State regulators handed financially troubled South Coast Bank a major setback, refusing to approve an Arizona investment group's bid to purchase 80% of the Costa Mesa bank for $2 million in newly issued stock.
The group failed to supply the state with certain information required of investors who seek approval to control a bank, regulators said Thursday.
Wednesday's announcement marked the second time in less than a year that an effort to sell control of the bank to out-of-state investors in order to raise much-needed capital has failed.
South Coast is one of more than a dozen independent banks in Orange County operating under state or federal regulatory orders to increase their capital, either by raising cash, selling assets or clearing up problem loans. Industry and regulatory sources have said that several Southern California banks, including at least three in Orange County, are candidates for closing by regulators this year, largely because of losses from real estate loans that were written off at the demand of state or federal examiners.
Such losses often require a bank to set aside large portions of its capital in special reserve accounts. In addition, banks with problem real estate loans often must foreclose on large amounts of property, much of which cannot be sold except at steep discounts, a process that causes more losses for the bank.
A bank's financial troubles, however, generally have little impact on depositors because all banks in California are insured by the Federal Deposit Insurance Corp., which insures deposits up to $100,000.
FDIC Order to Bank
South Coast is operating under an FDIC order to increase its ratio of capital to assets to at least 7.5% and reportedly needs at least $2 million to do so. The bank's capital-to-assets ratio was 3.7% on Dec. 31, which is the latest date for which financial information is available.
The bank, which lost $981,000 in 1984 and a total of $3.1 million in the past three years, reportedly had been given until March 31 to raise additional capital, although such deadlines are flexible and often are extended.
Carl Tinder, South Coast's president, could not be reached for comment Thursday.
But in a classified advertisement placed with The Times Wednesday, Tinder said the agreement between his bank and the Arizona investment group had been "terminated . . . due to failure to obtain regulatory approval of the transaction."
The deal, as originally announced in late January, called for the investors to purchase about 2.8 million new shares of South Coast stock for $2 million. The only member of the investment group who has been identified by the bank or by regulators is Phoenix investment banker Robert C. Ernst, who could not be reached for comment.
Last June, Tinder announced that South Coast had entered an agreement to sell at least 51% of the bank to Minneapolis businessman Robert Keyes. The deal, which was canceled in October with no public explanation from either side, would have raised between $1.1 million and $2.1 million for the bank's selling shareholders, and Keyes was to have pumped enough additional money into the bank to satisfy the FDIC's capital requirement.
In the Dec. 31 financial report it filed with the state Banking Department, South Coast reported assets of $31.3 million, deposits of $29.5 million, loans of $19.5 million and total capital of $1.15 million. The bank also said its assets included $3 million in real estate holdings, exclusive of its two offices.