What About Security Pacific State? : Subsidiaries: The BankAmerica-Security Pacific merger raises questions about the fate of Orange County’s largest, most profitable bank.

Security Pacific State Bank has been an experiment in state banking that turned into a growing, profitable business for its parent company, Security Pacific Corp.

The state bank, created from the ruins of the failed Bank of Irvine seven years ago, is Orange County’s largest bank, with assets of $430.2 million at the end of June. It is also the county’s most profitable, posting net income of $4.2 million for the first six months of 1991.

But its future is now uncertain, after Monday’s announcement that Security Pacific Corp. has agreed to be merged with BankAmerica Corp.

“Who knows what’s going to happen,” said Vira Jo Denney, vice president and treasurer of the Irvine bank. “We knew nothing about the merger until we heard about it on the news this morning.”

The state bank is probably not among the top priorities for BankAmerica as it decides how to meld Security Pacific’s operations with its own, said James N. Koury, the state bank’s chairman.

“It’s kind of premature to speculate on what’s going to happen to various components of the corporation,” Koury said. “The whole focus is on the overall corporate deal.”

The local bank’s bigger sister is Security Pacific National Bank, and the focus of the merger has been the consolidation of the national bank with BankAmerica’s main subsidiary, Bank of America.

Security Pacific State was formed in 1984 as an experiment to take advantage of the broader state charter, which would allow it to enter into joint ventures to buy, develop and manage real estate. Nationally chartered banks are more limited in investments and cannot engage in such potentially lucrative but also more risky activities.

But when its parent company sought approval in 1986 to buy Arizona Bancwest Corp. in Phoenix, it cut a deal with regulators: It would get approval to acquire Arizona’s third-largest bank in return for ending the state bank’s joint venture deals.

Koury and other executives searched the state charter provisions to see whether it was still worthwhile to keep the state bank open. They decided that it was, especially after the passage of Proposition 103 allowed state banks to offer insurance. Security Pacific State Bank was the first to apply for permission to sell insurance.

Today, the Irvine operation offers a variety of products and services, from automobile insurance for consumers to data processing for credit unions. All are activities open to state-chartered banks but closed to institutions with national charters.

Security Pacific State also offers traditional banking services such as loans and checking and savings accounts.

Sixteen months ago, BankAmerica created a state-chartered institution in the Northern California city of Concord. But Bank of America State Bank is used primarily as a conduit to provide affordable housing loans, small business loans and special state-backed micro business loans, which can be as small as $5,000. All of those functions can also be handled by a national bank.

No decision will be made on what to do with the state banks until sometime after the merger is completed, which will not be for at least six months, said Russ Yarrow, a BankAmerica spokesman. “I don’t know of any particular plans that we have for them,” Yarrow said.

If the state banks are merged, said banking consultant Gerry Findley of Brea, it would be “logical” to merge Bank of America State into Security Pacific State because Security Pacific is more fully established.

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