‘Unsafe’ Operation Leads to Closure of Far Western Bank

Far Western Bank, once Orange County’s biggest bank, was closed Friday by state banking regulators, who seized the institution as mounting losses threaten to wipe out its capital.

The State Banking Department found that Far Western, which had relied almost totally on risky car loans, had lost $13.7 million so far this year and had little more than $1 million left in capital.

“Far Western Bank is operating in an unsafe manner, which necessitates the closure as a protection to depositors and creditors,” James E. Gilleran, state banking superintendent, said in a prepared statement. “The bank had no prospect for future success.”

The bank is the first in Orange County to be seized since New City Bank in Orange was closed in 1987. It is the fourth bank in the state to be seized this year.

Far Western is more than 50% owned by Joyce Burns. But regulators said that her husband, Richard L. Burns, was the power behind the throne. The Rancho Santa Fe businessman’s ties to the bank worried regulators because of his involvement in two other troubled companies.

The state agency appointed the Federal Deposit Insurance Corp. as receiver, and the federal agency will begin on Monday to refund insured deposits to account holders at the bank’s headquarters office, its only full-service branch.

The bank had $142 million in deposits in 4,360 accounts at the end of November, the state agency said.

About $7 million of that amount may be uninsured and won’t be refunded, said John Holly, the FDIC’s assistant managing liquidator. The FDIC insures up to $100,000 per account holder.

Far Western employs 250 workers. The federal agency said it would continue to employ most of them for a period as it unwinds the bank’s business.

The bank’s assets had sunk to $144 million, less than half its peak of $311 million three years ago. For much of the year, it had been selling assets rather than making more loans. Its shareholder equity had dropped to $1.14 million by the end of November.

“The regulators’ action was not unexpected,” said Gerry Findley of Brea, a banking industry consultant. “Buying paper (loans) from used car dealers is a sure route to difficulty.”

Both Findley and regulators said there was little doubt that Burns made the key decisions at the bank. In addition to his wife’s stock holdings, a Burns business associate, David Watt, had been on the bank’s board. Neither the Burnses nor Watt could not be reached for comment.

The Burns group began investing in the bank in 1986 and focused almost entirely on automobile loans, mostly risky loans to borrowers with poor credit. At one point, the bank had more than 96% of its portfolio in auto loans.

Assets soared 17 times their original amount by the end of 1987, but during the same time, charge-offs for bad loans skyrocketed nearly thirtyfold. The bank regularly topped the list of Orange County banks with the highest ratio of bad loans to total loans.

Burns, a 51-year-old high school dropout who now operates RLB Capital in Del Mar, is well-known in the San Diego area. He has been involved in ventures ranging from real estate to equipment leasing.

He founded R.L. Burns Corp., an oil exploration and coal mining firm in 1969. It enjoyed explosive growth but suddenly foundered. Burns was ousted as chairman in the late 1970s and forced to sell his 55% interest for $14.6 million, less than half the market value. The firm renamed itself Pyro Energy, relocated to Evansville, Ind., and soon returned to profitability.

Burns then set up Nucorp Energy, a fast-growing oil and gas operation that collapsed in 1982. Nearly 17% of Nucorp’s 1981 revenue was later determined to have been generated by pre-billing--a practice of reporting as revenue sales orders that had been received but not yet shipped.

The Securities and Exchange Commission sued Burns and Watt. Watt consented to an order prohibiting him from violating SEC regulations in the future. Burns decided to fight it in court. He lost, as a federal judge found he participated in a “fraud on investors, potential investors, creditors and anyone else who relied” on Nucorp’s financial statements.