Investment capital from outside California is heating up an already active mergers-and-acquisitions market for the state's community banks.

Six investment groups have bought community banking toeholds, hoping to use them as the foundation for extensive banking networks.

SDN Bancorp, Harrington West Financial Group Inc., Wilshire Acquisitions Corp., FBOP Corp., First Banks Inc., and Monarch Bancorp, all confident California's economy will continue to improve, have been active in the M&A market.

"We really feel California has some great opportunities," said Craig J. Cerny, chairman of Harrington, which is based in Overland Park, Kan. "We've been keeping an eye on the ebbs and flows of California's economy and feel that it's continuing to show improvement."

All but Oregon-based Wilshire have announced deals within the past year and have plans to buy again. It's a trend that, coupled with the spate of takeover activity in recent years, may drive up the price of community banks within California.

"There's a fair amount of activity with bottom feeders coming in and buying struggling companies, but there's not a lot of struggling companies left in California," said Charlotte Chamberlain, analyst with Wedbush Morgan Securities, Los Angeles.

But Wilshire CEO Andrew Wiederhorn disagreed, saying: "There seems to be more opportunity in California. There's still a lot of troubled institutions in the state."

Lately, Encinitas-based SDN has had the highest profile of the six. Led by Robert P. Keller, it was purchased last year with backing from New Hampshire's Dartmouth Capital Group LP. SDN has since picked up Liberty National Bank, Huntington Beach, and has a pending deal to buy Commerce Security Bank, Sacramento.

SDN was also one of nine finalists for 61 branches that Wells Fargo & Co. had to divest to complete its merger with First Interstate.

Wilshire announced the merger of its two banks, First Bank of Beverly Hills and Girard Savings Bank, San Diego, earlier this month and Mr. Wiederhorn said he's interested in doubling the company's bank holdings to $1 billion this year.

Monarch, based in Laguna Niguel, has the backing of Wall Street investors Keefe Managers, Mutual Series Fund, and Basswood Partners. It recently announced an unusual deal in which it will acquire Western Bank, a Los Angeles institution five times its size.

FBOP, based in Oak Park, Ill., purchased six branches of California Federal Bank through a recently acquired San Diego subsidiary, Regency Savings Bank. FBOP also owns institutions in Illinois and Texas.

First Banks, St. Louis, has nearly $4 billion in assets and was quite active in 1995. In addition to its existing Southern California subsidiaries, First Bank & Trust, Santa Ana, and Irvine City Bank, it has announced deals with QCB Bancorp, Long Beach; La Cumbre Savings Bank, Santa Barbara; and First Commercial Bancorp, Sacramento, during the year. Since 1994, it has bought up Southern California banks totaling $715 million in assets.

Harrington raised money from employees and principals of Smith Breeden Associates Inc., an affiliated financial services firm, and through outside investors to buy $160 million-asset Los Padres Savings Bank, Solvang, Calif.

None of the six revealed immediate plans, but all save Harrington appear interested in the beat-up southern California market. And SDN's bid for Wells' branches demonstrated it isn't limiting itself. Harrington has its eye on the central coast, between Santa Barbara and San Luis Obispo, and possibly the Central Valley.

Analysts believe the groups are building critical mass. If it can cobble together an attractive franchise, a bank chain could bring a sweet price from a superregional interested in California. But not everyone believes the strategy is completely sound.

"I'm not convinced it's going to work," said Jerry A. Jones, analyst with Duff & Phelps Capital Markets Co., Los Angeles. "It's purely a gamble for market entry, but sporadic branches throughout the state doesn't lead itself to efficiency."

Mr. Jones said the groups are likely getting something besides entry with their initial deals.

"This may be a way to gain some education along the way," he said. "It may be an inexpensive way to learn the market."

If buyers are looking for an education, they'd probably be wise to hurry the learning process. According to SNL Securities, Charlottesville, Va., nearly 60 deals involving California community banks having been announced since the start of 1995. Bargains could become harder to find as merger candidates dwindle.

Mr. Wiederhorn added that there are still institutions selling below book value, but that doesn't necessarily indicate a bargain.

"There's only so much value in buying a troubled shop. With a troubled shop you inherit a lot of problems," he said. "You might be able to buy a troubled shop for less than book value, but you end up paying for it one way or another."

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