denise Rouse, an FDIC official, were at Valley State’s office.