The share prices of Virginia's three largest banks have surged this year, and investors say the ride isn't over.

The banks are digging out from some of the worst real estate problems in the industry.

But so far this year, takeover speculation and improved earnings prospects have spurred big jumps in the trio's stock prices - 83.8% at Crestar Financial Corp., 78% at Signet Banking Corp., and 38.6% at Dominion Bankshares Corp.

"The Virginia banks are very attractive," said Bruce Herring, portfolio manager for Fidelity Investments Inc. "There is plenty of room for the stock prices to move up."

Shares of Crestar, based in Richmond, have been particularly hot in the past two weeks, rising 11% to $32.25.

Signet's shares have cooled off in the past two weeks, climbing only 4%. The Richmond company closed Friday at $39.75.

Dominion, which has had the smallest gain of the three, faces the biggest real estate-related problems of this ratio, investors say. The Roanoke company's shares closed Friday at $14.50.

Even with this year's gains, shares of the three still trade at lower premiums to book value than other Southeast banks.

Signet's shares are the priciest, at 149% of book value, reflecting investor confidence in management's ability to deal with bad loans. The bank took a special $165 million provision for bad loans in the fourth quarter.

Crestar's shares trade at 140% of book value. Dominion, which lost money in the first quarter, trades at 106% of book.

Fidelity and other investors are betting on the three banks' ability of shrug off the effects of bad real estate loans and generate substantial earnings.

But some analysts see the banks primarily as takeover targets. In a recent report, First Boston Corp. put a buy on all three stocks because each is attractive to out-of-state buyers.

"Virginia is the southeastern state most ripe for consolidation," said Richard Stillinger, an analyst with Keefe, Bruyette & Woods Inc. "It has sizable banks in a fragmented market."

The most likely buyers are NationsBank Corp., First Union Corp., Sun Trust Banks Inc., and and Wachovia Corp. All have the capital, share prices, and acquisitions experience to buy one of the Virginia banks.

In the past, banks with real estate problems did not usually make the list of prime takeover targets. But when NationsBank acquired C&S/Sovran despite its checkered portfolio, the rules may have been bent permanently.

Speedy Recoveries Likely

The three Virginia banks have traditionally reported strong earnings. Their performance was brought down last year by overinvestment in commercial real estate in and around Washington. The market fell fast and far, farther than any other area of the region.

"They were good strong companies in the past that invested in too much real estate in a bad market," said Mr. Herring. "Those types of banks tend to come out from loan problems faster."

Signet and Crestar have dealt aggressively with the problem. Dominion has lagged, leaving it with the highest level of nonperformers among the three -- 6.2% of assets. Analysts expect the level of nonperforming assets at Dominion and the other two banks to have fallen in the second quarter.

Mr. Stillinger sees Signet and Crestar reporting slightly higher earnings in the second quarter than the first. He expects Dominion bank to break even in the second quarter after losing money in the first quarter.

Banks stocks were up on Friday, as the Dow Jones industrial average recovered in the late afternoon to gain 6.48 points to close at 3,330.56.

California banks were among the biggest gainers, after losing ground earlier amid investor' worries about real estate. Shares of Wells Fargo & Co. rose $2.50 to $75.375 after Lehman Brothers recommended the stock. BankAmerica Corp.'s shares closed at $43.25, up $1.

New York banks did well,, too. J.P. Morgan & Co.'s shares climbed $1.625 to $61.625. Republic New York Corp. gained $1.25 to $42.

Citicorp, also added to the Lehman buy list, rose 50 cents to close at $21.25 as 2.1 million shares changed hands.

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