Stocks: Sunny Outlook for Small Calif. Banks

California's community banks should continue to shine this year, boosted by a strong economy, takeover speculation, and their own efforts to build fee income, a market watcher says.

Several are standouts, poised for annual earnings-per-share growth of 18%, compared with 8% to 12% for the banking industry as a whole, said Kirstin B. Gard, banking analyst at Bear, Stearns & Co.

She recently initiated coverage of eight institutions, including WestAmerica and Western Bancorp, both rated "buys," and Sierra West Bancorp, TriCo Bancshares, and Santa Barbara Bancorp, all ranked as "attractive.

Ms. Gard placed as "neutral" CVB Financial, GBC Bancorp, and Redwood Empire Bancorp.

The institutions' market capitalizations range from $67 million to $1.5 billion, placing them squarely among California's community bank crop.

Ms. Gard acknowledged that California bank stocks had a terrific run last year, as the economy began bouncing back. San Diego-based Bank of Commerce's stock price has doubled in the last year.

But she said her selected banks will perform admirably this year, too. "Standout earnings prospects will drive their stocks higher over the next 12 months," Ms. Gard said. "They are just beginning to reap the benefits of the reviving California economy and efforts to improve efficiencies."

WestAmerica, which fell 37.5 cents, to $33.50, on Thursday, is "the most attractive" of her picks, with solid operations and management, a growing and affluent customer base, and its position as the 10th-largest bank in the state. It is headquartered in Suisuk City.

The banking company "would be a logical choice for a larger out-of-state bank" that seeks entry and could fetch at least $39 a share, Ms. Gard said.

Newport Beach-based Western Bancorp-Ms. Gard's other "buy" recommendation-lost 37.5 cents, to $42.625, on Thursday.

The $2.2 billion-asset institution will see "considerable" benefits of scale as it integrates two recent acquisitions and takes advantage of its new local market dominance, she said.

California community banks have other fans, including Ben B. Crabtree, an analyst at Dain Rauscher.

Mr. Crabtree rates as a "buy" Silicon Valley Bancshares, which fell $2, to $61, on Thursday. The $2.6 billion-asset bank enjoys "exceptional deposit growth," Mr. Crabtree said. He sets a $74 price target for shares over the next 12 months.

Despite their strengths, the community banks face plenty of competition- from each other and the high-profile megabank that will result from Washington Mutual Inc.'s planned purchase of H.F. Ahmanson & Co.

Following the merger announcement last week, Piper Jaffray analyst Steven R. Schroll reiterated Washington Mutual shares a "strong buy based on modest valuation relative to a superior earnings outlook."

Through a "compatibility in product offerings," Washington Mutual will be able to leverage its systems and technology to provide Ahmanson with tools to energize its mortgage banking and consumer banking platforms, Mr. Schroll said.

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