Landmark Bancorp Quarterly Profit Plunges : Banking: 80% decline ascribed to costs of unauthorized-loan investigation and the opening of two new branches.

Languishing in the wake of an investigation into a series of unauthorized loans, Landmark Bancorp reported Tuesday that it earned just $95,000 during the first quarter, down 80% from $477,000 a year earlier.

The company, which operates the La Habra-based Landmark Bank, blamed the earnings drop on a sharp increase in costs, associated with the opening of two new branches and the investigation into unauthorized lending by a former senior loan officer.

Earnings per share dipped to 5 cents from 32 cents for the same period a year ago.

“For the first two quarters of 1992, management’s top priorities have been to bring the unauthorized loan situation to a conclusion, implement the additional lending controls and complete the integration of the two recently acquired branches into the system,” said Landmark Bancorp President Craig Collette.

The two new branches resulted from Landmark’s acquisition last December of Founders National Bank in Brea and the Placentia branch of the Bank of California. Landmark also has branches in La Habra, Irvine and Anaheim.

Even as earnings were falling, the bank’s net revenue from interest was increasing, hitting $2.8 million in the first quarter, up 8% from $2.4 million from the same period in 1991.

But operating expenses erased that gain as they rose 45% to $3.1 million from $2.2 million.

The bank’s loan scandal contributed heavily to the increased costs because of the need to retain outside auditors, lawyers, private detectives, consultants in bank fraud and a consulting team of retired bankers and police officers to help sort things out. “This is a costly, though necessary, project,” Collette said.

The investigations stem from the discovery late last year that a loan officer, whom bank officials decline to identify, skirted policies in making loans to businesses that otherwise would not be eligible to receive them.

The loan officer was fired, and the bank set aside $3.2 million to pay off any bad debts resulting from the loans.

So far, most of the questionable loans are being repaid on schedule by the borrowers, said Kevin P. Hanifin, Landmark Bancorp’s chief financial officer. But the investigation has had other repercussions.

The fired loan officer headed one of the bank’s most profitable divisions, and the dismissal left that department rudderless, said Hanifin, who declined to name the department.

In addition, the FBI and U.S. Attorney’s office are conducting a criminal investigation; federal banking regulators have taken their own peek at the unauthorized loans, and the bank is having to pay for lawyers to pursue a claim with its bonding agency. If that claim is successful it will defray much of the loss arising from the situation.

Bank officials say they have instituted measures to prevent a recurrence of the irregularities.