For smaller banks and thrifts, the best investments these days may be their own stocks.

With bank share prices still languishing after the summer's slide, repurchase announcements among institutions with less than $10 billion of assets have surged 83% this year.

"We can't find a better buy right now than our own stock," said J. Holmes Morrison, president and chief executive officer of One Valley Bancorp in Charleston, W.Va. "We're putting our money where our mouth is."

Through February, 55 under-$10 billion banks said they intended to buy back shares valued at $737 million, according to Securities Data Co. That was up from 30 companies announcing repurchases of $435 million in the first two months of 1998.

Stock repurchase programs took off in the fourth quarter when 104 community banks announced buybacks, 225% more than in the 1997 period. But the trend was strong throughout 1998 as 313 community banks announced plans to buy back $3.2 billion of stock, 57% above the 1997 figure.

Only 18 banks with more than $10 billion of assets announced repurchase plans last year-the fewest since 1992, according to Securities Data, which is affiliated with the same parent company as American Banker. Those shares were valued at $19.5 billion.

So far this year, five of the larger institutions have said they will buy back $1.7 billion of stock.

Industry analysts said buybacks are more popular with community banks because their shares trade at a big discount relative to the larger banks. Also, some large banks are restricted from buying back shares because of their involvement in acquisitions under the pooling-of-interests method of accounting. These banks must wait six months after a deal is closed to buy back stock.

One Valley said it would repurchase 1.5 million shares, or 4.3% of outstanding shares. The $6 billion-asset company's stock price is 22% below its 52-week high; bank stocks are trading at 20% to 40% below one-year highs.

Analysts and bankers predicted buybacks will continue if bank share prices remain sluggish.

"It's the only thing going on in my universe," said James R. Bradshaw, a bank analyst at Pacific Crest Securities in Portland, Ore. "The only ones not buying back stock are those looking to make acquisitions."

Bankers "think their stocks are ridiculously undervalued," said Collyn Bement, a bank analyst at Ferris Baker Watts & Co. in Baltimore.

Banks favor stock buybacks because they reduce the amount of shares outstanding and serve to improve returns on equity. The tactic can add a few pennies to earnings per share.

Another factor driving the wave of buybacks is excess capital. Stockpiled from years of strong earnings, it is growing faster than assets, bankers and industry observers said.

"There is pressure on everyone to effectively manage their capital," said Terry L. Troupe, chief financial officer of Mercantile Bankshares, a $7.25 billion-asset holding company.

In 1993, Baltimore-based Mercantile, which had long had a strong capital position, began an annual share repurchase program. In December, Mercantile said it would buy back up to three million shares, or 4%.

Carl L. Campbell, chairman and CEO of Keystone Financial Inc. in Harrisburg, Pa., said revenue growth remains a challenge due to competition and economic uncertainty. "It is difficult to use your capital effectively unless the bank is in an area of high growth," he said.

In 1998 the $7 billion-asset Keystone repurchased two million shares, or 4% of those outstanding. Half were bought in the fourth quarter.

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