Mission Viejo National Says Loss Will Eat Reserves : Banking: If institution’s capital dries up, it could not meet regulators’ standards. Officials blame bad loans, slumping real estate market.

Mission Viejo National Bank, which revived itself after being at death’s door six years ago, is again in serious trouble.

The bank’s parent company, Viejo Bancorp, announced Tuesday that the bank expects to report a “substantial” second-quarter loss that will deplete most of its reserves and equity and leave it with inadequate capital to meet federal requirements.

The announcement came as the Office of the Comptroller of the Currency, which regulates national banks, continues its examination of the bank’s financial condition. The bank said there are “several issues yet to be resolved” with regulators.

William T. Brady, the company’s chairman, president and chief executive, was unavailable for comment. Financial results for the second quarter are expected soon.

The bank earned $401,000 in the first quarter, but its bad loans reached 16.6% of total loans--more than five times the maximum 3% level that regulators call for.

In February, the bank reached agreement with federal regulators to improve its operations and increase two levels of capital by the end of June.

Under the agreement, the bank was required to have shareholder equity equal to 6% of its assets, and a capital level of 9% of its assets based on the risk of its loans and other holdings. At the time, its equity capital was 5.8% and its risk-based capital was 8.9%, and bank officials expected to meet the new requirements easily.

But Mission Viejo National was hurt by a declining real estate market and loan losses, forcing writedowns against the bank’s capital, said Gerry Findley, a Brea banking consultant.

“It’s primarily a real estate-oriented bank,” Findley said. “When you originate loans for sale to private investors, it’s OK as long as you’re able to move them through and not have them on the books.”

But the bank’s source of loan buyers nearly dried up, he said, leaving it with many loans that were not up to regulatory standards.

The bank’s rapid 32% growth during 1990 drew the attention of regulators concerned about whether management could handle that growth.

In its examination last year, regulators criticized the bank’s staffing, loan policies and the handling of its jumbo certificates of deposit, which are $100,000 accounts.

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