Security Pacific Scraps Plan to Buy Central Bank in Bay Area

Security Pacific has canceled its plan to buy Central Bank, a 46-branch operation in the San Francisco Bay Area.

Security Pacific agreed in December to acquire Central Bank from its holding company--Central Banking System--for $62.7 million in stock. Under the agreement, Central was required to have a net worth of at least $43.9 million if the merger were to be consummated.

The deal was canceled Monday because the net worth of Central, headquartered in Walnut Creek, was $41.2 million as of Dec. 31. The figure was determined by auditors during a routine pre-merger examination of Central’s financial status.

Problem loans lowered Central’s value, according to Grace Foster, a vice president of the bank. For the year ended Dec. 31, 1988, Central charged off $20.2 million in problem loans. Central Banking System registered a loss of $27.3 million for 1988, contrasted with a profit of about $10 million in 1987.

Central expects to report additional loan-related losses, according to a statement issued by Michael G. Rafton, chairman of the holding company. The bank is examining its loan problems and plans to announce the findings in the near future, the statement said.

Central is the 17th-largest bank in California. Security Pacific, based in Los Angeles, is the state’s second-largest bank. The banks said they agreed to cancel the merger because it was unlikely that the terms of the agreement could be met.