With Hawaii's tourism-driven economy in a persistent slowdown, the state's three community banks are reporting declining profits and below-average performance ratios.

"The economy has been in the doldrums for eight years, and I don't see any relief any time soon," said Wayne Miyao, senior vice president of retail banking at City Bank, a subsidiary of $1.4 billion-asset CB Bancshares.

Of the three banks, City Bank posted the highest third-quarter return on equity, 9.74%. This lags far behind the Federal Deposit Insurance Corp.'s report of a 13.99% average ROE nationwide.

So far, the Hawaiian banks have resisted drastic action.

CB Bancshares has been paring its staff for two years using an early retirement program that has cut the company's personnel cost base by $1.4 million a year. But City Bank still reported a 9.2% decline in net income for the 12 months ended Sept. 30.

Raymond Muroaka, executive vice president of the Hawaii Bankers Association, said banks may be forced to become more aggressive cost- cutters in light of recent layoffs by the state's largest banking company.

Last month, Pacific Century, holding company for Bank of Hawaii, the state's largest, announced it would cut 550 jobs, close 25 branches, and adopt a hiring moratorium through 1999. Bank of Hawaii also charged off $10 million of loans to Thailand.

"It's always been our banking industry's philosophy not to lay people off," Mr. Muroaka said. "But times have changed, and banks need to take a hard look at expenses."

Hawaii's community banks do not share $15 billion-asset Pacific Century's direct exposure to Asia's economic crisis, but the small banks- which primarily serve small businesses-are suffering from the crisis' effect on the local economy.

Hawaii's main industry, tourism, has been hurt by Asia's meltdown. The number of tourists visiting the islands is down slightly since 1990, but more importantly, spending per visitor is falling, according to the Hawaii Visitors and Convention Bureau.

"You don't see as many tourists," said Takao Sato, chairman and chief executive officer of Bank of Honolulu. "The hustle and bustle isn't there."

Bank of Honolulu, the state's smallest, reported a third-quarter loss of $121,000 and a slight decline in assets, to $97 million, according to the FDIC.

Net income was down 25.6% at $283 million-asset Hawaii National Bank in the third quarter, according to the FDIC.

Warren Luke, Hawaii National's chief executive officer, said he would like to expand its market share but that the current economic climate makes that difficult.

"We're looking at long-term growth," he said, "but if you can't grow, you have to look at cutting expenses to remain profitable."

Executives at all three community banks said they expect the local economy to get worse before it gets better. They are carefully monitoring small-business loans for signs of trouble.

Adding to the economic pressure is increased competition from local credit unions. Hawaii's credit unions have grown considerably over the years and compete most directly with community banks.

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