San Clemente, El Camino : Agreements Made for Takeovers of 2 Banks in County

Two Orange County banks--El Camino in Anaheim and the troubled Bank of San Clemente--will be taken over by different investors in separate agreements reached Thursday.

In a letter of intent, Citizens Holdings, the parent company of Citizens Bank of Costa Mesa, said it will pay $16.3 million in cash to acquire all the stock of El Camino Bancorp, the holding company of El Camino Bank.

El Camino Bank, however, will not be merged with Citizens Bank, but will instead continue to operate under its current name as a sister institution of Citizens Bank, said Paige V. Simpson, president and chief executive officer of Citizens Holdings.

Based on recent financial results, Citizens Holdings’ two banks would have seven branches, a combined $216 million in assets and an annualized $2.6 million net income.

The acquisition is part of an aggressive game plan by Citizens Holdings, created in April of 1986 by Australian industrialist Richard Pratt, to buy the 15-year-old Citizens Bank. Simpson said the company is “vigorously pursuing” the acquisition of two or three other banks from Long Beach to San Diego.

In the other deal, Irvine real estate developer John E. Wertin, president of the Pacific Co., will infuse at least $1.5 million into the Bank of San Clemente by buying new stock in its parent holding company, San Clemente Bancorp. He will become the majority shareholder, with 51% to 80% of the bank holding company’s stock, and become chairman of the company.

Wertin said the final sales price will depend on whether state and federal regulators want him to put more capital into the bank, which has been operating under a regulatory order to increase its capital. Both Simpson and Wertin said they intend to keep all employees, including top management, at the banks they are taking over.

For El Camino, the agreement represents what it hopes will be the end of a series of proposed mergers and buyouts its management has been considering over the last two years.

The company bowed out of a three-way merger earlier this year with two Santa Ana banks when final negotiations stalled partly over personnel difficulties.

Personnel issues--who will be president, for example--did not arise with Citizens Holdings because the company plans to keep everybody in place, including Stanley Pawlowski, chairman of El Camino.

“The only thing we want is a premier bank so we can do the same thing we did here--buy it and leave it alone,” Simpson said. “Mr. Pratt is not in the banking business, except for ownership, and is not here to do turnarounds.”

More Interaction Expected

Once Citizens Holdings buys another bank or two, he said, there would be more interaction among them and greater economies of scale. Already Citizens Bank is helping El Camino with international trade by arranging letters of credit with a Pratt-owned merchant bank in Hong Kong.

Pawlowski, who owns 7.5% of his bank company’s stock, has said previously that many of his fellow shareholders are older and want to retire with a profit from the investment they made in opening the bank 17 years ago.

The deal would give El Camino stockholders about $8 a share. The purchase price is about 1.65 times the book value--or shareholder equity.

Neither Simpson nor Pawlowski, two of the longer serving bank executives in Orange County, said they saw any major obstacles to signing a definitive agreement, which they hope to do within two weeks. All financial and operating details, for instance, have been put in the letter of intent.

If regulators do not approve the deal before Oct. 15--Simpson expects approval in November or December--El Camino shareholders would get the estimated $4,500 a day in income as dividends from that date on, according to the letter of intent.

At the Bank of San Clemente, developer John Wertin is expected to solve the bank’s only major problem--a shortage of capital.

State regulators recently examined the bank and found that its poor assets--mainly bad loans--are no longer as severe as they once were, said William Doolittle, a state Banking Department executive. “The bank has shown signs of improvement,” he said.

Besides buying $1.5 million worth of new stock at about $1 a share, Wertin would pay off San Clemente Bancorp debts totaling more than $700,000. The infusion would give the company a clean slate and give the bank a capital-to-asset ratio of 7%, which is what the regulators want.

“This would be mainly an investment,” Wertin said. “My hope is that under the direction they’re going, it will be sufficient to give me a return on my investment.”

At the end of June, the bank had $39.8 million in assets and had lost $280,000 in the first six months, according to state banking figures. Last year, it reported a $302,000 loss.

Michael Dunahee, the bank’s president, has predicted that the bank will return to profitability in the second half of this year.