Loooking at Orange County’s Past Year Sheds Light on ’86 : Banking

While Orange County’s 46 banks and 32 savings associations enjoyed lower interest rates and a healthy economy in 1985, the favorable climate was not sufficient to propel them to new heights of prosperity.

And although the favorable climate is expected to continue in 1986, analysts are not predicting any new boom as recession-related problems linger.

“It was a year of mixed results, but better than the two previous years,” Newport Beach financial consultant Edward Carpenter said.

And Brea consultant Gerry Findley said the year for the county’s financial institutions has been “average” and will likely be “relatively flat” next year.

Still, 1985 did turn out to be a better year than originally forecast. A year ago, forecasters saw a bleak 1985 and predicted that several institutions would go out of business.

But only two county banks--Capistrano National and South Coast--failed, and one county savings and loan association--Butterfield S&L--was; taken over by federal regulators this year. In 1984, six banks in the county failed while no S&Ls; were closed.

“Banks are continuing to feel the effects of the real estate recession,” Carpenter said.

Findley termed it a “recovery” year for banks as they tried to “deal with the problems of deregulation, changes in the financial delivery system and public confidence in banks.”

The two men differ about the outlook in banking for next year. Carpenter expects a better year for community banks as recessionary effects lessen. He also foresees dramatic increases in bank stock as reciprocal banking laws with other states, particularly the proposed law with New York, lead to takeovers of Orange County banks.

Findley, however, thinks that those New York banks that want to be in California, such as Citicorp, already are here. Findley also said he doubts that the overall economic outlook will be very rosy and predicts that banks will have only an average year.

Both Findley and Carpenter said that S&Ls; as a group had a good year and could expect a better one next year. But Carpenter warned that the county as well as the state will continue to have a “high number of problem companies.” Findley agreed.

Despite the problems, a few area banks and thrifts managed to turn in exceptional performances in 1985.

Among the Orange County banks benefiting most during the recovery, the consultants said, were CommerceBank in Newport Beach and El Camino Bank in Anaheim.

CommerceBank earned $722,000 in the first nine months this year, an 8.4% increase over the $666,000 it earned during the same period last year.

El Camino began reaping the benefits of its two-year-long retrenchment and consolidation as it earned $968,000 in the first nine months of 1985, a 49% increase over the $648,000 it earned during the same period a year earlier.

And an out-of-county bank, Farmers & Merchants Bank of Long Beach, moved boldly into Orange County by purchasing the assets of the insolvent Capistrano National Bank last April and offering to buy the troubled Town & Country Bank in Seal Beach in September.

Among the county’s savings institutions excelling during the year were Downey, Newport-Balboa and Irvine City S&Ls.;

Downey, which Findley called the “only true success,” is one of the more highly regarded thrifts in the nation. The Costa Mesa S&L; has turned in 12 straight quarters of growth and recently gave shareholders a special cash dividend totaling $1.9 million along with a 3-for-2 stock split. It reported profits of $43.3 million in the first nine months, nearly five times the $9.7 million in earnings reported for the same period last year.

The smaller Newport-Balboa, a wholly owned subsidiary of ITT Financial Corp., has been regarded as one of the healthiest thrifts in the state even through the recession. Its profits for the first nine months reached $3.3 million, a 16% increase over the $2.9 million it earned in the same period last year.

Irvine City, an 18-month-old S&L; in Irvine that the consultants believe may be too young to label a success yet, has quickly turned the normal initial operating losses into profits for the last three quarters. The small thrift, which has only about $40 million in assets, earned $223,783 in the first nine months, compared with $273,335 in losses a year earlier during its first quarter in business.

Among the county’s more troubled institutions, the consultants said, are Valencia Bank in Santa Ana and Financial Corp. of America’s American Savings & Loan Assn. unit.

Valencia is operating under Federal Deposit Insurance Corp. orders that require it to meet certain financial standards or face a loss of insurance coverage, which would essentially force the bank to close its doors. The bank has been negotiating with a group of six investors to pump $7.5 million into the bank’s capital account, but the talks have stalled and the bank has turned to other potential saviors. For the first nine months of 1985, Valencia lost $2.05 million, compared with a loss of $1,000 a year earlier.

American, the nation’s largest S&L; with $27.6 billion in assets, lost $590.5 million in 1984 and its losses continued in 1985. American posted a loss of $43.7 million for the nine months ended Sept. 30, compared with a loss of $78.4 million a year earlier.