Factors influencing community bank performance in California

Abstract

Community bank performance in California lagged well behind the industry and larger banks in the state during the first half of the 1990s. This paper identifies several factors that influenced the performance of these banks, which have less than $300 million in assets and typically operate in only one region of California, during the period from 1990 to 1994. The results suggest that regional conditions within California were an important factor in community bank performance. Management decisions, especially regarding loan portfolio concentration, also were a contributing factor. Community banks' increased reliance on real estate loans, and especially higher-risk commercial real estate and construction loans over the 1984 to 1994 period, played a significant role in lowering asset quality over the period studied.

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