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Combined Net Income for 37 O.C. Banks Down by 9%

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TIMES STAFF WRITER

Orange County’s banks reported a 9% drop in combined net earnings last year as many struggled because of a slumping real estate industry.

Thirty-seven locally based banks posted aggregate income of $48 million last year, compared to a $52.8-million profit in 1989. One bank, Grand National in Santa Ana, is not included because it refused to divulge its figures.

With the recession continuing, 1991 is likely to be a tough year for local banks to make a buck. But industry leaders say local banks are in much better shape to cope with the downturn than they were in 1981-82 when the last recession occurred.

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“California banks in general are doing a lot better during this recession,” said J.B. Crowell, president and chief executive of Eldorado Bank in Tustin. “But the recession could last all year, so we don’t know the final impact yet. I don’t think we’re out of the woods yet.”

Indeed, banks could be in for a rougher time until at least early 1992, said Gerry Findley, an industry consultant whose Findley Reports Inc. in Brea compiled the bank statistics.

With falling interest rates and smaller profit margins, he said, independent banks such as those in Orange County will need more time than major banks to take advantage of any upswing in the economy.

In addition, he said, regulators “have become much more critical in scrutinizing loans,” forcing banks to set aside more money in reserve for possible losses. That money otherwise would have gone to the bottom line to improve earnings, Findley said.

The county’s most profitable bank was Security Pacific State Bank in Irvine with $10 million in net income. It was followed by Commercial Center Bank in Santa Ana with $3.8 million, CommerceBank in Newport Beach with $3.75 million, Eldorado Bank with $3.6 million and National Bank of Southern California in Santa Ana with $3.2 million.

Only two banks lost money. Mission Valley Bank in San Clemente lost $1.2 million and Laguna Bank in Laguna Beach dropped $452,000. Laguna Bank has been struggling for several years from some bad loans made in the mid-1980s.

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Mission Valley’s problems largely stemmed from bad real estate loans. Foreclosed real estate, write-downs in its property holdings and increased loan-loss reserves dropped its capital ratio to 4.9% of assets, well below the 6% level regulators require.

“It’s no fun being in banking anymore,” said Jack Barnes, Mission Valley’s president. United American Bank in Westminster was the only other bank to fall below the capital ratio, just missing it with its 5.9% ratio.

Overall, the local industry’s bad loans as a percentage of total loans dropped to about 1.75% last year from about 1.85% the previous year. The ratio is considered a key barometer of possible future problems at banks. Bankers like to keep it below 1% and regulators take note when it rises above 3%.

Despite the lower overall figure, however, half of the county’s 10 largest banks registered increases in their ratios of bad loans. Findley attributed the increase to heavier real estate construction lending, which hurt the bigger banks.

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