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The time was ripe for Eldorado Bank to be acquired

It was about time Eldorado Bank was acquired.

For the past five years, California banks have been a target of out-of-state suitors hoping to gain a foothold in the Golden State. And in the past five years, Eldorado set itself up to get picked up as well. Its holding company acquired five banks that totaled 16 branches in Southern California and more than $1 billion in assets, the most of any OC-based bank.

Plus, Eldorado’s shareholders were ready to get their return.

But the $190 million that Salt Lake City-based Zions Bancorporation is paying for the Laguna Hills-based bank may not be what its shareholders were hoping for.

“It wasn’t a grand slam, but it wasn’t a bad deal,” said Bob Keller, Eldorado’s chief executive.

Zions is a publicly traded holding company that operates six banks across the West including the bank Eldorado will be merged into, California Bank & Trust, which has 74 California branches.

“It is good for Zions because it offers excellent penetration of Orange County and San Diego County,” said Ed Carpenter, a bank consultant who advised Eldorado on the deal.

Sources close to the deal said Eldorado’s majority shareholder, The Dartmouth Capital Group, was looking for a better return, though. Eldorado’s board of directors is composed mostly of members of the Dartmouth group, which has invested in several bank deals. Keller is the chief executive and president of the Dartmouth Capital Group.

The group started its run on Eldorado Bank five years ago and was hoping to buy several banks then sell the amassed company for a big premium. They got at least part of their wish.

The bank was sold for a better price than most of the recent acquisitions in California.

The bank went for 2.9 times its tangible book value, according to research done by Carpenter & Associates. Banks and analysts use tangible book value to rank bank or thrift transactions.

Of the 25 other bank deals in California last year, the average multiple of tangible book was 2.06, and there were only four other banks that sold for a higher multiple.

Eldorado sold above the average because it had a lot of goodwill and a strong branch system, said Carpenter, who is chairman of Carpenter & Associates.

Eldorado was acquired at a larger premium than Comerica Bank’s payout to buy Imperial Bank, which was 2.55 times Imperial’s tangible book value. But it did not do as well as Bank of America, which was acquired by NationsBank Corp. in 1998 for 4.04 times its tangible book value, according to Carpenter.

According to some industry veterans, Eldorado shareholders got a good deal from Zions.

“Eldorado has been limping along for some time. Eldorado did not have the means to expand. To a certain extent, this is a bailout by Zions,” said The Findley Reports, a monthly newsletter put out by Findley & Associates.

Eldorado ran into a few problems when it acquired Sacramento-based Commerce Security Bank, which had a wholesale mortgage division that squeezed the bank’s earnings.

“That has been somewhat disappointing,” Keller said. Eldorado since has sold off the mortgage unit.

“I am happy we are not in that today,” Keller said. “Since getting rid of it, the bank has done much better.”

Eldorado did keep the rest of the Commerce Security’s operations,a branch in Sacramento.

The beginnings of Eldorado go back to 1995.The Dartmouth Capital Group was interested in putting some of its money into starting a California banking business. It already owned and ran several banks, including New England-based New Dartmouth Bank, which Keller used to run. The investment group wanted to stick with Keller after the bank was sold in 1994 and tapped him to run its new operations.

In 1995, Dartmouth acquired the assets of San Dieguito National Bank for $5 million to start its rollup of bank acquisitions.

“It was a good franchise, but because of problems of the recession, it ran out of capital,” Keller said. The Dartmouth Group acquired the bank to get a start in Southern California.

The bank had $59 million in assets but it was categorized as critically undercapitalized by federal regulators. So Keller recapitalized the bank with Dartmouth’s money. He installed new management and implemented policies to improve asset quality and operating performance.

In October 1995, the acquisition of a slightly larger bank, Liberty National Bank, was announced for $15.1 million. The deal brought in $148 million in assets and a few more branches.

“It got us into Orange County,” Keller said.

Keller kept the institutions separate because he was looking for a strong bank to use as the foundation.

About four months later came the $22.7 million buy of Commerce Security Bancorp, which had $213 million in assets.

The next acquisition gave the bank its name and stability. At the end of 1996, Dartmouth Group announced its acquisition of Eldorado for $89.6 million. The buy brought in $389 million in assets and gave the Dartmouth Group a substantial grip on the OC market.

“Eldorado had a good name and a good reputation. It gave us the infrastructure to merge the other (banks) into,” Keller said.

After the Eldorado buy, the bank’s management folded the other bank operations into Eldorado Bancshares and gave the banks the Eldorado name.

In January 1999, Dartmouth finished off its buying by bringing Antelope Valley Bank into the fold for $44.5 million. The bank had $201 million in assets and an auto finance operation that still is with the bank.

The five acquisitions totaled up $176.9 million in cash and stock and brought in just more than $1 billion of total assets. n

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