Magazine article American Banker

Calif. Bank Regains Luster by Making Tough Calls on Costs

Magazine article American Banker

Calif. Bank Regains Luster by Making Tough Calls on Costs

Article excerpt

A year of austerity has propelled Eldorado Bancorp into the top ranks of Southern California community banks, proof that biting the bullet on costs can pay off.

In its bid for long-term survival, Eldorado left no expense - or employee - unjustified.

"After 1993 we took a hard look at ourselves," said David R. Brown, chief financial officer of the Tustin-based bank. "Any hard look at our cost structure showed that we had to get our costs down to stay competitive here."

While Mr. Brown likens what Eldorado did to what many major banks are doing in the West, the bank stands out among its peers.

California's community banks have some of the highest cost structures in the industry, mostly because of high pay and expensive office space.

Analysts who follow California's independent banks say that if a bank can't attack its cost structure, it will probably have to merge.

In Orange County, Eldorado's home, nearly all of the dozen community banks have overhead expenses exceeding 6% of their assets. In contrast, Eldorado's overhead expense ratio was 4.49% in the third quarter. And in the first quarter this year, with the full benefits of a yearlong restructuring on the books, the overhead ratio fell below 4%.

Eldorado's story starts in 1989, when real estate prices in Southern California were going up 25% a year. Mr. Brown said the $307 million-asset bank was heavyily into construction financing but more selective in purchase financing for real estate. That selectivity kept the bank's real estate credits above water through 1991 and 1992. But in 1993 the appraisals started coming in smaller and smaller. …

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