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FED STUDY SAYS CALIFORNIA BANK PERFORMANCE DIPS

 FED STUDY SAYS CALIFORNIA BANK PERFORMANCE DIPS
 SAN FRANCISCO, Jan. 21 /PRNewswire/ -- The ratio of California


banks with a net loss in the first three quarters of 1991 was double the ratio of banks nationwide, according to a study of the Federal Reserve Bank of San Francisco.
 "Twenty-two percent of the state's 480 banks reported a net loss for the first nine months of 1991. In contrast, only 11.3 percent of banks nationally reported a net loss during that period," said Gary C. Zimmerman, the Reserve Bank's banking economist, in the Jan. 24 Weekly Letter.
 "Earnings problems have not been limited to the larger banks in California. Performance has deteriorated across all sizes of banks, reflecting the breadth of the economic slump that has hit California. Outside of California, western banks generally continued to record healthy earnings and to show a return on assets well above the level for the rest of the nation."
 Nationally, bank earnings for the third quarter were $4.3 billion, up from $3.6 billion in the same quarter of 1990, and return on assets (ROA) rose to 0.51 percent from 0.45 percent in the same period of 1990. In contrast, California banks as a group recorded a net loss of $75 million in the aggregate for the third quarter. In the same quarter a year ago, earnings were $859 million. The ROA for the banks in the state was minus .08 percent, compared with one percent in the third quarter last year.
 Zimmerman noted that California banks, with nearly $354 billion in assets, reported a net loss in 1991's third quarter. This was the first loss they have reported since 1987. He attributed this poor performance in part to mounting real estate asset-quality problems, especially construction and land-development loans. However, noticeable increases in non-performing business and consumer loans indicate that the recession has had a more general effect on bank earnings.
 "The overall increase in problem real-estate loans is significant, since 56 percent of California banks' total loans are secured by real estate, compared with 44 percent nationally," said Zimmerman. "Nearly 20 percent of the $23.1 billion in construction loans of California banks are either past due or on nonaccrual status, an increase of 5.6 percent in six months.
 "While California banks as a group have a slightly higher loan- loss reserve ratio than do banks nationally, that cushion has been offset by losses in 1991 that have actually lowered California banks' overall ratio of equity to assets to 6.17 percent, below the national level of 6.70 percent."
 Zimmerman also noted that California banks have lagged behind chargeoff rates nationally, and this may portend future problems.
 "Softness in California real-estate markets, where California banks do most of their real estate lending, combined with a sharp upturn in problem loan ratios, suggests that California banks may find themselves facing additional pressure to charge off problem loans and to add to loan-loss reserves."
 -0- 1/21/92
 /CONTACT: Ron Supinski of the Federal Reserve Bank of San Francisco, 415-974-3231/ CO: Federal Reserve Bank of San Francisco ST: California IN: FIN SU:


JL -- SF006 -- 2036 01/21/92 16:24 EST
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Date:Jan 21, 1992
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