With regulators knocking at their door, Bank of San Pedro executives tried time and again to stay afloat. They sold real estate assets, raised money in a stock offering, even collected a settlement from a sunken ship.
It was all too late. State banking officials seized the financial institution last week, shutting the doors on San Pedro's only independent financial institution. The bank had been losing $200,000 a month, and its operations lost more than $4 million since 1992, state officials said.
Home Bank of Signal Hill acquired $22.1 million of the Bank of San Pedro's $123.4 million in assets, including two of the failed institution's branches in San Pedro. The sites reopened Monday under their new name. Home Bank also plans to keep about 40 of the Bank of San Pedro's 80 employees.
The failed bank's other sites--including its headquarters in San Pedro and branches in Long Beach and Gardena--were closed by state officials and placed into the receivership of the Federal Deposit Insurance Corp. Also closed was a site in Avalon, leaving Catalina Island with only one bank, a branch of Southern California Bank.
Bank of San Pedro President Lance Oak and board Chairman Peter Mandia, along with other top executives, gave up the bank's management after it was seized.
"They just ran out of time," said Gerry Findley, publisher of the Findley Reports newsletter, which reports banking statistics. "Management of the past couple of years has been doing a good job of trying to raise capital."
Regulators blamed the bank's failure on real estate investments that turned sour during the recession and a high number of bad loans. Overall, the losses reduced the bank's capital to $1.2 million. In addition, the bank's portfolio of non-performing loans was 5.9% at the end of last year. State and federal regulators--who date the bank's problems to 1987--recommend only 1% to 2% in bad loans.
"They got hit with what many independent banks have gone through," said Barry Rubens, president of California Research Corp., a bank consulting firm in Santa Monica. "They just couldn't get over the problems. Usually, in seven years you can."
Some former board members blame the bank's demise on the new direction the institution took in the 1980s, when it added new branches and started a subsidiary to invest in real estate projects. Among the investments: an 80% stake in the $25 million Redondo Shores shopping center, which has lost money and cut into the bank's profits.
"That was really the iceberg that brought it down," said Jim Hussey, a Bank of San Pedro founder, who left its board 12 years ago.
When Hussey and four others founded the bank in 1975 at the site of a former take-out chicken restaurant, their goal was to give the harbor community's residents and businesses a financial institution of their own, rather than depend on big chain banks based in downtown Los Angeles.
There was a major shake-up in the bank's executive ranks in 1981, when two San Pedro developers--Steven G. Podesta and Bill A. Moller--acquired a controlling interest in the bank's stock. The founding directors quit and some were dismayed at the decision to move the headquarters to a 5th Street building owned by Moller and Podesta.
Nevertheless, the bank's new directors oversaw a rapid expansion, including the start-up of the Gardena, Torrance and Avalon branches, and investments in real estate projects near the Port of Los Angeles. The bank's assets jumped from $32 million when they joined the board to $180 million by the end of the decade.
But in 1989, state banking regulators began to scrutinize some of the loans the bank issued to its own directors, including nearly $2 million in loans to Moller and slightly more than $1 million to Podesta.
Bank officials defended the loans and contended the scrutiny stemmed from the special attention that federal regulators began to give to so-called insider loans following the savings and loan scandal. The bank directors, however, agreed in 1990 to adopt tighter restrictions on loans to themselves and other bank officers.
Moller and Podesta, who left the bank's board in 1990, could not be reached for comment.
The two partners also were once co-owners of the cruise ship Princess Louise, a popular floating restaurant in the Los Angeles Harbor that sunk in 1989. They had sold the vessel by that time, but the subsequent owner went bankrupt and it was repossessed by the Bank of San Pedro.
It was not until last summer that the bank collected a $2 million insurance settlement on the ship. The money gave the bank a momentary reprieve from state banking regulators, who already had imposed deadlines for raising capital.
The bank could not sustain its revenue stream. Moreover, bank officials were unable to close a deal on the Redondo Shores shopping center, which continued to eat away at profits.
"They talked about selling it for a number of years," said Stan Cardenas, chief deputy superintendent at the state Banking Department. "We heard about it, but it never happened."
Last year, the bank also tried to sell stock to investors, but raised only $3 million, far short of the $4 million to $5 million it needed to meet state banking guidelines.
The failure has left the FDIC with some of the bank's assets, including stakes in Redondo Shores and the Catalina Canyon Hotel on Catalina Island. The FDIC also will set up a plan for payment of claims to 210 customers who have uninsured deposits exceeding $100,000. Shareholders in the company are expected to lose their investment.
Home Bank, which bought $82.2 million of the bank's insured deposits, will continue to operate the former bank's sites as consumer-oriented banks, said Home Bank Chief Executive James Staes.
On Monday, Staes greeted customers at the Gaffey Street and Western Avenue branches to assure customers that it will honor Bank of San Pedro checks and ATM cards, and will continue to operate as a consumer-oriented bank.
Staes said that Home Bank also experienced tough times during the recession, but the bank always stayed profitable.
"When there is a downturn, every financial institution has to bite the bullet," Staes said. "But the bullet (Bank of San Pedro) had to bite was too big."