Frontier Bank Sold; Parent Firm Considers Merger

Ventura County National Bancorp, financially strapped by the recession and under the gun from federal regulators to improve its performance by Sept. 30, is considering a merger with another financial institution, the bank’s president said Tuesday.

VCNB president and chief executive officer Richard Cupp said the bank has had “very preliminary discussions” of a merger but declined to say which other financial institutions were involved.

Cupp also said the bank has come to an agreement to sell its La Palma-based subsidiary, Frontier Bank, to Peninsula National Bank in Palos Verdes for $7 million.

“We need to use the proceeds of the sale of Frontier Bank to add to our capital account,” Cupp said.

The bank is trying to meet capital requirements established last year by the Office of the Comptroller of the Currency following its investigation of VCNB’s management and operations.

While Cupp said federal regulators did not demand the sale of Frontier, he said it was necessary to meet their Sept. 30 deadline for the bank to boost its capital or face possible civil penalties and removal of personnel.

“We definitely think this will satisfy their requirements,” Cupp said. “This is an important deadline and that is why we’ve been moving very aggressively to do all these things.”

If the sale to Peninsula is completed, VCNB would be left with total assets of about $200 million, Cupp said.

Holding onto the Orange County subsidiary, which has branches in La Palma and Wilmington, does not suit the bank’s long-term strategy of refocusing on Ventura County, Cupp said.

He said pressure from federal regulators was not forcing the discussions of a possible merger.

“As a publicly held company, we always look for opportunities to maximize the value of our shareholders’ interests,” Cupp said.

Selling Frontier is simply the latest step in a lengthy process of recovery for the bank, he said, which also has included reducing overhead, eliminating unprofitable operations--including part of the mortgage banking department--and selling off a large number of non-performing loans in May.

Reid Nagle, an analyst at SNL Securities, a banking research firm in Charlottesville, said VCNB has “two big strikes against it.”

“The first is being in the depressed market of Southern California,” Nagle said. “The second is having substantial exposure in risky real estate loans, many of which have moved into non-performing categories.”

That VCNB would simultaneously be negotiating a possible merger with selling off a subsidiary is not surprising, Nagle said.

“This is a company that has basically a couple of options: either hunker down and try to survive,” he said. “Or consider a sale of the company, assuming they could find a buyer who was comfortable with their financial situation.”

Looking at both options, is wise, Nagle said, adding, “You can never bank on any sale.”

A likely candidate for a merger with VCNB would be a financial institution already well established in Southern California looking to expand its franchise, Nagle said.