City National Bank Benefits From Imperial Capital’s Failure

City National Bank, one of the largest Banks in Southern California, got a bit larger last month when it purchased most of the good assets belonging to failed Imperial Capital Bank, which was seized Dec. 18.

With the addition of $3.4 billion in assets from Imperial, City National has more than $21 billion in assets. It takes over Imperial’s nine offices — one in La Jolla and eight others in California, Nevada and Maryland — and about $2.8 billion in deposits and $2.6 billion in loans. City National now has 73 offices.

The worst of Imperial’s assets stays with the Federal Deposit Insurance Corp., which said the transaction will cost the insurance fund about $619 million. The failure brings the number of bank failures nationally to 140, including 16 in California and three in the San Diego region. The two other local failures were Temecula Valley Bank, in July, and San Diego National Bank, in October.

The deal makes lots of sense for City National, which called it a good fit both geographically and in terms of its customers. Neither City National nor Imperial Capital makes many mortgages or consumer loans.

And many of Imperial’s offices overlap with City National locations. In fact, in Glendale, where ICB maintained its de facto headquarters after Joe Kiley was named president, there’s a City National office in the same complex.

That kind of overlap will surely result in some offices closing, but CNB wouldn’t say how many or where the closures would occur.

In San Diego, it’s still uncertain whether the bank will retain ICB’s sole office in the village area of La Jolla. CNB maintains three offices in the county — downtown San Diego, University City and Carlsbad.

ICB’s failure was telegraphed months ago, as the bank’s loan problems got worse, and losses mounted.

For the nine months ended Sept. 30, ICB reported a net loss of $100 million, including $29 million in the third quarter. Its nonperforming assets ballooned to $298 million as of the end of September, or 9.58 percent of its total assets, compared with 4.95 percent in problem assets as of September 2008.

Practically all of ICB’s problems can be traced to its defaulting land development and construction loans. But the bank also made a big bet last year when it invested in about $900 million in Alt-A mortgages, which are better than subprime mortgages, but not prime quality. That investment had to be written down by about $200 million last year.

City National is obviously weathering the storm far better, but also was damaged by the recession. As of the end of the third quarter, it reported holding $418 million in problem assets, or 2.56 percent of its total assets. That’s up from 0.99 percent in problem assets as of September 2008.

But the bank is also among the best capitalized in the state, with a total risk-based capital ratio of 13.2 percent, above the 10 percent level to be considered well-capitalized.

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1st Pacific Must Raise Capital: Ron Carlson, chairman and former CEO of 1st Pacific Bank of California, said his bank was already doing many of the things that regulators stipulated in two separate formal agreements it signed last month, aimed at improving the bank’s damaged loan portfolio and other issues.

But the key requirement contained in agreements with the Federal Reserve Bank of San Francisco and the state Department of financial Institutions will certainly be the most difficult: raising about $15 million in new capital.

The $400 million bank based in the University Towne Center area agreed to be acquired last year by much healthier First Business Bank, with only about $100 million in assets. But on the way down the aisle, something went amiss, and the deal fell through.

Then last month, just about the time the bank was being examined by its two regulators, 1st Pacific agreed to the formal orders, a type of sanction that places restrictions on its operations, and mandates meeting specific capital and other thresholds involving getting troubled Banks back to a healthy state.

Starting this week, 1st Pacific Bank’s new CEO is John McGrath, who formerly held the same title at First Business Bank, Heritage Bank of Commerce in the San Jose area, and Sacramento First National Bank. The 40-year banking veteran was also president and chief operating officer for the Bank of San Francisco.

1st Pacific, which was in a cost cutting mode for much of last year, will close its downtown San Diego office at 525 B St. on Jan. 23, and consolidate its operations with an office in Mission Valley, Carlson said. After the closure, it will have seven offices.

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SBA Lending Still Slow: The San Diego District Office of the U.S. Small Business Administration’s latest loan report isn’t showing much of a turnaround in lending.

Through November (after two months of the government’s fiscal year), the top lenders of SBA-backed loans were CDC Small Business Finance, with 11 loans, and Borrego Springs Bank, N.A. and Wells Fargo, 10 each. The rest of the list was for eight or fewer loans, with most Banks making fewer than four loans each.

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