Bank of Coronado Outlook Uncertain : Deposits, Assets Are Up; New Officers Hunted, New Ownership Also Possible

In 1978, veteran Coronado realtor Fred Swenson approached his boss, Richard Maitland, owner of Coronado Shores Co., about starting a community-based bank.

“I said, ‘Let’s make that empty building into a local bank,’ ” Swenson recalled, referring to a facility about two blocks from the famed Hotel del Coronado.

Less than two years later, in 1980, the Bank of Coronado opened for business. Its direction was clear: to be the bank governed by and for the residents of the quaint Coronado island.

Direction Unclear

Now, as the bank looks toward its sixth year, the direction seems much less clear.

Maitland resigned as chairman 14 months ago; Swenson and Chairman Dustin Rose, a founding director of the bank and its parent company, Crown Bancorp, resigned last week after months of corporate controversy and internal disputes.

Rose’s departure, especially, has left Crown officials and shareholders asking the same question: What now?

“There is no direction,” said one Crown source. “The board gravitated toward a floating environment, which is entropy.”

The company--also the parent of Capital Bank of Carlsbad, which is supposed to merge with Bank of Coronado early next year--has to “heal its wounds and be aggressive,” according to one official. “If they retreat, then they’d better put a ‘for sale’ sign out.”

‘Serious Offers’ Made

The issue of whether to sell Crown or one of its subsidiaries--and therefore give up its provincial tilt--has divided directors in the past. At least three “serious offers” have been made.

After one of them, in July, directors forced the resignation of Crown President James Klingensmith, partly because he had met, without board authorization, with would-be buyers of Capital Bank.

And although Klingensmith has departed, the issue of selling the bank is very much alive.

“There will be lots of people who will look to buy the bank,” maintained Rose--a believer in keeping the bank in local hands--after his resignation.

What Crown needs, officials agree, is for an aggressive executive to “take charge” of the company.

Decision Pending

Interim President Michael Justice thinks he could be that executive, but the board has yet to decide on a permanent corporate chief.

“I have committed to them . . . through the end of the year,” he said. “They have talked about me staying on permanently, but no decision has been reached and there has been no specific offer made to me.”

Former Capital Bank President Ed Schmidt, still a director of that bank, was considered a top candidate for the Crown presidency. But he was viewed as an ally of Rose, and when Rose departed, so did Schmidt’s chances of heading Crown.

For the most part, participants in the yearlong controversies at Crown view the resignation of Rose and two other directors, Frederick Swenson and Scotty Morgan, as a positive step.

“The continuing controversy . . . will probably end,” Justice said.

‘Negative Publicity’

Rose himself acknowledged that “negative publicity” was hurting the bank.

“It’s important,” he said last week, “to get the community bank out of the press.”

Negative press, in the parlance of public relations folks, was indeed a major factor in Rose’s resignation, according to Crown sources.

“Bankers fall into two categories,” one banking industry veteran said. “Those who spend their time getting their name out front and those who spend their time preventing that from happening. And most of them fit the latter category.”

Crown has definitely fallen in the former category this year, although not by design. The onslaught of controversies has included the indictment of a San Ysidro branch manager on charges of money laundering, a cease-and-desist order from regulators, Klingensmith’s forced resignation and a near-proxy fight sparked by his departure, and Rose being named in several lawsuits arising from a defaulted Bank of Coronado loan that he had guaranteed and also from a land deal involving a Bank of America site in Coronado.

Harmful to Bank

“I know that the constant hassling in the media is destructive to the bank,” said Klingensmith, who still controls about 7% of Crown stock.

On the other hand, Rose said he advised the remaining Crown directors to “stop reading the newspapers and start looking at the ledger sheets.”

Indeed, the company seems to have weathered the storm of controversies in a financial sense. Bank of Coronado assets, for example, totaled $64.7 million as of Aug. 31, up $1.3 million from the prior year. And net worth of $4.5 million was $300,000 higher than the previous year.

In addition, investors who backed Klingensmith withdrew about $4 million soon after his resignation. The investors were Mexican nationals, according to Crown sources, who withdrew funds that had been invested in $100,000 jumbo certificates of deposit.

Since then, however, commercial deposits have increased, sources said.

Moreover, the San Ysidro branch is now “doing better than ever,” said one Crown official, despite fears that the indictment of the branch’s manager last spring would trigger an outflow of Mexican deposits.