Banks Barely Record a Profit in ’92 : Finance: Bad loans, the recession and tougher regulations combine to keep total earnings of county institutions at a mere $522,000.

Orange County’s 30 banks, hamstrung by the long-running recession and hampered by ever-tougher regulation, reported a paltry combined profit last year of $522,000.

The same independent banks had earned $11.4 million for the previous year, when the recession first hit hard and sent bankers scurrying to shore up reserves as a hedge against loan losses.

Generally, local banks shrank slightly in size, made fewer loans and saw more of their loans go bad, according to results compiled by Findley Reports, an Anaheim consulting company. Real estate values, which back a third to more than half of bank loans, have plummeted during the course of the recession, eroding collateral held by banks and causing would-be earnings to be set aside instead for possible losses.

In addition, strict regulations--often interpreted even more stringently by federal auditors--have discouraged banks from making what once were routine business loans. As a result of those new rules and the tight economy, fewer borrowers are seeking loans, and fewer are qualified to obtain them.

“The biggest thing has been dealing with regulatory overload,” said Gerry Findley, founder of Findley Reports. The proliferation of regulations during the past year, he said, has confused bankers and swiped money from the bottom line as banks spend more to try to comply with new mandates.

“When in a state of confusion, bankers have a tendency to be very conservative, very cautious in lending or acting on anything,” Findley said.

To pick up the slack in demand for loans and the desire to make them, bankers typically have turned to mortgage banking, in which the real estate mortgages they fund are sold quickly to investors, and to small business lending, in which loans for small companies are guaranteed by the federal Small Business Administration.

“The marketplace just didn’t have as many opportunities for bankers last year,” said Mark H. Stuenkel, president of National Bank of Southern California in Newport Beach. “A difficult economy has made it more difficult for companies to have strong balance sheets.”

Findley put it another way: “The first principle in lending is never loan any money to anyone who needs it. You determine the need by what other options are open for the borrower. If he really needs it, then you’re not going to get your money back unless you put him out of business or go into business with him.”

President Clinton has made some changes and promises more to help ease the regulatory burden. But so far neither Stuenkel nor Findley sees any changes that have trickled down to community banks.

Nearly two-thirds of the county’s banks posted profits last year, though most of them much less than for the previous year. They were led by a revived Commercial Center Bank in Santa Ana, which earned $3.9 million and lowered its ratio of bad loans to total loans to nearly nothing. It reported only $16,000 worth of loans that were more than 90 days delinquent.

Following closely behind in annual profit were Eldorado Bank in Tustin with $2.9 million and Security Pacific State Bank in Costa Mesa with $1.9 million.

Of the money-losers, Bank of Newport struggled the most. Its loans on commercial buildings weakened considerably, causing it to lose $4.8 million last year. The bank did manage to keep its bad loan ratio below 4%, still above the 3% level that triggers action from regulators.

First American Capital Bank in Laguna Beach, which was seized by regulators in March, lost $3.3 million for 1992. Other large losses came at Mid City Bank in Brea and Sunwest Bank in Tustin, with losses of $2.2 million and $1.7 million, respectively.

One measure of the bad economy, as well as poor judgment, is the increase in the number of bank failures during the past 15 months.

Last year, regulators seized two banks--Mission Viejo National Bank and American Interstate Bank in Newport Beach. So far this year, regulators closed First American Capital and, last month, American Commerce National Bank in Anaheim.

Meanwhile, Orange County’s 10 thrift and loans faced the same economic and regulatory problems. They saw combined profits fall sharply to $6.6 million last year from $12.1 million the previous year.

Thrift and loans, a cross between banks and finance companies, are regulated much as banks are. Deposits, called share certificates, are insured up to $100,000 for each account holder by the Federal Deposit Insurance Corp., which also covers deposits at banks and at savings and loans.

1992 O.C. Thrift & Loan Scoreboard

Ranked by assets Assets Non-performing loans Net (millions) as % of total loans (tho Thrift 1992 1991 1992 1991 1992 First Fidelity $ 476.3 $460.1 11.64% 11.76% $2,139 Investors 401.0 275.2 3.29 1.59 4,555 Citizens 104.6 94.8 4.10 2.26 1,822 South Coast 75.6 80.3 7.79 11.25 -484 First Security 61.8 57.0 2.55 2.37 743 Tustin 29.4 27.3 2.19 4.10 135 Freedom Financial 18.3 21.9 12.41 7.36 -411 Centennial 16.6 24.5 8.88 7.11 -658 Franklin 12.2 12.7 0.62 0.95 136 Heritage 5.0 38.8 8.16 1.80 -1,365 Total $1,200.8 $1,092.6 na na $6,612

Ranked by assets income usands) Thrift 1991 First Fidelity $7,498 Investors 2,454 Citizens 1,025 South Coast 14 First Security 1,394 Tustin 165 Freedom Financial 293 Centennial -671 Franklin 130 Heritage -244 Total $12,058

Note: Bad loans should not exceed 3% of total loans, according to bankers and regulators.

Source: Sheshunoff Information Services Inc.

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1992 Orange County Bank Scoreboard

Ranked by assets Assets Delinquent loans Net (millions) as % of total loans (tho Bank 1992 1991 1992 1991 1992 National Bank of $ 378.8 $ 375.4 4.10 2.46 $1,077 So. Calif. Security Pacific State 312.1 366.8 3.42 1.71 1,868 Commercial Center 365.7 272.8 0.01 0.03 3,935 Eldorado 343.7 359.6 3.51 3.55 2,900 CommerceBank 266.2 298.7 2.64 3.13 -1,042 Bank of Newport 259.4 304.7 3.96 2.76 -4,819 Sunwest 231.0 284.2 3.24 2.89 -1,650 Landmark 209.0 244.0 1.11 1.63 311 Pioneer 204.2 219.3 9.86 7.25 -1,185 Pacific National 192.2 192.9 1.63 3.13 231 Orange National 177.2 179.2 3.62 0.57 359 Liberty National 176.1 161.9 4.69 2.36 293 American Commerce 131.2 139.2 8.23 4.51 1,104 National * Colonial, N.A. 124.2 102.4 1.49 1.56 1,450 Pacific Inland 120.8 145.0 3.36 6.19 -925 Mid City, N.A. 116.6 113.0 7.62 4.01 -2,160 Frontier, N.A. 112.5 132.4 1.23 2.31 -724 Huntington National 107.7 110.1 1.66 1.50 437 Marine National 104.9 94.1 0.96 0.74 140 Corporate 91.9 94.4 0.17 2.87 814 Mariners 90.6 78.7 0.98 0.02 848 Grand National 81.6 61.5 0.48 0.82 420 Bank of Anaheim, N.A. 71.0 70.5 0.38 0.85 634 Monarch Bank 69.6 61.0 1.88 1.38 258 Bank of Yorba Linda 56.7 49.5 3.10 2.82 411 Bank of Orange County 53.8 44.9 4.28 0.03 284 Bank of Westminster 51.8 63.8 3.02 3.76 -516 Dana Niguel, N.A. 43.3 55.9 4.55 3.61 -706 United American 33.9 38.0 3.62 2.07 -189 1st American 30.0 31.3 8.22 5.25 -3,336 Capital N.A.* Totals $4,607.7 $4,745.2 3.24% 2.72% $ 522

Ranked by assets income usands) Bank 1991 National Bank of $ 516 So. Calif. Security Pacific State 3,720 Commercial Center -906 Eldorado 2,751 CommerceBank -2,845 Bank of Newport -1,098 Sunwest -2,202 Landmark 88 Pioneer 895 Pacific National 974 Orange National 2,256 Liberty National 1,650 American Commerce 1,105 National * Colonial, N.A. 749 Pacific Inland 1,056 Mid City, N.A. 564 Frontier, N.A. -652 Huntington National 795 Marine National 245 Corporate 1,043 Mariners 798 Grand National -538 Bank of Anaheim, N.A. 710 Monarch Bank 355 Bank of Yorba Linda 191 Bank of Orange County 385 Bank of Westminster 232 Dana Niguel, N.A. -441 United American -353 1st American -597 Capital N.A.* Totals $11,446

Note: Bad loans should not exceed 3% of total loans.

* Regulators seized and closed First American Capital in March and American Commerce in April.

Source: Findley Reports