California's economy is back on track, and it's being reflected in bank performance.
For the first time in 15 years no bank failed in California last year, a signal of the long-awaited return to normalcy after years of economic troubles.
Just three years ago 16 community banks went under. An average of 5.6 banks have failed in each year since 1981.
"No bank failures is obviously a good sign," said Steven J. Didion, bank analyst at Hoefer & Arnett in San Francisco. "Everything we read and hear is positive about both Northern and Southern California."
Community banks-those with less than $3 billion of assets-reported an average return on assets for the first nine months of 1996 of 1.03%, up from 0.93% for 1995, according to Sheshunoff Information Services. That's the second straight quarter of more than 1% ROA for the first time since 1992.
Also, 87% of community banks were profitable, compared to 66% at yearend 1993.
And even that wasn't good enough for some in the industry. "I'm surprised it's not more," said Henry Royer, president and chief executive officer of $400 million-asset River City Bank in Sacramento. "You really gotta be a sick pup to not make money in this economy."
"Thirteen percent reported losses? That's surprising to me," exclaimed Bart Hill, president and chief executive officer of $162 million-asset San Joaquin Bank, Bakersfield. "In general, the California banking industry has worked through the real estate problems of the early '90s. They've taken steps to clean up their portfolios."
Return on equity for the small banks averaged 10.79% for the first nine months, up from 9.9% at yearend 1995.
Community banks' equity-to-assets ratio, though down slightly to 10.15% from 10.26%, remains strong. And nonperforming assets as a percentage of total assets for all community banks have dropped to 2.20% from 2.7% at the end of 1995.
And not just community banks have rebounded. According to a preliminary report by the California Bankers Association, released last weekend at a conference in Santa Barbara, the state's 331 commercial banks reported total net income of $3.1 billion in the third quarter of 1996, with 87% of all banks reporting profits. That compares to only 68% being profitable for the year in 1993, the lowest point for the state's industry.
California's gross state product grew more than twice as fast as the nation's gross domestic product in 1996. And the unemployment rate has fallen more than two percentage points from its 9.4% peak in 1993.
About 970,000 nonfarm jobs have been added since August 1993, including 327,000 from November 1995 to November 1996. The majority of the new jobs fell in services, particularly business and motion picture.
"The economy around here is extremely strong," said James R. Kenny, president and chief executive officer of SJNB Financial Corp. in San Jose. "The industry has recovered. This is the time when you need to be the most cautious, when things are so good."
"The economy is doing well," said Herbert C. Foster, president and chief executive officer of Oakland-based Civic Bancorp. "It's reflected in everybody's earnings. I would say that the banks are pretty optimistic about what 1997 is going to look like."
