Bank failures growing in California even as they slow down nationwide.

Bank failures in California are hitting record levels while they are declining nationwide, according to statistics released this month by the state Banking Department.

Halfway through 1993, 10 California banks have been seized and shuttered by regulators. This already exceeds the eight bank failures in the state for all of 1992.

As of June 18, California bank failures had accounted for 46 percent of the 21 bank failures in the U.S. so far this year. Ten failures in one year is a record for California, according to bank failure records kept by the research division of the state Banking Department, which go back to 1976.

"I would say, as long as I have records, without going back to the Depression, it's the highest number of banks that have failed in a single year," said an analyst with the Banking Department's research arm.

Six of the 10 California banks taken over by regulators so far this year are based in Los Angeles County.

The L.A. County-based banks which failed are:

* Century City-based Capital Bank, which failed June 18;

* Rolling Hills Estates-based Palos Verdes National Bank, which failed May 20;

* Mid-Wilshire-based Wilshire Center Bank, which failed May 6;

* Northridge-based Premier Bank, which failed April 8;

* Los Angeles-based Olympic Bank, which failed April 2; and

* Santa Monica-based Columbia National Bank, which failed Jan. 22.

Each of the failed L.A. County banks had less than $300 million in assets. According to recent studies released by the Federal Reserve Bank in San Francisco, small Southern California banks have been the hardest hit in the recession because of the state's dismal real estate market.

"Some of those small banks in Southern California are run by good bankers," said Terry Miller, staff director of the state Senate Banking, Commerce and International Trade Committee. "Because the economy has been so poor, the small businesses they made loans to haven't been able to pay them back."

Warren Heller, director of research for Veribanc Inc., a Wakefield, Mass.-based bank rating service, said he would not be surprised if there are more California bank failures this year. "You've got a lot of banks that are hanging on by their fingernails," Heller said.

Veribanc gave 39 California banks its lowest "red, no star" rating as of Dec. 31, 1992, up from 22 California banks which carried Veribanc's lowest rating a year earlier. Banks with a "red, no star" rating have "either serious income problems or serious capital problems, or both," Heller said.

The "red, no star" rating is the absolute lowest on Veribanc's nine-grade rating scale. Historically, about one-third of the banks in that category are seized and shut every year, Heller said.

Some industry observers are particularly troubled by increasing bank failures in California because they come at a time when failures nationwide have been declining dramatically. There were only 21 U.S. bank failures in the first half of 1993, compared to 120 for all of 1992, according to the Federal Deposit Insurance Corp., which regulates banks.

The FDIC announced June 25 that it is reducing its projected estimate for the number of bank failures in 1993 and 1994.

The FDIC now projects that banks with combined assets of $10 billion will fail in 1993, down from its estimate earlier this year that banks with combined assets of $25 billion would go under in 1993.

Bank failures
Year                State           Nation
(*)1993              10                 21
1992                  8                120
1991                  3                124
1990                  4                168
1989                  1                206
1988                  1                200
1987                  7                184
* 1993 data is from Jan. 1, 1993 through June 18, 1993
Data provided by the State Banking Department.

For 1994, the FDIC's revised projection is that banks with combined assets of $20 billion will fail, down from its previous estimate that banks with assets of $45 billion would fail.

No FDIC projections are available for California bank failures, said Kevin Brown, senior financial systems analyst for the banking statistics systems of the FDIC.

California leads the nation in bank failures because they typically are a lagging economic indicator, he said. While much of the country is recovering from the recession, "You're just starting to have those institutions which have been hurt by real estate defaults fail," Brown said.

It can take years of loans going sour before a bank's loan portfolio deteriorates to the point that the bank fails, he explained.