El Toro’s Pacific Regency Bank to Be Sold to National Bank of Southern California

National Bank of Southern California, one of the county’s healthier financial institutions, said Thursday that it has agreed to acquire Pacific Regency Bank, an El Toro bank that has lost $2.5 million since it opened four years ago.

Based on Santa Ana, National Bank would pay at least $100,000 for Pacific Regency’s business and continue to operate the El Toro office on Lake Forest Road as its own branch, said Dennis Frank, president of Pacific Regency.

National Bank wants the branch because of its proximity to the Irvine Spectrum business development and its being in the growing Saddleback Valley area, William H. Jacoby, National Bank’s president, said in a prepared statement.

According to Frank, Jacoby has said he will keep all 15 Pacific Regency employees, but his own status is uncertain. Jacoby was unavailable for comment.

Business Clients Stressed

Both banks have pursued a strategy of serving business clients, Frank said, but National Bank has been more successful.

While Pacific Regency has been losing money, Frank said, National Bank has been consistently profitable, and its healthy balance sheet should enable it to turn around the El Toro operation.

Frank said certain ownership problems, which he refused to identify, have been the major cause of Pacific Regency’s decline. The bank’s holding company, Pacific Regency Bancorp, had been searching for fresh capital and tried to arrange a private stock sale in November. But no one invested, so the company decided in December to sell out.

The sale price is to be based on Pacific Regency’s book value on the date the transaction is completed. The bank’s book value had declined to $100,000 at the end of December, so shareholders in the bank’s parent company, Pacific Regency Bancorp, may get little or nothing in a sale. Frank said contingencies contained in the formula could bump the sale price higher.

Regulators Watchful

The agreement is subject to approval of state and federal regulators, who have been keeping a close eye on Pacific Regency. If the bank’s dwindling capital runs out and it becomes insolvent, regulators could seize the institution. That would put the transaction in jeopardy.

The banks are looking for regulatory approval and for other contingencies to be cleared up within two months. But the process could be expedited. A spokesman at the U.S. Office of the Comptroller of the Currency said the agency is awaiting information on Pacific Regency’s status before deciding to expedite its review process.

Typically, when a purchaser is available, regulators refrain from seizing a bank, mainly to avoid a costly, time-consuming liquidation.

Pacific Regency’s initial capital base of $3.5 million had dwindled to $100,000 by the end of December. Its regulatory capital, which is calculated differently, is $313,000, about a third of what regulators would require for a bank its size. The bank’s assets fell to $15.3 million by the end of December, from a high point of $22.2 million a year earlier.

Pacific Regency tried to establish itself as a business bank. In its first year, it put 86.6% of its loans into the commercial sector. As loan losses grew, the bank reduced its reliance on commercial loans, which made up half its portfolio in the last two years.

Balance Portfolio Sought

Regulators and most bankers usually want a balanced loan portfolio spread among real estate, commercial and consumer lending.

Loans that were more than 30 days overdue accounted for 21.7% of total loans at Pacific Regency in 1987. Bankers typically view the acceptable limit for non-performing loans at 1% to 3% of total loans. Accumulated loan losses totaled $688,000.

National Bank has been shopping for a bank to buy for more than a year. Last spring, it started an ambitious proposal for a three-way merger with two other healthy banks in the county. But the deal soon fell apart.

National Bank reported net income of $1.2 million last year, on assets of $137.2 million.

HOW THE BANKS COMPARE At Dec. 31, 1987

National Bank of Pacific Southern California Regency Bank Headquarters Santa Ana El Toro Assets $137.2 million $15.3 million Deposits $123.2 million $15 million Shareholder Equity (Book Value) $9.5 million $100,000 1987 Net Income (loss) $1.2 million ($570,000)

Sources: National Bank of Southern California, Pacific Regency Bank