News of Eldorado’s Plan to Buy Surprises American Interstate

Eldorado Bancorp, one of Orange County’s largest and most profitable banks, Thursday announced a proposal to buy American Interstate Bank of Newport Beach in a stock transaction valued at $5.8 million.

But American Interstate said in a statement late Thursday that it had received “no proposal upon which it could act,” and Chairman Franklyn D. Jeans said he was “flabbergasted” by the Eldorado announcement.

J. B. Crowell, president and chief executive of Eldorado, said the two institutions had been talking for several months and that he hopes to have a positive response from the American Interstate board of directors within several days.

But Jeans said Crowell had simply given him an unsigned letter outlining the proposal when the two had lunch together in late February, and that the American Interstate board had decided that it was not interested in a merger at this time.

“I told Crowell that we had discussed it but that we were concentrating on building our own institution, and I thought that was the end of it,” Jeans said. “When I saw the press release, I damned near fell out of my chair.”

Crowell could not be reached for a response late Thursday, but Eldorado chief financial officer David Brown said: “I hope they’re analyzing (the proposal) carefully. It doesn’t sound like they spent much time with it.”

Brown said a “letter of intent” was sent to American Interstate on Thursday. He also said Eldorado had talked with some American Interstate shareholders who were interested in the deal and that Eldorado would “like to sit down and talk” with the American Interstate board.

Jeans said he had received only another letter from Crowell along with the press release, not what he would consider a bona fide proposal.

Gerry Findley, an Orange County banking consultant, said a deal “may make a lot of sense for both sides.” He called Eldorado “an excellent bank” with an excess of capital and a need for faster growth and said that American Interstate offers some solid assets.

Eldorado has over the past several years bought American Security Bank of San Bernardino, the Bank of Indio, and American Merchant Bank of Newport Beach. It now operates eight branches and has assets of $276.6 million.

But Eldorado’s 1988 effort to merge with Landmark Bancorp of La Habra--a deal that would have created the largest banking company in Orange County--did not come to fruition. A deal in which Citizen Holdings of Newport Beach would have purchased Eldorado also fell through in 1988.

American Interstate, formerly known as American State Bank, experienced difficulties through much of the 1980s, after recovering from a brush with insolvency at the beginning of the decade. The bank operates two branches, one in Newport Beach and one in Orange; it has assets of $66.4 million.

Crowell said that although Eldorado also has branches in those two cities, each is on the other side of town. “They would fit very nicely into our network of branches,” he said. “We feel we can take the assets (of American Interstate) and bring better bottom-line results. We’ve done that with our other three” acquisitions.

Eldorado’s transaction proposal calls for Eldorado to issue 0.325 new shares of stock for each outstanding share of American Interstate. American Interstate would then be merged into Eldorado.

Many small banking institutions are seeking to expand their bases to prepare for the increase in competition expected when interstate banking is allowed next year in the state. Jeans said there have been a lot of informal merger discussions taking place because of that. MERGER CANDIDATES ELDORADO BANCORP Year ends Dec. 31.

(in millions) 1989 1988 1987 1986 Assets $276.6 $250.4 $199.0 $180.7 Net income (loss) $ 3.8 $ 3.3 $2.3 $1.8

Number of Employees: 180 Number of Branches: 8 Shares outstanding: 2,761,703 1990 High/Low:: 15.38/14.25 Wednesday’s close (AMEX): $14.50 AMERICAN INTERSTATE BANK

(in millions) 1989* 1988 1987 1986 Assets $60.7 $57.4 $61.1 $55.3 Net income (loss) (-0.54) 0.65 0.43 0.02

Number of employees: 38 Number of branches: 2 Shares outstanding: 1,226,923 Latest close (OTC): $3.00 * For nine months ending Sept. 30, 1989 Source: The Findley Reports, Eldorado Bancorp