you'll find asset quality rising and nonperforming loans falling. But even with those gains, small California banks still lag far behind nearly all their peers. In the first half of 1995, the return on average assets for the state's independent banks with less than $3 billion of assets rose 75%, to 0.93%. The percentage of nonperforming loans to total loans edged down, to 5.33%. But with the nationwide average ROA for community banks at 1.26% and total nonperforming loans averaging 1.61%, Golden State banks as a whole are clearly still struggling. Only New York community banks, with an ROA of 0.86%, suffered a worse performance. Overall, California's community banks have boosted ROA by 73 basis points since the end of 1992 and cut the percentage of nonperforming loans to total loans by 156 basis points. But the impact of California's economic hard times, which peaked three years ago, can still be seen on the bottom lines of many of the state's 354 small banks. "Obviously, the state is still suffering from the recession," said Donald K. Crowley, managing director for Smith & Crowley Inc., a San Francisco analysis and consulting firm. "I think that things are worse in Southern California than they are in Northern California. But things are gradually beginning to improve. Acquisitions are beginning to pick up down south, and I think the light at the tunnel is becoming visible." "The decline can probably be traced to the fact that California heated up faster than other parts of the country and then fell further," said Jim E. Culleton, interim president of Sacramento's First Commercial Bank, which has struggled. "Now I think everyone is retrenched and, as a result, will probably avoid repeating the mistakes of the early '90s and late '80s." In terms of return on average assets, the top five banks in the state were all in Southern California. Los Angeles National Bank in Buena Park was on top with a 7.60% ROA and 2.44% nonperforming loans. Second was Sunwest Bank in Tustin with an ROA of 5.74%, followed by Pacific Trust and Loan in Woodland Hills, 4.36%; California Commerce Bank in Los Angeles, 4.34%; and Ventura County National Bank in Oxnard, 4.24%. Of the top five, only Los Angeles National Bank had a nonperforming loan ratio below 6%. Observers say this is the effect of selling off heavily written-down assets, which many of the worst-hit California banks have done during the last year. At the bottom of the list is Pacific Heritage Bank in Torrance. With a negative 5.98% return on average assets, the bank was far below even California's mediocre average. Situated outside Los Angeles, Pacific Heritage was one of several institutions that fared poorly in or near big cities. First Commercial in Sacramento, Mercantile National Bank in Los Angeles, and California Security Bank in San Jose all posted ROAs of negative 4.5% or worse. Each also had a rate of nonperforming loans to total loans at least 2% higher than the state's average. Rounding out the bottom five was Queen City Bank in Long Beach, which posted a negative ROA of 3.87% and a 23.9% nonperforming loan rate. Despite the poor showing, bankers here still were optimistic. "I think California's going to be robust again," said Jack B. Conley, president and chairman of Sierra National Bank in Tehachapi. I think it's still the best place to live in and the population is still growing. I'm not worried."

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