For California Financial Holding Co., the hard times haven't ended yet.

While some institutions have rebounded from the four-year-old California recession, some banks and thrifts continue to see new asset quality problems crop up.

California Financial Holding Co., a $1.3 billion-asset Stocktonbased thrift company, reported just $120,000 in earning in the third quarter because of a whopping $3.7 million loan-loss provision.

"We are still in recession, and the rising interest rates have really hurt housing values in California," said Jane Butterfield, the thrift's chief financial officer. "I don't know how well the rest of the country is doing, but somebody out there is doing well enough for the Fed to justify raising fates." '

About haft of the company's asset quality problems related to real estate development projects on which rising interest rates have led to declines in value. The rest of its $35 million in nonperforming assets is commercial. real estaterelated, and should he liquidated now that the $3.7 million hit has been taken, company officials said.

However, California Financial, like other thrifts in California, has seen a booming demand for adjustable-rate mortgages tied to the slow-moving 11th district cost of funds index. The result is an increase in loans of about $150 million in the last year. but a squeezing of the margin until Cofi, as its known, .catches up with California Financial's true cost of funds, The company said that recently, with the rise in interest rates, new loan originations have slowed significantly.

California Financial, which owns Stockton Savings Bank, is plagued by the rise in interest rates in other ways, as well, About $1 million of its equity has been eaten up due to paper losses in its portfolio of collateralized mortgage-backed securities, many of which. are tied to Cofi, Ms. Butterfield said.

The result was that even though the company has been fairy profitable in the last year, its equity hasn't kept pace. A year ago its core capital ratio was 6.11%; now it stands at 5.64%.

Still, other California thrifts continue to do well. Cenfed Financial Corp. earned $2.6 million in the third quarter.

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