Going against the industry's trend, Orange County's 40 independent banks posted a combined net income for 1986 more than six times higher than the previous year's profits.
Their overall performance helped California's banks collectively post the biggest increase in income--53%--of any other state's banks, according to figures compiled by Alex Sheshunoff of Austin, Tex., an industry data analyst. Nationwide, total bank profits last year dropped 2.55%--the first national downturn in 25 years.
Bankers and industry consultants expect healthy returns again this year in Orange County as some banks--from larger ones like CommerceBank and Eldorado to smaller ones like Mission Viejo National--posted record net incomes during the first quarter of 1987.
But this year's results are not expected to show such huge percentage increases.
The reason for the big percentage hikes in 1986, Sheshunoff pointed out, is that area banks performed so poorly the prior year. Net income for all 40 Orange County banks, for instance, jumped to $4.59 million last year from only $745,000 in 1985, according to statistics banks reported to regulators.
Still, during the past year the county's banks outperformed banks statewide and nationwide in critical areas such as reducing non-performing loans--a key indicator of a bank's future health. Such bad loans--those that are 90 days' delinquent or in default--were cut 10.2% countywide but rose 3.9% statewide and 10.3% nationwide.
"In general, the banking industry in Orange County is doing good," said Gerry Findley, a Brea-based financial institutions consultant who publishes the annual Findley Reports on California Banks.
"A lot of banks made a lot of strides in shoring up their ability to sustain their businesses last year," Findley said. "It was what we would call a year in which they took a much tighter hand on controls."
Gains in Other Areas
Overall, the county's banks posted strong gains in other areas. Total assets grew 20.8%, total deposits increased 21.1%, total loans rose 16% and critical but hard-to-get capital jumped 18%.
Both Sheshunoff and Findley cautioned that banks in the county and the state are still recovering from the beating they took in the early 1980s when the real estate market fell apart and interest rates skyrocketed, boosting the cost of funds while revenues remained flat.
And while the results overall were positive last year, individual performances of the 40 area banks varied widely.
- Twenty banks chalked up profits last year and in 1985, although five reported lower profits last year than they did in the previous year.
- Seven banks turned in profits last year after losing money in 1985.
- Six banks lost money last year after posting profits the previous year.
- Seven banks were in red ink last year and in 1985. And four lost more money than they did in 1985.
Statewide, 24.8% of the 458 California-based banks reported losses last year, and 32.9% showed drops in earnings, Sheshunoff said. He also noted that while banks in California posted the greatest improvement in net income during 1986, their combined return on assets, a major indicator of profitability, was just 0.23% last year--the seventh worst return on assets among the 50 states and the District of Columbia.
The mixed indicators of financial health leave some county bankers cautiously optimistic.
"All of us went through a big adjustment period with (the 1982) deregulation of banking," said David Stein, chairman of PNB Financial Group, the holding company for Pacific National Bank in Newport Beach.
Change in Approach
"We had to change our approach. Banking is a much more dynamic, exciting and vibrant industry now," said Stein, whose company tentatively agreed Thursday to acquire Bank of Orange County.
One of the deans of county banking, J.B. Crowell, believes that the health of Orange County's independent banks "is as strong as it has been in the last five years," an understatement considering how far the banks have come in pulling themselves out of the real estate-interest rate debacle.
Last year, two county banks--Valencia in Santa Ana and Saddleback National in Laguna Hills--were among the record 138 banks seized nationwide and closed by federal regulators. In addition, Orange Coast Thrift & Loan in Los Alamitos, which, like banks, was also insured by the Federal Deposit Insurance Corp., was seized and declared insolvent last year.
In the past five years, 10 Orange County banks have failed.
The FDIC is predicting that 200 or more banks will fail this year. In the first four months, regulators closed 74 banks, 80% more than the 41 banks it had closed in the same period last year.
Only two banks in California, including New City Bank in Orange, have been closed so far this year. Its assets were transferred to a newly chartered institution, Colonial Bank, in Santa Ana.