County Banks Post Net Income High: $53.1 Million : Earnings: Lower interest rates on deposits, a stable economy and slightly higher lending rates lead to a second year of record profits. The figures are in sharp contrast with nationwide results.

Taking advantage of a stable economy and slightly higher lending rates, Orange County’s 39 banks posted a combined net income of more than $53 million last year--the second consecutive year of record-setting profits.

The earnings of the local independent banks were also spurred by lower interest rates on deposits, which gave the banks a significant profit margin, said Gerry Findley, a banking consultant based in Brea.

Findley, who said last year that 1988 was the best year he had ever seen for independent banking, said the 1989 financial results surpassed his expectations.

The local industry’s profits of $53.1 million are 31% higher than the $40.6 million earned by the same banks in 1988, after adjustments at two banks lowered 1988’s total by $2 million, according to regulatory figures compiled by Findley in his annual statistical study of bank financial performance garnered from filings with federal regulators, “Findley Reports on California Banks.” His study is being mailed to subscribers this week.

Last year’s aggregate profits could increase once the final results are in from two banks that declined to divulge their financial figures for last year. Those banks--Far Western in Tustin and Grand National in Santa Ana--reported nine-month profits of $3.9 million and $207,000, respectively.

The county’s big earnings mirror the performance of the state’s 422 banks, which produced a record $3.75 billion in net income last year. They produced net income of $2.7 billion in 1988.

Both county and state figures, though, are in sharp contrast with results turned in by 10,000 banks nationwide. Hurt by huge loan losses, the industry’s profits fell 34% last year, to $16.3 billion from $24.8 billion the year before.

The county’s banking climate may change this year, Findley and some bankers warn, because increased competition could push lending rates down and deposit rates up. In addition, businesses are reducing the amount in their deposit accounts, which typically are interest-free accounts that provide banks with bigger profit margins than other accounts.

“All of that means the potential for loan losses increases,” Findley said.

While banks nationwide were hurt by loan losses, the county’s banks reduced the ratio of its bad loans--those more than three months overdue or no longer paying--to total loans last year. Such non-performing loans fell slightly, to 1.8% of total loans from 1.9% a year earlier. Bankers like to keep the ratio below 1%. Ratios of more than 3% are considered very unhealthy for banks.

Some bankers think that the local industry will continue to show healthy profits. They say local bankers learned a lesson from the real estate debacle in the early 1980s, which sent many banks and savings and loans to their graves.

And some bankers do not believe that competition will heat up very much this year or even next year, when nationwide interstate banking allows Eastern banks to buy California banks.

For instance, Philip S. Inglee, president of Liberty National Bank in Huntington Beach, said he turned to the Kansas City bank that holds the mortgage on his house to see whether it would make a new loan for an addition he built.

“The out-of-state bank said, ‘Thanks, but we have enough loans in California,’ ” Inglee said. “I don’t see any bank entering this marketplace that’s going to make any change” in the competition.

Among the big county moneymakers last year were Security Pacific State Bank in Irvine, Commercial Center Bank in Santa Ana and Eldorado Bank in Tustin, with net incomes of $5.6 million, $5.2 million and $3.9 million, respectively. Commercial Center also had the highest ratio of non-performing loans to total loans--14.9%--an indication of possible future problems.

Just two banks lost money: American Interstate in Newport Beach dropped $722,000, and Laguna Bank in Laguna Beach lost $549,000.

For Laguna Bank, last year provided a respite while it worked on loan problems from previous years and collected new capital from Chicago investors tied to First Oak Brook Bank. The investor group added $500,000 in cash and will put $500,000 more in as part of a private $1-million offering that the bank will put out in April, said Don Narup, who took over as the bank’s president in January.

Laguna cut expenses in half last month and expects to return to profitability in July, he said.

ORANGE COUNTY BANK SCOREBOARD

% NON-PER- NET Ranked by 1989 assets ASSETS FORMING TO IN (millions) TOTAL LOANS (thou Bank 1989 1988 1989 1988 1989 Commercial Center 309.3 254.9 14.9 15.4 5,213 Security Pacific State 300.4 245.9 0.2 0.1 5,633 Sunwest 286.4 232.0 1.5 1.7 3,285 Eldorado (a) 280.0 254.1 0.7 1.7 3,905 National Bank of So. Calif. 274.1 199.8 0.5 0.6 2,526 Bank of Newport 269.6 214.5 2.0 1.9 2,069 CommerceBank (e) 257.7 233.9 0.6 1.1 3,709 Far Western (d) 212.3 160.2 4.0 11.1 3,893 Landmark (b) 175.4 150.4 0.1 0.2 1,858 Orange National 169.9 149.8 1.1 0.1 1,477 Pioneer 153.4 130.8 2.6 2.4 2,812 El Camino 138.7 118.7 0.1 0.7 2,589 Liberty National 138.2 116.6 0.6 0.8 1,602 Mission Viejo National 133.1 82.8 4.0 3.4 2,377 Citizens Bank of 130.7 119.0 1.8 0.7 2,104 Costa Mesa (a) Huntington National 130.3 81.0 0.5 0.1 1,179 American Commerce 123.9 84.5 1.7 0.7 1,435 National Pacific National 116.7 105.0 2.3 4.9 847 Corporate 94.9 72.0 0.1 0.1 1,282 Pacific Inland 93.0 86.0 1.3 1.6 115 Marine National 85.2 82.5 0.1 0.4 705 Frontier, N.A. 74.1 69.6 1.3 1.5 162 Mariners 72.4 54.4 0.7 1.1 901 Dana Niguel N.A. 70.6 43.7 0.2 1.1 605 American Interstate 67.0 57.4 0.3 2.7 -722 California City, N.A. (e) 65.1 57.7 0.1 0.4 602 Bank of Westminster 62.9 48.7 1.1 1.2 555 Bank of Anaheim, N.A. 60.7 46.6 0 0 630 Monarch Bank 58.5 52.1 0.6 0.2 248 Bank of San Clemente 52.2 43.1 0 0 463 Founders National 50.9 42.2 1.2 0.6 414 Mission Valley, N.A. 44.7 17.0 8.7 1.1 643 United American 40.7 30.8 2.1 1.4 102 Colonial, N.A. 40.1 40.5 0 0 1,055 Bank of Orange County (b) 34.9 36.9 0 0 526 Bank of Yorba Linda 32.6 32.8 1.9 1.7 293 First American Capital, N.A. 31.5 25.7 5.6 2.1 470 Grand National (d) 29.4 27.4 0.8 0.3 207 Laguna, N.A. 22.5 29.5 0.2 1.0 -549 Totals (c, d) 4,784.0 3,930.5 1.8 1.9 57,220

Ranked by 1989 assets COME sands) Bank 1988 Commercial Center 3,038 Security Pacific State 4,189 Sunwest 2,749 Eldorado (a) 3,067 National Bank of So. Calif. 1,735 Bank of Newport 1,075 CommerceBank (e) 2,644 Far Western (d) 2,203 Landmark (b) 1,410 Orange National 1,369 Pioneer 2,101 El Camino 2,010 Liberty National 1,120 Mission Viejo National 1,651 Citizens Bank of 1,959 Costa Mesa (a) Huntington National 766 American Commerce 1,018 National Pacific National 654 Corporate 987 Pacific Inland -377 Marine National 454 Frontier, N.A. 508 Mariners 474 Dana Niguel N.A. 459 American Interstate 477 California City, N.A. (e) 704 Bank of Westminster 220 Bank of Anaheim, N.A. 521 Monarch Bank 26 Bank of San Clemente 235 Founders National 367 Mission Valley, N.A. -589 United American 319 Colonial, N.A. 980 Bank of Orange County (b) 106 Bank of Yorba Linda 353 First American Capital, N.A. 589 Grand National (d) 95 Laguna, N.A. -1,091 Totals (c, d) 40,575

NOTES:

(a)Sister banks owned by Citizens Holdings in Newport Beach.

(b)Negotiations pending for acquisition of Bank of Orange County by Landmark Bank.

(c)Adjustments reduced 1988 net income from $41,378,000.

(d)Figures include nine-month results for Far Western and Grand National.

(e)CommerceBank completed its acquisition of California City Bank this year.

Source: Findley Reports on California Banks, Brea