Former executives of swallowed-up banks start niche operations, three of them in O.C. : Bank Consolidations Trigger Offshoots

Spurred by a strong economy, former officials of banks gobbled up by industry consolidation are forming small new banks, including three in Orange County.

One such institution, the single-office PriVest Bank, opens Wednesday in Costa Mesa, headed by officers who once ran Eldorado Bank in Tustin. Eldorado was acquired for $92 million in June 1997 by Commerce Security Bancorp in Huntington Beach, which then folded three other subsidiary banks into Eldorado.

Another new Orange County institution, Pacific Liberty Bank in Huntington Beach, is expected any day to receive regulatory approval to sell stock. A third, Pacific Mercantile Bank in Newport Beach, applied on June 18 for authority to organize as a state-chartered institution.

Both those banks also are to be run by former executives at Eldorado and another small bank that was merged with that institution.

The new banks will attempt to fill niches left by the mergers, industry experts say.

“There’s always a place for a banking institution that will have a close connection with its customers,” said consultant Gary Steven Findley, who helped start PriVest as well as community banks in Auburn, Woodland, Sonora and Bakersfield. All of the banks were started by former executives of institutions involved in mergers.

Experts say consolidation remains the main trend in banking, including such pending California bank-devouring deals as BankAmerica Corp.’s $63-billion takeover by NationsBank in Charlotte, N.C., and Wells Fargo & Co.’s $32-billion takeover by Norwest Corp. in Minneapolis.

In 1980, there were 42 independent banking institutions in Orange County, said J.B. “Ben” Crowell, a founder and former chairman of Eldorado who is now chairman and chief executive of PriVest. When PriVest opens Wednesday, there will be just six, he said.

Indeed, 31 state-chartered banks were merged out of existence last year in California, said Walt Mix, a spokesman for the state Department of Financial Institutions. During the same period, 10 state-chartered banks were formed, he noted.

“They are what we call ‘fill-ins,’ filling geographic and also product niches left behind by the mergers,” Mix said.

PriVest, short for Private Investment Bank, has raised $5.7 million in capital to attempt to fill such a niche. It will cater to small-business owners who want close relationships with bankers, Crowell said.

Besides business services, it will offer personal investment advice in an alliance with J.P. Morgan money managers, said PriVest Senior Vice President T. Randolph Orbach, who previously handled trust accounts for Merrill Lynch & Co. Ultimately, the bank hopes to provide estate planning for clients, he said.

PriVest plans to offer courier service to its clients, primarily small businesses with up to $20 million in annual revenue. The one-office institution also will have a senior officer on call 24 hours a day to service banking needs.

Another former Eldorado executive, David R. Brown, is president of the new bank. He said none of the former executives were asked to sign pledges not to compete with Eldorado’s new owners when the deal went through last year.

“The thinking seemed to be that in this environment, no one would go out and start a bank,” he said. “But because of what’s been going on, we think it’s a great time to start one.”

PriVest will emphasize to potential clients that it plans to be in business “for the long haul,” said PriVest consultant Findley. “Who knows what’s going to happen to larger banks, except that eventually they will be sold?”

Crowell and Brown said their bank is being organized as an S corporation under federal tax law, only the second California bank to be so organized since the law was changed in 1996 to permit them. As an S corporation, the bank won’t be taxed. All profits will be passed along to shareholders, who will pay their own taxes.

The 58 shareholders, mostly successful businesspeople but also doctors and other professionals, don’t want the bank to grow beyond about $70 million in assets, Crowell said. (Eldorado had $430 million in assets when it was taken over.)

The idea is to develop and maintain a quality book of business at that small size, passing regular dividends to the 58 investors.

“The return on equity for these institutions should be more than 20% a year--if handled properly,” Findley said.

More typical of the new banks’ focus may be Pacific Liberty Bank in Huntington Beach, another single-office institution.

Chief Executive Rick Ganulin said his core clientele will be family businesses with $50,000 to $10 million in annual revenue. The institution also hopes to lure a variety of individual customers who are fed up with big banks.

“We will be set up for the people who want to know the teller--and know the bank president,” Ganulin said. “They can shoot me an e-mail any time they want. And there’s a number at my home office where they can reach me away from the bank.” Ganulin had been senior lending officer at Liberty National Bank, which was acquired by Eldorado about a year ago.

Pacific Liberty’s organizers include a wide range of Huntington Beach leaders. There are two former mayors, a retired city treasurer and Haydee Tillotson, a developer who recently campaigned unsuccessfully for the Assembly.

The bank hopes to raise at least $5 million in capital to begin operations.

Deborah Ford, the consultant working with the Pacific Liberty organizers, said it is the fifth community bank she has organized in the last two years. Two are in San Diego County, one in Ventura County and one in the San Gabriel Valley.

Separately, Raymond E. Dellerba, former president and chief operating officer at Eldorado, applied last month with the state Department of Financial Institutions to form Pacific Mercantile, saying he intends to raise $6 million to $7.5 million in capital.

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Dwindling Ranks

The number of banks headquartered in Orange County has dropped 63% in the last 10 years as a result of industry consolidation. Here’s a year-by-year count, which includes independent banks and those owned by holding companies and larger banks (1998 figure as of July 1):

1998: 15

Source: The Findley Reports