In the first bank failure in the Tri-Counties in almost 20 years, Ventura-based Affinity Bank was seized by federal regulators Aug. 28.

The Federal Deposit Insurance Corp. took Affinity into receivership and said San Diego-based Pacific Western Bank will assume Affinity’s ten branches and $922 million in deposits. Pacific Western also agreed to buy essentially all of Affinity’s $1 billion in assets, the FDIC said in a release.

Affinity’s depositors will automatically become Pacific Western customers, the FDIC said. Depositors can still get their money by writing checks or using ATM and debit cards, the FDIC said, and borrowers should make payments as usual.

Affinity’s former branches in San Francisco and San Mateo will reopen Aug. 29 as Pacific Western branches, and the other branches will reopen Aug. 31.

In what may be a reflection of the FDIC’s concerns about its own thinning insurance fund, regulators said they had entered into a loss-share agreement with Pacific Western for $934 million of Affinity’s loans. That means Pacific Western will share in any losses on the loans, a move the FDIC hopes will maximize the return on those loans by keeping them in the private sector, regulators said.

Affinity is part of a flood of implosions among regional banks this year as commercial real estate markets have followed their residential counterparts, putting projects underwater on their loans and spurring defaults. At Affinity, commercial real estate lending made up about 70 percent of its loan portfolio and accounted for most of its troubled assets.

Affinity’s seizure comes after it missed an Aug. 20 deadline to buck up its tier-one capital ratio – essentially, its freed-up cash divided by its loans – to 8 percent. Federal regulators had set that deadline back in April, when the bank turned in a ratio of 4.4 percent.

But by the end of June, the Affinity was headed in the wrong direction as its tier-one capital ratio sank to about 1.5 percent.

The same day federal regulators seized the bank, they unsealed a July 31 directive that describes Affinity’s steady march toward collapse over the spring and summer of 2009.

In April, the FDIC sent Affinity a letter warning the bank that its capital was low and demanding a plan to boost it. Affinity submitted a plan by mid-May, but regulators said that plan was “unacceptable” and asked for a new one, according to the directive.

On June 15, regulators from the FDIC and the California Department of Financial Institutions came to Affinity’s offices to examine its books. The result was a July 7 letter warning the bank that it was “critically undercapitalized.”

The directive gave Affinity two options: By the end of August, either sell enough stock to recapitalize or agree to be taken over by another bank.

“[T]he Bank’s unacceptable capital plan and deteriorating condition and management’s inability to return the Bank to a safe and sound condition require that prompt corrective action be taken immediately,” the FDIC directive said.
Officials at Affinity Bank didn’t return repeated e-mail and phone messages requesting comment.

The last round of bank seizures in the Tri-Counties happened in the early 1990s, during the savings and loan crisis.

In April 1990, regulators seized Santa Barbara Savings, according to press reports at the time. In 1991, the Santa Barbara-based County Bank, which had $1.2 billion in assets, came under federal control after losing more than $70 million, according to press reports at the time.

• For more coverage, see the Business Times’ print edition Sept. 4.

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