Three County Banks Agree to Merge; Pact Would Form Area’s Largest Independent

Positioning themselves to fend off eventual competition from major out-of-state banks, three of Orange County’s top performing banks said Tuesday that they have agreed in principle to merge in a cash-and-stock deal worth about $21.5 million.

The deal would create the county’s largest locally based independent bank, with five offices and $288.1 million in assets.

The surviving entity would be 4-year-old National Bank of Southern California, located in the Santa Ana portion of the so-called South Coast Metro area east of the South Coast Plaza Town Center.

Shareholders of 17-year-old El Camino Bank in Anaheim, one of the county’s oldest continually operated independent banks, would get nearly 17% of National Bank’s holding company, California Commercial Bankshares, while shareholders of 4-year-old Corporate National Bank, in Santa Ana near the city’s eastern boundary with Orange, would get about 33% of the new holding company.

“It’s a very friendly merger and very prudent for positioning ourselves for (interstate banking) competition,” said Stanley Pawlowski, El Camino’s chairman. “Together, we can be a formidable force in banking in Orange County. Without the merger, we’d be just another independent bank.”

William Jacoby, National Bank’s chairman and chief executive officer, said the combined banks would be able to expand services, broaden customer base and add more branches, particularly in south Orange County--where none of the three banks have an office.

“I think there’s a big need in the county for a driving, major banking force that’s here to stay and that’s well-recognized,” said Gary M. Wrigley, president of Corporate National.

The proposed merger is subject to the signing of a definitive agreement, expected within a month, and the approval of shareholders and regulatory authorities.

The merger would create not only the dominant county-based bank, it also would “stimulate other bankers thinking of similar mergers,” said Edward Carpenter, a Newport Beach banking consultant. He has been promoting such mergers as a way to compete more effectively against bigger banks or to create an attractive takeover target for major East Coast banks, which will be allowed by state law to buy California banks in 1991.

The merger is Orange County’s first, but follows three-way bank combinations in other counties, including San Diego County where First National Corp. recently agreed to a merger with National Bank of La Jolla and National Bank of Fairbanks Ranch to form a $350-million bank.

What is unique about these three-way mergers, said Jacoby and others, is that they involve healthy banks, relative equals in earnings performances. Industry analysts have said such combinations are the beginning of a merger wave that will sweep through the small banking business in the West in preparation for interstate banking, which goes into effect this summer for 11 western states and in 1991 for the rest of the nation.

“This is an excellent merger, one that makes a lot of sense,” Carpenter said about the Orange County banks. “Both Corporate and National Bank are young business banks, and El Camino is an old, established bank with a mix of business, real estate and retail banking.”

Gerry Findley, a Brea financial institutions consultant, is a doubting Thomas, however. He has been critical of “packagers” promoting mergers simply as dressing for out-of-state bank buyers.

“Don’t join together unless you’re really going to be a better bank than you were going to be before you went in,” Findley said. He said that banks do not necessarily compete any better when they get bigger and that new investors, especially institutional investors who may buy new offerings of a merged bank, will not be as emotionally tied to the bank as original investors are.

But a bigger bank will be able to lend more money to a single borrower, bringing in the small and medium-size businesses that so many county banks covet. The combined National Bank of Southern California would try to pick up more merchant banking with its higher lending authority.

The three banks’ combined profit last year was $2.7 million and their combined equity capital on Dec. 31 was $21.1 million. Combined deposits were $260.4 million.

Under terms of the tentative agreement, shareholders of El Camino would get $3.50 a share in cash, .075 shares of California Commercial Bankshares common stock and $3 of newly authorized preferred, convertible stock for each of El Camino’s 1.97 million shares of stock.

Pawlowski, one of the deans of Orange County banking and owner of 7.5% of his bank’s stock, estimated the deal was worth about $17 million for El Camino shareholders. Many of the shareholders are older and want to retire with cash and a little profit from their bank investment, he said.

Corporate National shareholders would get .60 to .66 shares of holding company stock for each share of Corporate National. With National Bank trading at about $17 a share, according to Jacoby, the deal would be worth $4.5 million to $5 million for Corporate National shareholders.

At the end of the year, National Bank had nearly $130.2 million in assets, $118.25 million in deposits and $8.3 million in equity capital. Its annual net income was $1.1 million. El Camino had nearly $105.3 million in assets, $94.7 million in deposits and $8.55 million in equity capital. Its net income was $1.3 million. Corporate National had $52.6 million in assets, $47.4 million in deposits and $4.2 million in capital. It earned $320,000 last year.