Golfing Pals, shareholders, estranged as executives reap millions in bank's sale.

Among a handful of members of the Lakeside Golf Club in Toluca Lake, the idea of starting a bank catering to small businesses in the area seemed like a fine way to invest a little money and make a little money.

Led by John C. Bell, the small group gathered about 200 investors who ponied up $4.5 million to form Western Security Bank in Burbank.

Within five years, the bank had grown to $77 million in assets, and had reached more than $100 million by the end of 1990. "It was started with a strong and dedicated staff. We were very successful and we grew to three branches. It was fun working there' said Herbert G. Prinz, the bank's first chief executive.

Now, however, things are a little less friendly around the clubhouse.

Shareholders, many still members of Lakeside, where annual membership dues run from between $73,000 and $135,000, became enraged when Burbank-based Western Security Bancorp agreed to sell Western Security Bank, its principal subsidiary, to CVB Financial Corp. The deal, for $6.2 million in cash, closed July 3.

Bell and three other senior managers walked away with payouts that are scheduled to go out more than a decade and total millions of dollars. All that was left to the other shareholders is a minority stake in the bank's former headquarters.

"He's a Pasadena blue blood kind of guy. We felt he was an honest businessman," said Tony Federico, a founding shareholder of the bank's holding company and a Lakeside member. "Since that time we've found a few little inconsistencies in this operation."

Bell did not return calls seeking comment.

Fortunes turn

John Bell is the son of Ray Bell Sr., who bought and trained horses for the Hollywood crowd, including Bing Crosby and studio mogul Louis B. Mayer.

Bell's relationships allowed him to form Western Security with a coterie of 50 investors from the Burbank area, including actress Abby Dalton of TV's "Falcon Crest" fame. Federico said "most of us bought about 3,000 or 5,000 shares at $10 each."

For years after its founding, Western Security Bank appeared to be on a roll. Instead of the glitzy aspects of the entertainment industry, the bank focused on backlot businesses, cultivating relationships with sound editors and video production houses. In 1989, it reported record net income of $1.3 million, up 104 percent from $649,100 the year earlier.

But Western Security's fortunes turned by the late 1990s. Income started falling, and by 2001 the bank, which had. $142 million in assets, reported a $3.2 million loss and had started looking for a buyer.

"They contacted us, and I believe they contacted others as well," said D. Linn Wiley, chief executive of CVB Financial, holding company of Citizens Business Bank in Ontario.

In addition to the losses, which kept piling up into 2002, the bank had accumulated debts of $6.2 million, of which it was in technical default on $5 million, according to a June 12 proxy statement circulated to shareholders and obtained by the Business Journal.

A month before the sale, Citizen's Business Bank lent the Western Security Bank $8 million, secured by the deed to the company's headquarters and sole branch location.

Western Security Bank then paid a $6.4 million dividend to its holding company, which was used to pay off its debts, including more than $1 million owed to Bell, according to the proxy. In addition, Western Security Bank sold the headquarters to its holding company for $5.5 million.

According to the proxy, the bank also sold Bell $9.8 million in collectable loans for $8.95 million, a discount of 8.3 percent to their value.

But what really got the holding company's shareholders up in arms is an amendment to the employment packages of the bank's top executives, made just before the sale was completed.

Since selling the bank to CVB, Western Security Bancorp's principal asset is its former 55,000-square-foot headquarters.

Western Security Bancorp's top four officers, including Bell, are set to receive payouts totaling $8.7 million over the next 15 years in what the proxy statement called "salary continuation agreements." According to the proxy statement, Western Security Bancorp is paying Bell, its chairman, $118,000 for 2002, plus $10,000 a month for the next 15 years, totaling $1.8 million.

Jerome E. Farley, president and chief executive, gets $173,000 for 2002 and $14,000 a month for 15 years, totaling $2.5 million; Edward J. Mylett Jr., chief operating officer, $143,000 plus $11,500 a month for 15 years, or $2.1 million; and Joseph L. DeMieri, chief financial officer, $118,000 plus $10,000 a month for the next 15 years, or $1.8 million.

Farley, Mylett and DeMieri could not be reached.

No vote

Minority shareholders will not get any liquid assets and could not stop the deal, since management controlled a majority of the voting stock. Bell, the company's chairman, holds about 50 percent of the outstanding shares.

The introductory note to the proxy said: "It is important that the shareholders understand that they will not be receiving any cash or other form of consideration as a result of the transaction. Accordingly, please do not mail or send your stock certificates."

In lieu of cash, shareholders will retain their ownership in Western Security Bancorp, which has ceased operating as a bank holding company. Bancorp's four-story office building at 4100 W. Alameda Blvd. in Burbank, until recently estimated to be worth $13.6 million, has seen its total equity value more than halved because of the $8 million loan Western Security Bank took out before the transaction.

The building's tenants include Citizen's Business Bank, DIC Entertainment and Bell's personal holding company.

According to a lease agreement between Western Bancorp and Bell's own holding company, Bell pays about 33 cents a foot a month for the 3,000 square feet he is renting (or $1,000), well below the going rate of $2.63 per foot for Class-A space in Burbank.

The building is 96 percent leased, according to a real estate source familiar with the property.

"He said nobody else wanted it," Federico quipped.

"The minority shareholders got slayed' said Gary Findley, editor of the Findley Reports, a banking industry newsletter that first reported management conflicts in the Western Security deal.

Some of the original shareholders have since died, while others are scattered across the country in retirement. Several, however, have plenty to say.

"It's tantamount to stealing," said Thomas Hurlburt, a founding shareholder.

"John Bell and I were very close friends and he has totally disappointed me in this whole thing," he said. "'If you don't like it, sue,' That's the attitude he seems to be taking. There is something terribly wrong."

Meanwhile, club members say that Bell walks around as if nothing has happened. Federico said he recently overheard a shareholder asking Bell, in less kindly terms, if he should use his stock certificates as toilet paper.