A merger agreement and an improved regional economy helped make Liberty National Bank a speculator's dream in 1995. Thanks largely to its acquisition by SDN Bancorp, which was backed by Dartmouth Capital Group LP, shareholders of the Huntington Beach, Calif., bank were rewarded handsomely in 1995 with a 174.5% increase in the stock price. The $148 million-asset institution rebounded from sluggish showings in 1993 and 1994 to post the biggest percentage increase of any community bank stock nationwide, according to SNL Securities, Charlottesville, Va. Liberty opened 1995 at $5 a share and had moved to $13.63 by yearend. The Southern California bank outdistanced the next closest performer, Garden State BancShares, Jackson, N.J., by almost 10 percentage points and was well ahead of California's runner-up, Sterling West Bancorp, which had an increase of 108%. The Southern California economy is a primary reason for renewed interest in Liberty, its officers said. Orange County is finally getting out from underneath the cloud of the recession, and we had a pretty good year overall, but the merger is certainly the major factor in the (stock price) movement, said Philip S. Inglee, Liberty's president and chief executive. Stock in Liberty, which had posted losses of more than $1 million in both 1993 and 1994, started the year off slowly. It opened the year at $5 and fell to a low of $4 in February before beginning a steady climb that continued the rest of the year. The price increase was especially pronounced in late spring and early summer. The stock was at $6 May 1 but more than doubled in the next three months, hitting $12.50 by August as acquisition rumors became public. A letter of intent with SDN was signed Aug. 18, and a definitive agreement was reached at the end of October. With fewer than a million shares outstanding and just 600 stockholders, Liberty's shares were more easily influenced by market factors than those of larger competitors. Liberty's stock price continued upward at a slower rate the remainder of the year. And the rise continued into 1996 as the stock continued to climb toward the $14.80 merger price. On average, bank stocks were up about 50% in 1995, and I believe the median increase for California community banks was about 40% last year, said Joseph K. Morford, analyst at Alex. Brown & Sons, San Francisco. It was the result of a combination of the general merger-and-acquisition atmosphere in the area and overall good conditions in the industry. While a good portion of the stock's rise can be attributed to SDN's move, Liberty had made progress on its own in 1995. The bank had a formal regulatory agreement lifted during the year as it was able to clean up nonperforming assets en route to a profit of more than $1 million. SDN, with principal subsidiary San Dieguito National Bank, and backer Dartmouth are taking over Liberty with the intent of making it their flagship community bank in Orange County. Dartmouth gained control of SDN in late September by buying a 94% interest in recapitalization of the company. Dartmouth officials have expressed interest in expanding their California holdings. It's likely San Dieguito and Liberty will be joined by others in the Dartmouth fold. Improving conditions in Southern California real estate played a major role in Liberty's resurgence. The bank's provision for loan losses through the first three quarters of 1995 was $150,000, a substantial drop from $1.88 million in the same period the year before. The bank's improvement from the preceding year was evident on its balance sheet. In 1993, it had assets of more than $158 million. That total fell to just under $132 million a year later before the rebound began in 1995. Although Liberty enjoyed the biggest percentage jump in stock price, other community banks had bigger gains in dollar price. United Counties Bancorp., Cranford, N.J., saw its stock price jump $120.50 per share, from $105.50 to $226, an increase of more than 114%. Another big?20gainer in 1995 was Cardinal Bancshares, Lexington, Ky., known for its personal computer banking forays. Its stock rose $30.63, from $28.37 per share to $59. Five of the top 20 performers were New Jersey institutions.

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