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Bank of Newport Struggling to Survive : Finance: A $6-million write-off puts its assets below the minimum required as a reserve against losses. It could be seized by regulators.

TIMES STAFF WRITER

Bank of Newport, which has been struggling to recover from years of turmoil, said Wednesday that its prognosis is not good.

The 22-year-old Newport Beach bank said it became “critically undercapitalized” after the government forced the bank to write off more than $6 million because of an equipment lease deal. That leaves the bank, with five Orange County offices and more than 100 employees, vulnerable to takeover by federal regulators.

“They’re in bad shape. They have a very short fuse,” said Barry Rubens, president of California Research Corp., a Santa Monica banking consulting firm. “They’re going to have to come up with some money in the next 45 days, or they’re going to be seized.”

Because of the write-off, the bank’s capital is now just 0.83% of its assets, far below the minimum 2% required by regulators as a reserve against losses.

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Once known as a bank for the wealthy, Bank of Newport today has mostly businesses as customers. It has been struggling to correct a series of loan problems, most of them tied to real estate, that have caused it to lose more than $10 million over the past two years. The bank lost $4.6 million for the first quarter this year, according to federal statistics released last month. Its assets, once more than $300 million, have shrunk to $165 million.

Regulators have restricted the bank’s operations and demanded that it raise money from investors to increase its level of capital.

“I remain very hopeful,” said veteran Orange County banker David T. Blankenhorn, who became president of Bank of Newport in January. “We’re continuing to talk to several banks who are interested in buying us and talking to several investors.”

If it were seized, Bank of Newport would be the fourth Orange County financial institution to be closed this summer. CommerceBank in Newport Beach, Guardian Federal Savings in Huntington Beach and Pioneer Bank in Fullerton were all shut down by regulators in July.

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Earlier this year, the bank revealed that Sonora Group, a Costa Mesa leasing company, had begun last year to take out loans at the bank and issue leases on equipment that it never bought.

In a typical lease financing, a bank lends money to a company to buy equipment, such as computers. The company then leases the equipment to businesses at a rate that will cover monthly loan payments and provide a profit.

As a result of the Bank of Newport transactions, which the U.S. attorney’s office in Los Angeles is investigating, the bank must write off $4.4 million of its leasing portfolio and another $1.55 million to cover the settlement of claims made by those to whom the bank had sold the leases.

Even before that, though, the bank had a troubled history. Longtime President Ronald L. Rodgers, who helped found the bank in 1972, resigned under pressure in March, 1993. He was sued this year by the bank, which alleged that he and his wife, Verna Johnson, a former secretary there, used bank expense accounts for personal purchases. The bank’s chairman, E.O. Rodeffer, has recently suffered from health problems, Blankenhorn said.

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Still, at least one analyst thinks the bank can be turned around. “It’s a good bank,” Rubens said. “The question is whether there is enough time to market the bank to a buyer.”

Bank of Newport

* Founded: 1972

* Headquarters: Newport Beach

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* President: David T. Blankenhorn

* Employees: 115

* Assets: $165 million

* Branches: Newport Beach, Encino, Costa Mesa and Laguna Niguel

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Source: Bank of Newport

Researched by JANICE L. JONES / Los Angeles Times


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