Pacific State Bank's failure wasn't a surprise.
Banking officials closed the Stockton-based bank Friday and reopened it Saturday under new ownership. Rabobank took over Pacific's nine branches, including the one in Modesto, and essentially paid nothing for them.
It was the conclusion to Pacific's four-year slide into failure, the victim of a mounting stack of bad loans. Numerous Securities and Exchange Commission filings warned of Pacific's demise well in advance.
Pacific's stock had lost so much value, the Nasdaq stopped trading it June 21.
Banking authorities had given Pacific until Aug. 1 to dramatically improve its financial status, but that apparently didn't happen.
Pacific didn't file the legally mandated financial statements due this month, but its president, Rick Simas, disclosed Aug. 16 that Pacific lost more than $1 million during April, May and June.
Pacific's deposits were insured by the Federal Deposit Insurance Corp., so saving and checking accounts are safe. Those accounts are part of Rabobank, which is providing full access to those funds through the use of current checks, ATM and debit cards.
Pacific's 80 to 90 employees also have been spared.
"We're moving all of the branch staff right over to Rabobank," said Sean Dowdall, a Rabobank spokesman. Only Simas and Pacific's chief financial officer lost their jobs.
FDIC, stockholder losses
On the losing end of the deal is the FDIC and stockholders.
As of June 30, Pacific had total deposits of $278.8 million and total assets of $312.1 million, including outstanding loans and investments.
Rabobank was among five banks that bid for Pacific. Its takeover deal does not require it to pay to take control of Pacific's customer deposits. Rabobank got a 4.5 percent price break to take over most of Pacific's assets, including delinquent loans.
The FDIC and Rabobank entered into loss-share transactions on $249.7 million of Pacific's assets, which means Rabobank will share the loss if those assets decline in value.
The FDIC alone took over $27.9 million in Pacific's less desirable assets. The FDIC estimates Pacific's failure will end up costing its Deposit Insurance Fund $32.6 million.
Pacific's demise has cost its stockholders a bundle. In November 2006, its bank stock peaked at $24 per share. Then the price started to plummet, falling below $1 last September. By Monday morning, the opening price was 9 cents per share.
The California Public Employees Retirement System is listed as Pacific's largest institutional investor, with 12,060 shares.
Pacific's financial filings this spring warned stockholders their shares could become worthless:
"The bank has recently incurred significant operating losses, experienced a significant deterioration in the quality of its assets and become subject to enhanced regulatory scrutiny. These factors, among others, were deemed to cast significant doubt on ... the bank's ability to continue as a going concern. If the company cannot continue to operate as a going concern, it is likely that shareholders will lose all or substantially all of their investment."
$24 million in bad loans
Bad loans were blamed for Pacific's failure.
As of March 31, the bank reported nearly $24 million in "nonperforming loans." Those loans cost the bank $759,000 in lost interest during January, February and March.
"Management has been proactive in working with problem customers to repay loans that have become delinquent or have the potential to become delinquent," Pacific reported last spring.
Pacific reportedly continued trying to collect outstanding debts through last week.
Owners of Manteca's Aqua Pool & Spa told KCRA-TV last week that it was forced into bankruptcy when Pacific called in its $3 million loan.
Rabobank, which has taken over most of Pacific's loans, will not be under such financial pressure to quickly collect. The Dutch-owned bank has $10.2 billion in assets and 120 California branches.
Rabobank's chief executive officer, Ronald Blok, said Pacific's branches were in communities where his bank had wanted to expand.
"The transaction has tremendous strategic value in that it gives Rabobank an immediate and broad presence in communities where we have planned to grow and where we can increase our service to local businesses, farmers and individuals," Blok said. "These banks are a highly complementary geographic fit."
That may not be entirely true in Modesto.
Pacific's Modesto branch is at 2020 Standiford Ave., and Rabobank has a branch at 1400 Standiford Ave.
Rabobank spokesman Dowdall said both Standiford locations will stay open "for the time being." He said one of those branches eventually may be moved to a different part of Modesto because "I don't think we need two branches that close together."
Bee staff writer J.N. Sbranti can be reached at email@example.com or 578-2196.