Regulators to Take Over Balboa National Bank

Federal regulators will take over financially troubled Balboa National Bank this morning, ending the National City’s bank’s 5-year struggle, a member of Balboa’s board of directors said Thursday.

The troubled bank was unable to stop the flow of red ink generated by non-performing loans that date back to shortly after the bank was founded in 1983, according to Harry Fraser, a Balboa Bank board member and the owner of National City-based Fraser Boilers.

In September, Balboa’s net worth-to-assets ratio had plunged to 3%, far below the 7% ratio preferred by federal regulators. In September, President Dick Long said the bank had $33 million in assets. The bank lost $4 million in 1986 and anticipated a $3-million loss for 1987 and a $500,000 loss during 1988, according to Long.

Balboa board members “have worked closely with the (U.S. comptroller of the currency) and the Federal Deposit Insurance Corp. and have cooperated in an orderly closing of the bank,” Fraser said.

Arrangements have been made to “ensure that no bank customers will suffer any loss on their deposits,” he added.

Federal regulators on Thursday night were not available for comment on the bank’s future. Fraser declined to say what regulators would do with Balboa’s assets. In many instances, however, assets of failed institutions are transferred to a newly chartered federal institution.

“I wouldn’t be surprised if that happens,” Fraser said Thursday. “You’ll know more about that (on Friday).”

Fraser linked Balboa’s failure to problems generated by “prior management after the bank opened.”

Last May, Fraser contributed $2 million of a $2.8-million capital infusion that, at the time, kept federal regulators from closing the bank.

In September, Balboa shareholders approved an additional infusion that would have added $2 million in capital from board members. Federal regulators, however, apparently did not approve that planned infusion.

Board members were unable to meet the “increased dollar requirement” needed to save the bank, Fraser said.

“The magnitude of continuing losses was not known at the time” of that recapitalization, Fraser said. “Only during the last several months has the total capital need of the bank been determined.”

Fraser said Balboa’s directors had unsuccessfully “pursued all possible options, including attracting additional capital, (holding) discussions with merger prospects and (considering) sale negotiations.”

The bank, which opened on Feb. 22, 1983, with $2.9 million in capital, has struggled with capital problems since 1984. Chairman Art Engel later acknowledged that the bank “grew too fast without getting our capital systems and people into place first.”

Balboa recently had tried to bring its net worth-to-assets ratio to 7%, as ordered by federal regulators in 1984. In October, federal regulators asked the U.S. District Court in San Diego to order Balboa to increase its net worth-to-assets ration to 7%.

The May, 1987, capital infusion by Fraser and other board members came at the 11th hour, as federal regulators were inside the bank, preparing to close it.