Like bigger rivals, banks with about $1 billion of assets or less showed better-than-expected growth in fee income and lending in the second quarter.

Though analysts had expected higher interest rates would repel borrowers and cut into quarterly earnings, the hot economy helped mitigate the downturn.

"I overestimated how quickly (loan activity) would slow," said Wayne R. Bopp, an analyst who keeps tabs on midwestern banks for San Francisco-based Robert W. Baird & Co. "And the second quarter came in better than people expected. What we're seeing in the Midwest is applicable to the rest of the country."

Leawood, Kan.-based Gold Banc Corp., with $1.2 billion of assets, was among those posting solid profits. Second-quarter net earnings were up 146.5% from a year earlier, to $3.4 million.

When the bank's four recently completed acquisitions are factored in, net earnings for the quarter grew 22.4%, and per-share earnings climbed 17.6%.

Much of the company's success is attributed to its management team's flair for making deals that are immediately accretive to earnings, said Anthony J. Polini, an analyst at Advest Inc. in New York.

Booming home sales throughout Gold Banc's region gave profits an additional boost. "They are in a marketplace that is one of the quicker growing ones in the nation," Mr. Polini said.

Bank of the Ozarks in Little Rock, Ark., reported strong earnings as well. The $709 million-asset bank reported $1.7 million of net income, a 19.6% increase from a year earlier. Earnings per share climbed to 44 cents, compared with 36 cents last year.

Randy Oates, the bank's senior vice president of marketing, said its expansion into larger markets - such as Little Rock - played a large role in its success.

"We've had a great deal of merger activity throughout the state," he said, "and that activity has created excellent opportunities for us, both in terms of acquiring business and in terms of acquiring good, qualified bankers."

The quarter also was kind to Community West Bancshares of Goleta, Calif. The $325 million-asset company reported $2.03 million of net income, 112% more than a year earlier.

Hans Schroeder, an analyst at Hoefer & Arnett in San Francisco, said the company's solid performance can be traced, in part, to success in selling its high-loan-to-value products on the secondary market.

Its Electronic Paycheck unit is one of its more creative sources of fee income, Mr. Schroeder added. Electronic Paycheck issues debit cards to subscribers who use them to pay employees in place of traditional paychecks.

"Every time a company pays an employee, the card is recharged, and every time that happens, Community West makes money," he said.

This story originally appeared in American Banker's Web edition.

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