Independent Banks in Red in 2nd Quarter : Economy: County’s 35 institutions posted first combined loss in over three years. Mission Viejo National pulled rest out of black.

The lingering recession, tougher regulators and increasing competition plunged Orange County’s 35 independent banks into red ink for the second quarter with a combined net loss of $5.1 million.

The deficit--caused by a $9.1-million loss at shaky Mission Viejo National Bank--marks the first quarterly loss by the local banking industry in more than three years. Last year’s combined second-quarter profits were $10.5 million.

The loss amassed at Mission Viejo National has left it on the brink of solvency. Its capital, the final reserve against losses, dropped to only 1.33% of its assets at the end of June, far below the 6% benchmark regulators use.

But the rest of the county’s banks barely limped along through the quarter as only 11 posted slightly higher profits than they did in the first quarter, according to regulatory figures compiled by Sheshunoff Information Services Inc. in Austin, Tex.

The local industry’s $9.6-million first-quarter profit helped to blunt the accumulated damage, leaving county banks with six-month net income of nearly $4.5 million. Last year’s six-month income was $22.1 million.

Things won’t get better any time soon, said Gerry Findley of Brea, a banking consultant for the state’s independent banks. He expects the industry statewide to end the year with a 25% reduction in its return on equity, a major measurement of profitability.

“We’ll see some more of the same because we haven’t reached the turnaround in commercial real estate,” Findley said. “As (troubled) commercial real estate loans age, they’ll get reconciled or they’ll get worse--and the tendency is that they’ll get worse.”

Bad loans grew at most banks, sometimes dramatically. Commercial Center Bank in Santa Ana saw its bad loans soar to 16.1% of its total loans at the end of June from 1.7% a year earlier, while Mission Viejo National’s shot to 14.6% from 4.2% a year earlier. Bankers and regulators don’t like that ratio to exceed 3%.

Meantime, the county’s 14 thrift and loans--most of them relatively small institutions--nearly duplicated their $3.23-million first-quarter performance by posting aggregate net income of $3.16 million for the second quarter. Their net income for the first six months dropped 20% to $6.4 million from last year’s $8 million net income for the same period.

“Thrifts are fully secured lenders that are very adept at collecting loans in a negative environment,” said Edward J. Carpenter of Irvine, an industry consultant.

Thrift and loans--sometimes confused with savings and loans, which also are known as thrifts--typically base their loans solely on borrowers’ collateral and require hefty down payments, Carpenter said. Being fully secured, he said, they can thrive better in bad times.

Even the county’s largest thrift, First Fidelity Thrift & Loan in Irvine, should be able to collect on $34.7 million worth of bad loans, he said. Those problem loans amount to 9.2% of all First Fidelity loans.

Bankers and consultants such as Findley and Carpenter have accused regulators of adding to the the problems that bankers face by being so strict in their financial reviews of banks that many bankers have stopped making once-common but riskier loans to, for instance, real estate developers.

The so-called credit crunch that has resulted has been a major factor in the recession. The Bush Administration, trying to pump up the economy, recently has promised to ease up on overly tough audits by regulators.

Orange County Bank Scoreboard

Second quarter, 1991, results (Ranked by assets)

ASSETS % NON-PERFORMING NET (millions) TO TOTAL LOANS (1) (thou Bank 1990 1989 1990 1989 1990 Security Pacific State $430.3 $308.3 1.09 0.11 $2,065 National Bank of 369.8 313.3 2.79 0.20 943 So. Calif. CommerceBank 330.4 326.2 0.76 0.38 264 Eldorado (2) 288.0 291.1 2.26 2.49 830 Bank of Newport 282.4 276.9 2.27 1.76 84 Sunwest 274.1 278.5 4.88 1.82 -154 Commercial Center 264.6 248.0 16.08 1.66 -879 Pioneer 205.1 189.3 4.81 1.46 606 Landmark (3) 179.8 181.9 1.76 0.52 444 Orange National 161.1 167.1 0.07 0.23 -750 Mission Viejo National 155.2 153.4 14.64 4.15 -9,137 Liberty National 151.7 144.9 2.58 2.80 358 Frontier N.A. 144.8 161.3 2.48 0.65 -113 Pacific National 129.8 104.2 1.74 0.48 257 American Commerce 129.2 127.3 3.11 0.66 268 National Pacific Inland 120.1 96.5 4.13 1.06 89 Huntington National 110.6 117.9 0.39 0.26 255 Corporate 97.8 96.4 1.14 0.10 151 Mariners 79.5 71.5 0.70 0.00 164 Marine National 78.6 90.8 0.28 0.22 39 Colonial N.A. 77.6 55.7 1.05 0.00 -91 Bank of Anaheim N.A. 70.7 65.0 0.26 0.12 170 Dana Niguel N.A. 66.8 72.6 2.17 0.45 -250 Bank of Westminster 66.5 67.6 3.19 0.32 72 Bank of San Clemente (2) 66.1 65.1 2.84 0.00 120 Monarch Bank 58.2 58.7 0.09 1.10 46 American Interstate 57.2 67.5 2.49 2.33 31 Founders National (3) 52.4 54.7 1.05 1.27 -414 Bank of Yorba Linda 49.1 35.0 0.16 1.42 118 Bank of Orange County 43.4 33.5 0.97 0.37 60 Grand National 41.6 26.6 0.02 0.03 -35 United American 40.6 39.7 1.63 1.52 23 Mission Valley N.A. 38.8 40.2 7.10 8.06 -619 First American Capital 38.2 33.0 7.17 3.51 28 N.A. Laguna N.A. 13.6 18.8 1.90 2.05 -181 Totals 4,763.7 4,478.5 -5,138

INCOME sands) Bank 1989 Security Pacific State $2,202 National Bank of 947 So. Calif. CommerceBank 641 Eldorado (2) 807 Bank of Newport 286 Sunwest 358 Commercial Center 368 Pioneer 563 Landmark (3) 495 Orange National 893 Mission Viejo National 401 Liberty National 344 Frontier N.A. -236 Pacific National 197 American Commerce 247 National Pacific Inland 129 Huntington National 204 Corporate 439 Mariners 169 Marine National 102 Colonial N.A. 97 Bank of Anaheim N.A. 150 Dana Niguel N.A. 10 Bank of Westminster 75 Bank of San Clemente (2) 128 Monarch Bank 20 American Interstate 43 Founders National (3) 1 Bank of Yorba Linda -45 Bank of Orange County 44 Grand National -143 United American 11 Mission Valley N.A. -211 First American Capital 33 N.A. Laguna N.A. -166 Totals 9,603

(1) Bad loans should not exceed 3% of total loans, according to bankers and regulators.

(2) Eldorado recently acquired Bank of San Clemente.

(3) Landmark is awaiting shareholder approval to acquire Founders.

Sheshunoff Information Services Inc., Austin, Texas

O.C.Thrift & Loan Scoreboard

Second quarter, 1991, results (Ranked by assets)

ASSETS % NON-PERFORMING NET INCOME (millions) TO TOTAL LOANS (1) (thousands) Thrift 1990 1989 1990 1989 1990 1989 First Fidelity $442.6 $340.7 9.20 7.96 $1,857 $2,382 Investors 243.5 181.6 1.34 1.63 574 421 Citizens 94.4 82.2 0.88 0.35 380 118 South Coast 79.4 68.2 7.84 4.77 103 68 Assured 71.9 60.7 5.22 0.77 -81 143 First Security 53.6 39.2 2.70 3.82 322 277 Huntington Pacific 51.9 51.0 5.30 3.69 -300 52 Heritage 42.7 51.6 2.96 2.26 -78 -31 First American 30.7 30.0 0.00 0.00 360 155 Centennial 27.5 28.0 6.04 7.06 -40 -313 Tustin 26.5 21.0 2.56 4.21 78 38 North American 23.0 22.4 3.55 1.71 -101 -1 Freedom Financial 22.9 21.0 7.51 4.11 75 109 Franklin 12.2 11.7 0.77 1.21 12 -30 Totals 1,192.1 979.3 3,161 3,233

(1) Bad loans should not exceed 3% of total loans, according to bankers and regulators.

Source: Sheshunoff Information Services Inc., Austin, Texas