Bank OKs Pact With Regulators : Finance: Mission Viejo National, troubled by bad loans, agrees to improve operations and increase capital by the end of June.

Facing various problems that include a large number of bad loans, Mission Viejo National Bank said Friday that it has reached an agreement with federal banking regulators to improve its operations and increase its capital by the end of June.

The bank said that it has already met nearly all the requirements in the agreement with the U.S. Comptroller of the Currency, the agency that regulates national banks, and that it doesn’t expect the pact to have any effect on its performance.

The agreement concludes a routine examination of the bank begun by regulators last May, said Melvin Bohnet, chief financial officer.

Regulators, he said, were concerned about the bank management’s ability to manage the rapid 32% growth that occurred in 1990.

Bohnet said regulators criticized the bank’s staffing, loan policies and the handling of its jumbo certificates of deposit, which are $100,000 accounts brought in by the bank’s special deposit-gathering desk.

The comptroller’s office wants Mission Viejo National to hire an independent consultant to review its operations and recommend changes, Bohnet said.

The agreement also requires the bank to improve two levels of capital by the end of June. Regulators want the bank to boost its ratio of shareholder equity to assets from the current 5.8% to at least 6%. The bank’s capital based on the risk of its assets is 8.9%, and regulators want that increased to 9%.

Relying primarily on mortgage, construction and commercial loans, Mission Viejo National pushed its assets from $121 million at the end of September, 1989, to $160 million a year later. To fund that growth, the bank solicited jumbo CDs, but regulators criticized those deposits because most carried terms of less than a year and could be moved quickly by customers to other institutions.

The fast growth brought with it a number of bad loans. By the end of December, 9% of the bank’s loans were more than three months overdue. Bankers like to keep that figure below 1% and worry when it gets to 3%.

Since September, when regulators completed their on-site examination, Mission Viejo National has reduced its assets, in part to boost its ratio of capital to assets. It ended the year with $147 million in assets.

Bohnet said the agreement calls for the bank to document “several policies and procedures” and to report to the comptroller’s office twice a month on its financial condition and its bad loans.

“They want to track our collection efforts,” he said.

Only two weeks ago, the bank’s parent company, Viejo Bancorp, said it had reached a tentative agreement with an Asian investor group to sell 50% of the company through a new stock offering that would raise up to $10 million. It was unclear Friday what impact the regulatory action would have on the pending sale.