Banks Lost $50 Million Last Year : Finance: Only 9 of 27 report profit; delinquent loans jump $31.4 million. One executive calls it the worst year he’s seen.
Orange County’s 27 community banks suffered through their worst year in recent memory as falling real estate values and soured business loans left them with a combined 1993 loss of $50.1 million.
Only nine banks posted profits, and Landmark Bank in La Habra was the only one of the 10 biggest banks to record a money-making year.
The same banks earned an aggregate $4.3 million for 1992, according to government figures compiled by Sheshunoff Information Services Inc. in Austin, Tex.
“It was the worst year I’ve ever seen for local banks,” said J.B. Crowell, who has been chief executive of Eldorado Bank in Tustin since it opened in 1972. “On a strictly economic basis, I don’t see much movement out of this recession.”
That’s because the amount of bad loans--those delinquent for 60 days or longer--increased by $31.4 million last year. Bankers and regulators are concerned about the growing number of bad loans at community banks because those loans usually indicate bigger troubles ahead.
The chief indicator of loan problems is the rise in delinquent loans, which accounted for 4.6% of all loans last year. Bad loans shouldn’t exceed 3%, bankers and regulators say.
Crowell sees a vicious cycle that hasn’t yet abated.
“The major problem has been real estate loans on commercial and industrial buildings,” he said. “The tenants just aren’t there. Whether it’s service stations, shopping centers, industrial buildings, the recession has really hurt.”
The riskiness of such loans typically was determined by construction costs, the market value of the buildings and analyses of the income that the buildings generate. But when buildings are 50% vacant, their value plummets, as does the borrower’s financial worth.
And with interest rates going up, Crowell pointed out, borrowers will have to make bigger monthly payments, which could affect their cash flow and make it harder for them to repay loans.
“It all just shows that Southern California is getting hit harder with this recession than even Northern California,” he said. “And all I hear is a lot of rhetoric from politicians.”
Eldorado, the county’s third-largest bank, with $323 million in loans and other assets, lost nearly $1.6 million last year. But seven banks lost more.
Deepest in red ink was troubled CommerceBank in Newport Beach, which lost $12.6 million. It was followed by three other troubled institutions: Sunwest Bank in Tustin, which lost $9.5 million, Commercial Center Bank in Santa Ana, which lost $9.2 million, and Pioneer Bank in Fullerton, which lost $9.1 million.
CommerceBank, Sunwest and Pioneer have levels of capital--their final reserve against losses--that are precariously low, and they are trying to find needed cash from existing shareholders or, more likely, new investors. Meantime, regulators have imposed their severest restrictions on the operations of the three institutions.
Commercial Center, despite its heavy loss, is the county’s most well-financed bank.
Most of the banks in the county are operating under various forms of government restrictions, but an order against Landmark Bank, caused in part by an employee fraud, was lifted last fall as the bank corrected internal controls and continued to be profitable. It earned $1.4 million last year.
Last year’s most profitable bank was one that decided to get out of the industry because increasing regulations and paperwork became too burdensome for smaller community banks. Colonial Bank earned $1.9 million as it started last year to liquidate its assets. It has turned over its deposits to National Bank of Southern California in Newport Beach.
No other county bank earned more than $1 million last year.
Orange County Bank Scoreboard
Orange County banks lost $50 million in 1993. Here are the particulars, with the banks ranked by assets:
Ranked by assets
Delinquent loans Net Assets as % of income (millions) total loans (thousands) Bank 1993 1992 1993 1992 1993 Commercial Center $379.4 $360.0 0.00% 0.01% $-9,226 National Bank of So. Calif. 324.2 371.5 8.46 4.11 -2,668 Eldorado 323.0 340.5 1.17 3.59 -1,586 Bank of Newport 218.3 254.8 0.57 3.97 -2,679 Landmark 205.5 206.2 0.38 1.12 1,377 Orange National 193.1 174.7 2.42 3.66 -219 CommerceBank 188.1 261.1 5.92 2.64 -12,557 Sunwest 186.8 225.5 7.01 3.25 -9,517 Pacific National 180.0 190.1 8.56 1.63 -1,519 Liberty National 159.5 173.3 12.02 4.69 -1,234 Pioneer 144.7 199.8 16.16 9.88 -9,082 Colonial, N.A. 141.1 123.4 1.15 1.50 1,902 Pacific Inland 127.8 118.7 3.10 3.50 365 Frontier, N.A. 100.5 111.2 4.55 1.23 -1,622 Huntington National 99.9 106.0 2.72 1.69 225 Marine National 98.7 103.6 2.99 0.96 -1,036 Corporate 85.5 90.6 10.39 0.17 232 Mariners 82.1 89.6 2.97 0.98 685 Grand National 82.1 80.7 1.34 0.48 704 Los Angeles National 79.4 78.8 1.27 2.17 335 Bank of Anaheim, N.A. 74.2 70.3 0.70 0.38 257 Monarch Bank 67.3 68.9 17.50 1.89 -1,056 Bank of Yorba Linda 52.0 56.0 0.34 3.11 -208 Bank of Westminster 51.5 51.0 1.12 3.03 -293 Bank of Orange County 50.6 53.2 8.35 4.30 -442 Dana Niguel, N.A. 39.4 42.4 6.32 4.58 -364 United American 34.0 33.6 3.60 3.62 -890 Orange County Total $3,768.7 $4,035.5 4.63% 2.88% $-50,116
Net Income* (thousands) Bank 1992 Commercial Center $3,935 National Bank of So. Calif. 933 Eldorado 2,891 Bank of Newport -4,819 Landmark 311 Orange National 355 CommerceBank -1,042 Sunwest -192 Pacific National 231 Liberty National 293 Pioneer -1,185 Colonial, N.A. 1,450 Pacific Inland -205 Frontier, N.A. -724 Huntington National 230 Marine National 140 Corporate 814 Mariners 848 Grand National 420 Los Angeles National -393 Bank of Anaheim, N.A. 634 Monarch Bank 258 Bank of Yorba Linda 411 Bank of Westminster -516 Bank of Orange County 164 Dana Niguel, N.A. -706 United American -189 Orange County Total $4,347
Note: Bad loans should not exceed 3% of total loans, according to bankers and regulators.
* Net income does not include extraordinary items, and 1992 figures do not include four banks that lost a total of $2.5 million and are now closed.
Source: Sheshunoff Information Services Inc., Austin, Texas
