The rolling crisis that has rocked the banking industry for half a decade is now firmly implanted in California.

The state's banks are reeling from the same combination that hit other regions: a slumping economy, the collapse of commercial real estate, and the unforgiving scrutiny of regulators.

In the second quarter, problem assets of California banks continued to rise. Big loan-loss provisions generated losses at many midsize and community-based institutions.

Some Regions Improve

The state's troubles dragged down the performance of western banks as a group, despite notable improvement in Arizona and strong results in the Rocky Mountain and Pacific Northwest regions. Western banks averaged a 0.55% return on assets in the second quarter, compared with a 0. 81% return nationwide, according to SNL Securities, a research firm in Charlottesville, Va.

California still shows few signs of recovery. Led by downturns in the real estate and defense industries, job losses have reached stunning levels. The Federal Reserve Bank of San Francisco calculates that 520,000 jobs, 7% of total employment, have disappeared in Southern California in the past two years. Los Angeles County alone lost 369,000 jobs in that period.

Meanwhile, the recession seems to be spreading to what so far has been the relatively lightly hit northern part of the state.

"I don't see things getting any better," said Norman C. Eckersley, chairman and chief executive of the Pacific Bank, San Francisco.

Big Writedowns Demanded

Worried federal regulators are drawing a bead on California banks, forcing them to take big writedowns on commercial real estate credits.

"They are taking the experience of New England and transporting it to California," said Philip L. Hage, an analyst with Van Kasper & Co., San Francisco. "A lot of second-quarter results reflect surprises coming out of examinations."

For the most part, banks are hunkering down by tightening credit standards and building loan reserves. Lending is stagnant. "Our focus for the present remains to ride out these tough economic times," said Bram Goldsmith, chairman and chief executive of City National Corp., Beverly Hills.

Things would be worse if it weren't for the unusually wide gap between interests rates paid on deposits and rates charged on loans. Western banks tracked by the brokerage firm Keefe, Bruyette & Woods Inc. enjoyed an average net interest margin of 4.93% in the second quarter, up from 4.74% in the first quarter and higher than margins in any other region.

Earnings fell at two Japanese-owned banks based in San Francisco because of big loan-loss provisions, mainly for commercial real estate credits.

Net income at Union Bank, 77% owned by Bank of Tokyo, slipped to $33.2 million, down 9% from a year ago. The bank provided $40 million for loan losses, compared with $50 million in the first quarter of 1992 and $37 million a year ago. Non-performing assets rose to $442.1 million, up 6.25% in the quarter and 40.3% since June 1991.

Sumitomo Bank of California earned $8.2 million, down 34.3% from the same period a year ago. Its $12.5 million provision for the quarter was 19% higher than the amount set aside in the first quarter and 45.4% greater than the provision in the second quarter of 1991.

Among community banks, City National lost $62.6 million after adding $95 million to loan-loss reserves. First National Corp., San Diego, lost $19.9 million and fell further out of compliance with capital requirements imposed by federal regulators.

Audits Take Toll

In Northern California, the Pacific Bank reported a $2.9 million loss, bringing its loss for the first half of 1992 to $14.1 million. The results reflected an audit by the Office of the Comptroller of the Currency.

Similarly, Civic Bank of Commerce, Oakland, lost $3.4 million in the second quarter after an examination by the Federal Reserve Bank of San Francisco.

Some California banks managed to buck the trend. Vallicorp Holdings Inc., Fresno, and Westamerica Bancorp., San Rafael, both had record earnings for the quarter.

Banks that did well in the period mostly were institutions that "don't have significant commercial real estate exposure or commercial loans in Southern California," noted Campbell K. Chaney, an analyst with Sutro & Co., San Francisco.

Silicon Valley Bancshares, San Jose, was a special case. It earned a record $3.5 million for the quarter. But the gain came despite a sharp rise in credit problems that brought nonperforming assets to 7.56% of loans plus foreclosed property.

The Northwest economy has slowed significantly, and the region's largest manufacturer, aircraft maker Boeing Co., has announced a plan to cut jobs. But, for the most part, the region has fought off recession.

That helped U.S. Bancorp, Portland, Ore., the West's largest banking company outside California, earn $53.3 million, up 26.4% from a depressed second quarter last year.

A very strong net interest margin of 5.26% and a $32.9 million provision, down 17.8% from a year ago, boosted U.S. Bancorp's earnings. Nonperforming assets of $390.6 million were up 6. 1 % from a year ago, but down 2.2% from the first quarter.

Idaho and Utah have stood out as pockets of economic strength in recent years. West One Bancorp, Boise, and First Security Corp., Salt Lake City, both posted record earnings for the quarter and double-digit gains from a year earlier.

Returns on assets for the companies were 1.16% and 1.15%, respectively. At both, problem assets and provisions declined for the quarter and the year.

Arizona banks continued to make progress trimming nonperforming assets. Valley National Corp., Phoenix, set to be acquired by Banc One Corp., earned $23.4 million, up 124.3% from a year ago. The company's nonperforming assets totaled $232.1 million at the end of June, down a whopping 30.3% in the quarter and 43.6% from a year ago.

Hawaiian banks continue to outperform most of their mainland peers. But, with the islands' economy slowing, the state is no longer the banking paradise it had become in recent years.

The state's two major banks, Bancorp Hawaii and First Hawaiian Inc., reported slowing rates of earnings growth. And problem assets edged up, though levels remained low by mainland standards.

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