Combined Earnings Up as Community Banks Bounce Back

Orange County’s community banks, with two major money-losing institutions closed in August, managed to make up for earlier losses to post combined earnings of $2.3 million for the third quarter of 1994.

The 23 banks were still plagued by continued loan losses, however, and money that had to be set aside in reserve for future problems.

Their aggregate income for the first nine months of the year was just $357,000, but that was a big improvement over a combined loss of $18.1 million for the same period a year earlier, according to statistics compiled by Sheshunoff Information Services in Austin, Tex.

The county’s banks had lost $16.2 million for the first six months last year, but $14.3 million of that came from two banks: Bank of Newport and CommerceBank, both in Newport Beach. Both were seized by regulators in August and closed.

Community banks generally have been loath to recognize the effect of the long recession on their loans, especially those backed by real estate, bankers said. Some, such as Landmark Bank in La Habra, took their hits over the past three years.

“The result is that we’re doing much better now,” said Kevin P. Hanifin, Landmark’s chief financial officer.

But demand for loans from individuals and businesses with good credit risks is still soft, even in an improving economy, he said. For many banks, that means they must put deposits to work in lower-earning investments, such as government securities, and work on thinner profit margins.

Putting deposits in such investments also lowers the ratio of loans to deposits at most banks. At Landmark, that ratio fell to 61% by year’s end. At Southern California Bank in Anaheim, the ratio fell to 55%, but that bank has a merger pending that should lift the ratio to 70%, the minimum level that banks want to maintain.

In addition, the competition for large deposits, as well as good loans, began heating up last summer as interest rates rose, Hanifin said. Banks typically raised rates on loans quickly but dragged out increases in deposit rates, a procedure aimed at boosting profits.

Overall, though, the county’s banks saw a 9% drop in their loans and other assets as $320.5 million in assets flowed out of the banks from the level they had at the end of September, 1993. Only six banks, including Landmark and Orange National Bank in Orange, were able to grow, and Landmark did it by acquiring parts of two failed Los Angeles banks.

Leading 11 profitable banks was Eldorado Bank in Tustin, which, like Landmark, took its lumps over a period of several years. It earned $2 million for the first nine months of 1994, followed closely by Southern California Bank, which earned nearly $2 million. Landmark was next, with $1.2 million in profits.

The 12 money-losers were led by Pacific Inland Bank in Anaheim, which lost more than $2.4 million. It was followed by Sunwest Bank in Tustin, Liberty National Bank in Huntington Beach and Pacific National Bank in Newport Beach, which lost, respectively, $1.6 million, $1.3 million and $1.2 million.

Sheshunoff’s income figures do not include any special non-recurring gains or charges, which are not common among community banks.

Separately, Orange County’s eight thrift and loans earned $2.6 million for the first nine months last year, down 49% from profits of $5.1 million for the same period a year earlier. Only one, Freedom Financial Thrift & Loan in Lake Forest, lost money.