State Closes Troubled Southern Pacific Bank

Feb 7, 2003

San Francisco – Citing mounting operations and loan losses, the State of California today closed the Southern Pacific Bank, an industrial bank, located in Torrance, California along with three branches located in Brentwood, West Los Angeles and Irvine. It had aggregate deposits of approximately $863,505,000.

Southern Pacific Bank, which was chartered by the State of California in 1981, had experienced substantial operating and loan losses, significantly reducing shareholders equity. These losses were the result of the recent economic downturn and a business plan that included the telecommunications and airline industry sectors. The State Department of Financial Institutions has been closely monitoring the bank and had ordered it to increase its capital to a safe and sound level. Efforts by the bank to raise shareholder’s equity to an acceptable level were unsuccessful.

Immediately following the closure, the State Department of Financial Institutions named the Federal Deposit Insurance Corporation (FDIC) as receiver of the bank. Depositors of the bank are fully protected by the FDIC up to $100,000.

In anticipation of the closure, bids had been solicited for Southern Pacific Bank, and the FDIC has accepted an offer from Beal Bank, s.s.b., Plano, TX, to acquire certain assets and insured deposits.

This is the first state-chartered industrial bank failure in California since Pacific Thrift and Loan, Woodland Hills, was closed in November 1999.

The Department of Financial Institutions is responsible for administering State laws regulating state-licensed banks, state-licensed savings and loans, state-licensed trust companies, state-licensed offices of foreign banks, issuers of travelers checks and payment instruments (money orders), transmitters of money abroad, state-licensed credit unions, and state-licensed industrial banks. The Department reports to Maria Contreras-Sweet, Secretary of the Business, Transportation and Housing Agency and Governor Gray Davis.