O.C.’s 21 Independent Banks Recovering From Bad Times : Banking: Their losses for 1994 total $2 million, compared to $24 million lost in the preceding year, when real estate values dropped.

Orange County’s small community banks, which suffered large losses in 1993 from falling real estate values and bad business loans, are starting to recover.

The 21 independent banks that now remain in the county lost just over $2 million last year, a much better showing than their combined $24-million loss in 1993.

In 1993, there were 27 community banks in the county whose losses totaled a staggering $50.1 million. Three of the biggest money-losers disappeared in 1994 when they were taken over by federal regulators. Another pair of banks were sold. One turned in its charter.

Analysts are now upbeat about the year-end results, which indicate not only that the banks are improving but that the county’s economy as a whole is on the mend.

“It has been five black years,” said Craig Hudson, executive director of the Western regional office of the Independent Bankers Assn. of America in Newport Beach. “But the local economy is beginning to recover and the banks have benefited from that.”

The fortunes of community banks are directly tied to local businesses, who are their primary customers. Growth and expansion of such business is often funded by loans taken out with community banks, whose primary source of income is the interest they earn on loans. When the economy contracts, so does lending volume at banks.

A dozen of the banks based in the county were profitable last year, while in 1993, only nine of 27 banks then in existence were profitable, according to regulatory figures compiled by Findley Reports in Anaheim, an industry consulting and information services firm.

“We have reached the bottom and are moving up the curve of profitability,” said industry consultant Edward J. Carpenter in Irvine. Even so, he said, bank profits are not at the level they once were.

“Banks are moving in the right direction,” he said. “But if California were performing at the rate of the rest of the country, they would be making more like $21 million annually.”

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The county’s banks are generally smaller institutions that typically target small and mid-size corporate and professional businesses, providing personal service that the state’s big banks usually can’t offer.

Much of their lending is backed by real estate. As declining property values eroded that collateral, banks had to use their profits, or even their capital--the money invested in institutions--to build reserves for possible loan losses. In addition, many borrowers fell behind in repaying loans or could not make any payments, creating a batch of bad loans that also dragged down profits or caused net losses.

Still, the overall ratio of their bad loans--those more than two months behind in being repaid--to the total loans they made fell slightly last year to 3.89% from 4.42% the previous year, according to Findley Reports. Regulators say that a bank’s bad loans--a key barometer of future problems--shouldn’t exceed 3% of its total loans.

During the recession, federal regulators were tough on local community banks, forcing them to write off loans that they might otherwise have kept until the economy turned around. Hudson believes that the county’s banks are in better financial condition because of that strict oversight.

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Assets declined by 11% at county banks last year because corporate customers simply were not increasing deposits, which provide money for loans, said Craig Collette, president of Landmark Bank in La Habra.

Even business customers who were making profits last year, Collette said, were paying off debts and adding to their inventories rather than banking the money.

The county’s profitable banks were led by the county’s largest and third-largest banks: Eldorado Bank in Tustin with $2.9 million in earnings and Landmark with $1.8 million.

For Eldorado, the profit was a big turn-around from 1993’s loss of $1.5 million. “Our asset quality improved substantially last year,” said J.B. Crowell, the bank’s chief executive. “We had less delinquencies and lower non-performing loans on our books.”

The county’s second-largest bank, National Bank of Southern California in Newport Beach, also made a comeback, earning $1 million last year after posting red ink of $2.7 million the previous year. Its bad loan ratio fell a bit, but still stood at 7.35% at the end of the year.

Grand National Bank in Santa Ana, meantime, grew both in assets and profits, earning $1.3 million last year, while erasing all bad loans from its books.

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Heading the list of money-losers was Pacific Inland Bank in Anaheim, which dropped $5.1 million last year and wound up the year with more than a fifth of its loans being slowly repaid or not being repaid at all. It was followed by Commercial Center Bank in Santa Ana, which lost $1.8 million, and three others with losses of more than $1.3 million each.

Three banks are about to lose their independence. Commercial Center and Huntington National Bank in Huntington Beach are being acquired by a Missouri banking company. And Corporate Bank in Santa Ana is being bought by CU Bancorp in Encino.

Last year, regulators closed three troubled banks: Bank of Newport and CommerceBank, both in Newport Beach, and Pioneer Bank in Fullerton. Long-troubled United American Bank in Westminster was sold.

In addition, two healthy banks disappeared last year. Bank of Anaheim was sold and Colonial Bank in Santa Ana, fed up with strict regulations, liquidated itself, turned in its charter and became a private mortgage banking firm.

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1994 Orange County Bank Scoreboard

Ranked by assets Assets Delinquent loans Net (millions) as % of total loans (tho Bank 1994 1993 1994 1993 1994 Eldorado $304.2 $323.3 2.87 0.02 $2,940 National Bank of 301.8 324.2 7.35 8.46 1,010 So. Calif. Landmark 247.0 205.5 2.36 0.38 1,801 Commercial Center 227.1 379.4 1.96 0.00 -1,841 Orange National 207.4 193.1 2.95 2.42 919 Pacific National 156.1 180.0 3.39 8.56 -1,307 Liberty National 135.2 159.5 4.62 12.02 -1,400 Sunwest 124.6 186.8 6.34 7.01 -1,468 Marine National 99.8 98.7 2.20 2.99 54 Grand National 97.8 82.1 0.00 1.34 1,270 Huntington National 91.3 99.9 2.23 2.72 539 Los Angeles National 90.9 79.5 3.65 1.27 732 Frontier, N.A. 86.0 100.5 4.72 4.55 -27 Mariners 81.8 82.1 1.04 2.97 207 Corporate 70.7 85.5 4.18 10.39 256 Monarch Bank 61.1 67.1 2.56 8.38 -746 Pacific Inland 59.2 127.8 19.26 4.24 -5076 Bank of Orange County 58.4 50.6 1.01 8.35 -342 Bank of Westminster 53.6 51.5 0.20 1.12 404 Bank of Yorba Linda 53.3 52 0.74 0.34 678 Dana Niguel, N.A. 33.7 39.4 4.38 6.32 -595 Orange County Total $2,641 $2,968.5 3.89 4.42 $-1,992

Ranked by assets income usands) Bank 1993 Eldorado $-1,456 National Bank of -2,668 So. Calif. Landmark 1,377 Commercial Center -7,850 Orange National 281 Pacific National -1,519 Liberty National -1,234 Sunwest -9,517 Marine National -1,036 Grand National 704 Huntington National 315 Los Angeles National 401 Frontier, N.A. -1,622 Mariners 685 Corporate 276 Monarch Bank -1,272 Pacific Inland 365 Bank of Orange County -442 Bank of Westminster -293 Bank of Yorba Linda -208 Dana Niguel, N.A. -283 Orange County Total $-24,996

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

Source: Findley Reports, Anaheim