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Bank of SB appears headed for sale

By   /   Thursday, July 2nd, 2009  /   Comments Off on Bank of SB appears headed for sale

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Massive shifts in the national banking landscape have sent tremors through the industry, and now one community bank in the Tri-Counties may be on the auction block.

Bank of Santa Barbara, a single-branch operation on Figueroa Street in the downtown district, could soon see a change in ownership as its Michigan parent company and majority owner scrambles through a string of consolidations and divestitures.

Lansing-based Capitol Bancorp’s troubles seem to have started when it posted a wider-than-expected first-quarter loss as its provision for loan losses soared 163 percent sequentially.

Capitol Bancorp has since reduced salaries, cut costs and suspended growth initiatives to strengthen its capital levels. In April, Chief Executive Officer Joseph Reid said his attention would be “focused on capital preservation, liquidity and enhanced risk management,” for the balance of the year and the company retained a Wall Street investment firm to advise it on divestitures.

Reached by phone on June 30, Capitol Bancorp Spokeswoman Angela Kimber would only say that “Bank of Santa Barbara is still an independently chartered affiliate of Capitol Bancorp.”

Bank of Santa Barbara President and Chief Executive Officer Andy Clark declined to comment on Capitol Bancorp’s situation or a possible sale, but Capitol’s quarterly report showed that his bank’s assets had fallen to $63,276 at March 31, down from $72,076 on Dec. 31.

Among the people potentially interested in acquiring Capital Bancorp’s Santa Barbara operation is a group led by former Business First bank president Eloy Ortega, who temporarily retired from banking last fall after working for a Hispanic bank in Los Angeles. He maintains a residence in Santa Barbara, but said he was not in a position to comment.

Bank of Santa Barbara is not related to Santa Barbara Bank & Trust, a unit of Pacific Capital Bancorp, which also is based in Santa Barbara.

Capitol Bancorp has been on a downsizing rampage since February, when it combined more than a third of its Arizona banks. In March, Capitol consolidated half its Michigan operations, and in April things got really complicated.

On April 17, the company deferred quarterly interest payments on its junior subordinated debentures. The total estimated annual interest that would be payable on the debentures is approximately $14 million.

Less than a week after the deferral, the company announced the retention of Keefe, Bruyette & Woods “as a financial advisor to the corporation for the evaluation of current affiliate divestiture opportunities.”

Reid said Keefe, Bruyette & Woods would help the company with the “analysis and assessment of several opportunities that Capitol is evaluating.”

One of those opportunities presented itself in late April, when Capitol Bancorp agreed to sell Yuma Community Bank, a $72.3 million Arizona affiliate, for a total cash consideration of about $10.5 million.

According to Capitol Bancorp, the sale of Yuma Community Bank will “facilitate its efforts to better allocate capital and resources within the organization.”
Kimber said the consolidation of four Arizona banks is still pending and subject to regulatory approval, but the Michigan consolidation is complete.

The corporation decided to consolidate nine of its Michigan banks amid a $28.6 million net loss for 2008.

Collectively, the banks in that consolidation had assets of $1.3 billion at the end of 2008 and deposits of $1 billion. They collectively lost $12.4 million last year, with six reporting net losses, according to annual financial reports filed with the FDIC.

“The formation of a single entity highlights our strategy to conserve capital and increase operational efficiencies,” Reid said in a release. “This strategic action allows us to realign our resources and leverage the collective strengths” of the consolidated banks.

In its first quarter report, Capitol said it maintained total capital of more than 11 percent of total assets despite market volatility, but the provision for loan losses climbed to $28.2 million from $10.7 million in the previous quarter.

Its net interest income fell about 11 percent to $37.4 million from a year ago, while non-interest income fell 25 percent to $5 million because of a $1 million decline in other fee income and a fall in trust and wealth management revenues.

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