Plan to Create Orange County’s Biggest Banking Firm Dropped

Officials for Eldorado Bancorp in Laguna Hills and Landmark Bancorp in La Habra said Wednesday that they have canceled their merger plans, scuttling what bankers had thought would be an ideal marriage.

Both banking companies said basic operational differences proved too difficult to reconcile, and directors and officers at both institutions agreed to drop the deal.

“When you sign a letter of intent, you think you know everything you need to know. But you don’t,” said J.B. Crowell, president and chief executive of Eldorado. “We didn’t know each other as well as we thought we did, and we both concluded that maybe this wasn’t going to work.”

Under the tentative agreement reached in mid-November, Landmark would have merged its company into Eldorado, with Landmark shareholders getting one share of newly issued Eldorado stock for every share of their own company’s stock--an aggregate 36.6% stake in the surviving entity.

A merger would have created Orange County’s largest banking firm with $400 million in assets, 310 employees and 12 branches in four counties.

Like any company, Eldorado, which operates eight branches of Tustin-based Eldorado Bank, has tried to maximize profits in the last few years. But that emphasis led to one of the areas of disagreements with Landmark.

“We’re trying to get in the top 10% of banks statewide in terms of return on equity and return on assets,” Crowell said. Reaching high returns on both of those standard measures of bank profitability means “you have to watch your expenses,” he said.

With about $248 million in assets, Eldorado expects to announce in the next few weeks that it posted record profits for 1988, Crowell said. Based on the firm’s 9-month results, it could top $3 million in earnings. Citing the expected good results, directors Wednesday declared a 10% stock dividend, payable Feb. 24 to shareholders of record as of Feb. 10.

Landmark, which operates Landmark Bank and has about $148 million in assets, also expects to post record profits--more than $1 million--for last year when it releases its results next week, said Craig D. Collette, the company’s president and chief executive. But Landmark reached its peak performance differently.

Although Eldorado Bank, for instance, is open from 9 a.m. to 4 p.m. Monday through Friday, Landmark is open from 7 a.m. to 6 p.m. weekdays and a half-day on Saturdays, Collette said.

The dilemma, he said, was that cutting back hours would have meant losing customers at Landmark. Yet increasing Eldorado’s hours would have meant more expenses and would have cut into that bank’s profits.

A host of similar differences in such areas as prices for services, customer relations and marketing showed that the two banking companies had “very divergent philosophies” of operating banks and that the differences were “deal killers,” Collette said.

In addition, Crowell said, each bank had misperceptions going into the deal. Eldorado, for instance, figured Landmark was heavily involved in commercial loan activity, but it learned that Landmark’s commercial loan portfolio was no bigger than its own.

“It’s amazing how different each of us are,” Collette said. “We suspected it, but we thought we could work something out. It wasn’t a question of one side backing down. Neither of us wanted to lose customers or profits.”