Independent O.C. Banks Report Losses Totaling $28.9 Million : Recession: The figures, for first nine months of 1993, reflect results of the long-running economic downturn.

Orange County’s community banks, reflecting the long-running recession, recorded a combined loss of $28.9 million through the first nine months of 1993 and will probably report a significant loss for the year.

Only 10 of the 27 independent banks based in the county posted profits for the period, and losses cut into capital--the final cushion against losses--at a number of institutions, according to federal statistics compiled by Sheshunoff Information Services Inc. in Austin, Tex.

“Most of it is economy-related,” said Robert P. Zingg, president of Colonial Bank in Santa Ana. Foreclosures in the county, for instance, rose to a record level last year.

Most of the problems at the banks stem from the erosion of real estate values, said Edward J. Carpenter, an Irvine banking consultant.

Real estate typically is used as collateral for loans, he said, and the long decline in property values has undermined the safety of numerous loans, forcing banks to stash huge chunks of money in reserve for possible losses. Those reserves typically come from would-be profits and capital, Carpenter said, and banks should have enough in reserve now to cover problem loans.

Zingg noted that the recession has crippled banks’ commercial customers.

“We’ve had companies today that have been hanging on by their teeth for two years,” he said. “Now, as the economy is starting to turn, they don’t have the staying power. When a commercial client goes out of business, it hurts the lender.”

Colonial, which is liquidating itself and turning in its charter soon, was the biggest moneymaker for the nine-month period, with $1.1 million in earnings. Landmark Bank in La Habra, which shook off the shackles of restrictive regulatory orders last fall, earned $1 million. None of the other profitable banks came close to those amounts.

Colonial has set Feb. 28 as its target for turning in its charter. The 6-year-old bank has found that increasing regulations and paperwork have become too burdensome for smaller community banks.

Besides, Zingg said, the operators have been mortgage bankers, which has been a profitable area for the institution, and will continue those operations as a private mortgage company unfettered by banking regulations.

Money-losers were led by one-time model institution CommerceBank in Newport Beach, which lost $9.4 million. Following it were Sunwest Bank in Tustin, Commercial Center Bank in Santa Ana and Pioneer Bank in Fullerton, which had losses of $7.2 million, $4.23 million and $4.18 million, respectively.

CommerceBank’s basic capital fell to 3.18% of its assets, and Sunwest’s dropped to 4.12%. Regulators require a 3% minimum, but bankers say they need 5% to carry on normal banking functions without restrictions.

CommerceBank and Pioneer are awaiting federal approval for public stock offerings to existing shareholders and the public. The money will be used to shore up sagging capital levels.

The local banking industry hasn’t had a money-losing year since 1986, then the last of four consecutive years of red ink as banks struggled out of the 1982-83 recession.