In the shadow of megamergers, dealmaking by community banks this year has jumped 15%.

Through May 28, banks with less than $3 billion of assets were targets in 189 merger announcements, up from 164 in the comparable period last year.

The consolidation wave spread disproportionately to the West, where the five-month total of announced deals was 39, up 86%. Sixteen were in California, 10 in Colorado.

Bankers and analysts say the steady merger pace reflects a reaching for scale, enabling the banks to make larger loans and better compete against bigger institutions.

"Scale is definitely an issue," said Matt Wagner, president and chief executive officer of Western Bancorp, a $1.8 billion-asset company in Los Angeles that has acquired four banks since 1996 and has a deal for one more. "It gives us the ability to do larger deals and pick up niche product lines."

"The reasons are no different than why the big banks are merging," said David Rainbolt, CEO of BancFirst Corp., a $1.6 billion-asset company in Oklahoma City that recently agreed to buy Amquest Financial Corp., Duncan, Okla. "Ultimately, it grows the company's earnings per share and market share in smaller markets."

The bigger they grow, the more attractive smaller banks can become to investors-and potential buyers.

"Wall Street favors size, and larger institutions carry higher valuation multiples," said James Hill, managing director of investment banking at Sutro & Co., Los Angeles.

But community banks are not just pairing off with their peers. Many are also selling out to fast-growing regionals such as Zions Bancorp. of Salt Lake City, and Community First Bankshares of Fargo, N.D., which, combined, have deals for 10 community banks in the West.

The heaviest activity was in the Southeast, where 53 merger agreements were announced this year-52% more than in the comparable 1997 period.

The Midwest had 52 announcements. The southwestern tally fell to 23, from 31. The northeastern score was 22 deals, up two.

Industry watchers expect the pace to accelerate in California as the year unfolds. The Golden State has more independent community banks than all its western neighbors combined.

"There is the urge to merge in California," remarked Hank Dalhgren, an analyst with Torrey Pines Securities in Incline Village, Nev. "I wouldn't be surprised to see several deals announced in the coming months."

Followers of the California scene say that many of the remaining smaller banks are preparing themselves for sale, hiring investment bankers or other consultants. Others are willing to enter negotiations, if approached for the right price, they add.

"Since community bank stocks are trading at higher prices in California than a year ago, they have stronger currencies and can spend more on a deal," said Hans Schroeder of Hoefer & Arnett in San Francisco.

The average premium over book value on deals announced in the West has jumped from 2.20% to 2.93% during the applicable periods, according to Sheshunoff data. (Mergers of equals are excluded.) In one recently announced deal, Scripps Bank of La Jolla, Calif., agreed to pay five times book for Pacific Commerce Bank in Chula Vista.

Nationwide, book values in deals of all sizes escalated from 2.08% to 2.77% through May. The priciest transactions are in the Southeast, where banks are selling at an average of three times book.

Analysts said that as the California economy continues to strengthen, the state will also begin to attract big-bank, out-of-state buyers. Potential targets could be larger community bank companies such as Western or WestAmerica Bancorp. of San Rafael.

"California is a good place to buy," Mr. Hill said. "A bank these days is buying itself an opportunity in California, not a problem."

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