ailing institutions and turning them around, tiny SDN Bancorp of Encinitas, Calif., may be looking to make a name for itself in Southern California community banking. With the assistance of principal stockholder Dartmouth Capital Group LP, the $58 million holding company of San Dieguito National Bank is in the process of acquiring Huntington Beach's Liberty National Bank, an institution more than twice its size at $146 million. The $24 million cash merger is expected to close during the first quarter, and is being funded entirely by Dartmouth Capital. Members of Liberty's board of directors, with approximately 21% of Liberty's outstanding stock, have voted in favor of the transaction. "I think Liberty is a wonderful franchise," said Robert P. Keller, president and chief executive officer of both SDN and Dartmouth Capital's general partner, Dartmouth Capital Group Inc. "It has good management, it has done a great deal of SBA lending, and it addressed the problems of the recession more quickly than a lot of other banks in the state were able to." Dartmouth, which gained control of SDN Bancorp Sept. 30 by purchasing a 94% interest in a recent recapitalization of the company, is made up of investors from across the nation. Dartmouth will use Liberty as its base for operations in Orange County. "The key is Liberty will be their flagship community bank here in Orange County," said Curt A. Christianssen, executive vice president and chief financial officer for Liberty. "The long-term benefit is that this deal will provide an immediate source of capital for mergers and acquisitions. Dartmouth's acquisition of SDN will make the bank the platform for more acquisitions." The deal for Liberty appears to be just the first of many for SDN in Southern California. "We've been looking at a number of opportunities," Mr. Keller said. "What we're looking for is the right opportunity to add to the overall value of the franchise." Liberty has suffered through some tough times, posting losses of more than $1 million in both 1993 and 1994. The bank began to turn things around this year as real estate prices in Southern California slowly began to rebound. Mr. Christianssen said SDN took notice of Liberty's success in improving its situation. He said a profit of $1 million for Liberty is not out of the question for this year. "We had to be tough bankers and face reality," Mr. Christianssen said, explaining the turnaround. "The bank was placed under a formal agreement in 1993 and we were able to satisfy the regulators and get it lifted in just two years, which is unusual. The folks at Dartmouth have expressed a lot of faith in this bank." Mr. Keller said no changes are anticipated for Liberty. "I guess I'm a firm believer in the old adage 'if it ain't broke, don't fix it,'" he said. "And it appears Liberty needs very little fixing." Mr. Keller is no stranger to acquiring banks and thrifts. He patched together a group of four troubled thrifts in New Hampshire in 1991, forming a $1.6 billion-asset bank. He sold New Dartmouth Bank in 1993 to Shawmut National Corp. for a healthy profit. In addition, Mr. Keller was also the last president of the ill-fated Caliber Bank of Arizona, the biggest start-up bank in history. Caliber was sold to Norwest Corp. in 1994.

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