show economic conditions are continuing to improve, a trend that's expected to hit full stride next year. The upswing, which has been under way in many parts of the West for some time, has finally begun to take hold in California and Texas, which lagged behind the region. "There are a few exceptions, but generally it's been very positive and stock prices have reflected that," said Steve Didion, a banking analyst with Hoefer & Arnett, a San Francisco-based firm. He attributed the higher earnings reported by many banks in the region to a decline in both nonperforming assets and expenses and steady net interest margins. Craig Hudson, executive director of the California Independent Bankers Association, said the Golden State has finally begun to catch up with the rest of the West. "There's still a good deal of tiredness on the part of bank boards due to the slowdown that took place," Mr. Hudson said. "But we're now six to eight months past that and well on the way to - if not a robust economy - then a sound and consistent upward trend in the economy." Like California, Texas struggled in the early 1990s, but diversification by banks in recent years has spawned impressive third-quarter numbers, analysts said. Loans, deposits and earnings were all up in the quarter, they reported. "We see continued growth in the Texas economy and continued strong growth in Texas banks," said Robert Harris, president of the Texas Bankers Association. "I see nothing on the horizon that gives us cause to be concerned." In the Pacific Northwest, many banks enjoyed a solid third quarter, especially in Oregon, which benefited from an increase in fixed-rate loan activity and strong business borrowing, according to bank analyst Jay Tejera of Dain Bosworth Inc., in Seattle. "Anyone doing business in Oregon had very strong numbers," he said. "Washington didn't do too bad, and Idaho's been doing well also. Across the board, we saw a substantial pickup in fixed-rate lending." Among the big gainers: Amfed Financial Inc., the holding company for Nevada's American Federal Savings Bank, improved earnings by 97 percent, while Quaker City Bancorp, reported that net earnings had nearly doubled for the Whittier, Calif., corporation. City National Corp. of Beverly Hills, Calif., also fared well, posting a 40% third-quarter earnings increase. The bank's results reflected a 23% increase in average loans, higher net interest income and a drop in insurance expenses. The quarter was the first that banks were affected by the lower insurance premiums enacted by the Federal Deposit Insurance Corp., and many reported slight improvements to their bottom lines as a result. Sterling Bancshares, Houston, announced record earnings for the third quarter, with profits up 21%. Mr. Didion said the last few quarters have been spent bringing down nonperforming asset ratios from the "dizzying levels" they'd reached earlier in the decade. He said community banks should be able to focus on substantial expansion beginning in 1996. "We're in a cleanup phase, and we'll still be in that in the fourth quarter, but by the first quarter of 1996 there should be more growth in loan portfolios," Mr. Didion said. Some observers said the recent hard times are causing some institutions to look for merger partners, a move that may be inappropriate for some and too soon for others. "Merger mania and the tiredness of some bank boards will cause banks to either merge unnecessarily or sell unnecessarily," said Mr. Hudson. "What I would recommend is to hold on for another year, when things could be even better." That anticipated improvement in the next year could come in part from a favorable interest-rate environment, analysts said. "If interest rates tend to stay level or head slightly lower, then real estate should be bolstered, which will be good news," said Harvey Nichelson, president and chief executive of Coast Commercial Bank in Santa Cruz, Calif. "I think next year will be a very good year."

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