O.C. Banks’ Combined Profits Are Best Since ’90

An improving local economy and steady interest rates helped Orange County’s 20 community banks post combined earnings last year of nearly $25 million, the highest profit since their last heyday in 1990.

The fast-dwindling number of county-based banks put many of the problems from the long recession behind them as they moved to cut costs and improve their profit margins.

The industry’s performance typically lags behind the economy. While Southern California was going into its economic tailspin in 1990, for instance, the 37 local banks then in operation posted earnings of $47.4 million, one of their more profitable years.

“I think 1996 stands to be at least as good year for Southern California banks as it was last year,” said Larry Hartwig, president of Southern California Bank in Anaheim, the county’s biggest community bank. “But it could be a better year. After all, it is an election year, so anything can happen.”

In 1994, the county banks eked out a $693,000 profit, according to bank figures compiled by the Findley Reports in Anaheim, an industry information services and consulting firm.

Bankers pointed out that while the number of banks has dropped--it once stood at 48--the competition has increased.

Major banks such as Wells Fargo and Bank of America, as well as so-called non-bank lenders such as Merrill Lynch & Co. and GE Capital Corp., have been dipping into the community banks’ core of small and medium-size business customers.

But community bank leaders are confident they will thrive as long as they continue to provide the personal service and attentiveness to customers.

Customers in small communities already are beginning to realize that big banks don’t want to handle small deals and don’t want to keep offering those low loan rates, said banking lawyer Gary Findley, a principal in the Findley Reports.

Indeed, with Wells Fargo’s acquisition of First Interstate, which was completed Monday, community bankers see opportunities to increase their customer list. More than three dozen companies fleeing the merger have opened accounts at Bank of Yorba Linda, said its president, Robert Ucciferri.

Whether pulling themselves out of trouble, as Sunwest Bank in Tustin has done, or expanding a successful operation, as Grand National Bank in Santa Ana is doing, community bankers say that they have concentrated on game plans that focus on a few goals.

“We had simple goals for last year: Continue to improve loan quality and be profitable,” said James LeSieur, president of Sunwest, which had struggled with bad loans and poor financial health until its parent company sold a Sacramento bank last year and put more money into Sunwest.

“We just go against the trend,” said Cary Ching, president of Grand National, which has used international trade finance to boost a once tiny, lackluster bank. “We don’t have a minimum loan.”

Grand National also doesn’t have any bad loans--those that are 90 days past due or no longer paying--and hasn’t had any for several years. While no other county bank has matched that, most have made better loans and reduced the amount of their bad loans. That has led to bigger profits.

In addition, banks enjoyed a bigger profit margin last year as interest rates on loans--their main income--crept up a bit while the rates on deposits--their chief expense--remained low.

Only three of the county’s banks reported losses last year, and one of them, Corporate Bank in Santa Ana, has since been sold. National Bank of Southern California in Newport Beach lost $3.2 million as its bad loan problems inched up. Pacific Inland Bank, half the size it was two years earlier, lost $2.8 million, an improvement over $5.9 million lost the previous year.

Pacific Inland has had too much money invested in real estate loans, mainly for raw land and residential construction, and it has had high litigation expenses as it fought off several lawsuits, said Jack Wauchope, the bank’s president. “We’ve made progress with a new management team, and we plan to recapitalize the bank,” he said.

The profitable banks were led by Eldorado Bank in Tustin, long one of the county’s bigger and better-run community banks. It earned $4.7 million. Close on its heels was the new First Bank & Trust in Irvine, which earned $4.3 million. Los Angeles National Bank in Buena Park earned nearly $4.3 million, mostly from a lawsuit it won.

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Orange County Bank Scoreboard

Orange County community banks ran up nearly $25 million in earnings in 1995, a 3,500% increase from the year before. The percentage of bad loans edged up, however. Banks come under increased scrutiny from regulators when bad loans--those delinquent 90 days or more or are no longer being repaid--exceed 3% of the total. A look at the results:

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Ranked by assets Assets Net i (millions) Bad loans (thou Bank 1995 1994 1995 1994 1995 Southern California $ 462.9 $ 402.2 0.44% 0.78% $1,009 Eldorado 383.8 304.2 2.95 2.87 4,697 National Bank of So. Calif. 334.0 301.8 8.02 7.35 -3,185 First Bank & Trust* 264.8 318.4 5.03 2.04 4,346 Landmark** 241.9 247.0 3.13 2.36 2,071 Orange National 208.5 207.4 2.70 2.95 2,540 Pacific National 173.1 156.1 6.98 3.39 1,817 Liberty National 146.0 135.2 4.13 4.62 944 Grand National 123.7 97.8 0.00 0.00 1,618 Sunwest 112.0 124.6 5.29 6.34 3,463 Los Angeles National 106.7 90.9 2.20 3.65 4,281 Marine National 102.5 99.8 0.85 2.20 430 Frontier, N.A. 84.6 86.0 4.12 4.72 1,308 Corporate** 72.1 70.7 7.29 4.18 -335 Monarch Bank 65.0 61.1 1.06 2.56 685 Bank of Yorba Linda 59.8 53.3 2.17 0.74 920 Bank of Westminster** 59.6 53.6 0.70 0.20 460 Bank of Orange County 58.1 58.4 0.83 1.01 500 Pacific Inland 37.6 59.3 14.78 14.94 -2,769 Dana Niguel, N.A. 34.2 33.7 4.28 4.38 185 Orange County total $3,130.9 $2,961.5 3.71 3.45 $24,985

Ranked by assets ncome sands) Bank 1994 Southern California $2,752 Eldorado 2,940 National Bank of So. Calif. 1,010 First Bank & Trust* -1,302 Landmark** 1,801 Orange National 919 Pacific National -1,307 Liberty National -1,400 Grand National 1,270 Sunwest -1,468 Los Angeles National 732 Marine National 54 Frontier, N.A. -27 Corporate** 256 Monarch Bank -746 Bank of Yorba Linda 678 Bank of Westminster** 404 Bank of Orange County -342 Pacific Inland -4,936 Dana Niguel, N.A. -595 Orange County total $693

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* First Bank formed last year from acquisition of two banks and a thrift by a St. Louis company. Figures for 1994 derived from the two banks acquired.

** Sale of Landmark will close this month; the sale of Bank of Westminster will close this summer; Corporate was acquired earlier this year.

Source: Findley Reports, Anaheim; Federal Deposit Insurance Corp.