County Bank Profits for 6 Months Nearly Equal to All of ‘87’s

Orange County’s 39 independent banks posted a combined net income of $18.5 million for the second quarter, giving the county industry a 6-month profit that nearly equals earnings for all of last year.

The banks benefited from the county’s strong economy, low unemployment and higher levels of deposits from residents wary of the stock market.

“Even though we’re a year from the stock market crash, people are still more secure in an insured investment like a certificate of deposit,” said Daniel L. Erickson, chief financial officer of Commercial Center Bank in Santa Ana.

Coupled with first-quarter earnings of $6.6 million, the local industry’s profits for the first half of the year amounted to $25.1 million, just $1.9 million shy of what the banks earned for a full year in 1987.

National Record Set

Last year, the county’s banks turned in their first year of combined profits since deregulation in 1982.

The 6-month figure is 2.5% of the $1-billion profit posted by the state’s 445 banks in the same period, according to regulatory figures compiled by Alex Sheshunoff & Co., an Austin, Tex., industry consulting firm. The income figures do not include gains or losses from so-called extraordinary items, such as the sale of real estate holdings.

The nation’s 13,347 commercial banks posted a record aggregate income of $10 billion in the first half of the year, contrasted with a $5.5-billion loss in the first 6 months of 1987, when many major banks wrote down or charged off loans to lesser developed countries.

Among the county banks, only six posted losses for the second quarter as well as for the first 6 months. Their quarterly losses totaled $1.85 million, and their 6-month losses amounted to $2.15 million.

But the money-losing banks had so much capital that the losses didn’t put any of them in jeopardy. In fact, for the first time in recent memory, no bank’s capital fell below 6% of its assets. Regulators require banks to maintain a 6% ratio of capital to assets.

The overall strength of the local banking industry gave bankers a big cushion as they padded their bank vaults with profits and capital.

The county industry produced an annualized return on assets of 1%, which is the benchmark that independent banks try to achieve. Return on assets is a standard measure of profitability calculated by dividing average assets during the year into income.

The county’s annualized return on assets for the second quarter was ahead of the state figure of 0.72% and the national figure of 0.66%, according to Sheshunoff.

Erickson pointed to the county’s unemployment rate of 3.1% in September--considered full employment--as a big factor helping one-time troubled banks like Commercial Center.

“Low unemployment means fewer loan delinquencies,” he said. “People can pay off their loans.”

Only a short time ago, Commercial Center had the county’s highest rate of bad, or nonperforming, loans as borrowers representing 15% of its loan portfolio were failing to make principal and interest payments on time.

Commercial Center wrote down the loans to market value and moved them to its holding company, CCB Bancorp Inc., Erickson said. Now the bank has no nonperforming loans, which is good news for CCB’s parent, the bankrupt Canadian Commercial Bank in Edmonton. The Canadian bank is being liquidated and is looking for a buyer for the profitable Santa Ana bank.

Nonperforming loans are a source of potential problems for a bank.

At the end of the second quarter, the combined bad loans in Orange County banks came to 1.5% of the total loans at the banks, down from 3.4% in the first quarter. Statewide, the ratio for all commercial banks was 3.75%. Nationwide, it was 3.23%.

ORANGE COUNTY BANKS RANKED BY ASSETS

Non- 2nd performing Quarter % Change Loans as % Net Assets from of Gross * Income Bank (millions) Dec. 1987 Loans (thous.) CommerceBank $248.6 14.2 0.98 $1,128 Eldorado 244.3 22.9 1.41 1,440 Commercial Center 239.8 3.1 0.00 1,342 Sunwest 210.2 16.4 2.15 716 Security Pacific State 189.3 79.3 0.09 3,008 National Bank of So. Cal. 178.1 31.2 1.46 697 Bank of Newport 174.9 1.7 1.24 370 Far Western 165.5 -28.9 8.43 912 Landmark 150.6 9.6 0.65 663 Orange National 140.1 12.4 0.42 549 Citizens Bank of 130.2 14.5 2.02 964 Costa Mesa Pioneer 121.8 12.7 2.11 885 El Camino 115.0 5.2 1.06 822 Liberty National 111.1 8.2 1.42 411 Pacific Inland 88.3 3.0 1.98 -1,062 Pacific National 87.5 9.2 4.89 85 American Commerce 83.4 10.3 1.35 742 National Marine National 76.3 30.0 0.56 173 Mission Viejo National 75.8 19.9 0.46 444 Huntington National 73.7 11.4 0.36 393 Corporate 67.3 20.1 0.15 431 Frontier, N.A. 67.1 4.8 1.46 233 American Interstate 55.7 -7.7 2.80 211 California City, N.A. 54.4 8.5 0.09 178 Monarch 53.9 -9.7 1.49 -122 Mariners, N.A. 46.6 13.3 0.00 163 Bank of Westminster 46.6 -0.1 1.84 43 Colonial, N.A. 40.6 -6.6 0.01 588 Dana Niguel, N.A. 40.2 9.2 0.21 78 Bank of Anaheim, N.A. 39.3 -2.4 0.08 120 Founders National 38.8 6.3 2.12 96 Bank of San Clemente 38.2 1.8 0.79 -111 Bank of Orange Cty 32.4 14.2 5.78 -127 Grand National 30.1 -11.5 0.57 20 Bank of Yorba Linda 29.1 -1.4 1.01 380 Laguna, N.A. 26.3 -4.1 1.87 -328 First American Capital, 24.6 11.8 6.22 189 N.A. United American 22.6 1.0 2.82 71 Mission Valley, N.A. 13.9 -6.4 4.50 -107 TOTALS 3,672.2 7.4 1.51 16,688

Annual Return on Avg. Bank Assets CommerceBank 1.01 Eldorado 1.36 Commercial Center 1.13 Sunwest 0.73 Security Pacific State 4.37 National Bank of So. Cal. 0.92 Bank of Newport 0.42 Far Western 0.89 Landmark 0.93 Orange National 0.83 Citizens Bank of 1.56 Costa Mesa Pioneer 1.49 El Camino 1.45 Liberty National 0.77 Pacific Inland -2.44 Pacific National 0.21 American Commerce 1.88 National Marine National 0.53 Mission Viejo National 1.26 Huntington National 1.14 Corporate 1.41 Frontier, N.A. 0.71 American Interstate 0.73 California City, N.A. 0.69 Monarch -0.43 Mariners, N.A. 0.74 Bank of Westminster 0.18 Colonial, N.A. 2.77 Dana Niguel, N.A. 0.41 Bank of Anaheim, N.A. 0.60 Founders National 0.51 Bank of San Clemente -0.59 Bank of Orange Cty -0.86 Grand National 0.13 Bank of Yorba Linda 2.56 Laguna, N.A. -2.48 First American Capital, 1.61 N.A. United American 0.63 Mission Valley, N.A. -1.47 TOTALS 1.00

* Before extraordinary items. Source: Sheshunoff Information Services Inc.