Value Seeker In California Tabs 2 Issues

It's no secret that California bank stocks have been hit hard by the state's tumbling real estate market. But have some players been unjustly penalized?

Cheryl Swaim seems to think so. As an analyst at Oppenheimer & Co. in New York, Ms. Swaim has been bottom fishing for California bank stocks, looking to land some underpriced shares in medium-size institutions with special business niches.

Examples of these banks are Silicon Valley Bancshares, Santa Clara, Calif., with assets of $838 million, and ValliCorp Holdings Inc., Fresno, Calif., with assets of $400 million.

Prices Well Below Highs

Silicon Valley's shares have fallen 6.5% in value this month and are now selling about 35% below their high for the last 52 weeks. In Wednesday's stock market, they traded unchanged at $11.25.

"The discount is due to credit worries concerning the real estate market in California," said Ms. Swaim. Silicon Valley's shares are "statistically cheap" versus most bank stocks, selling recently at just 5.9 times her 1992 earnings estimate of $1.85 a share.

Other analysts are more cautious about the banking company, which has focused on serving high-technology companies and has grown rapidly. It recently opened offices in other high-tech regions in Massachusetts and Oregon.

Problem of Geography

In the current recession, the bank operates "in one of the weakest counties, economically, in the state," noted Donald K. Crowley of Keefe, Bruyette & Woods Inc. He recently trimmed his 1992 earning estimate to $1.75.

Some investors have fretted because real estate loans at the bank expanded by 70% during 1990 and comprised 33% of the bank's loan portfolio at midyear.

But Ms. Swaim noted that 80% of the bank's construction loans, the type of loans generating the most fears, are for financing the construction of single-family homes rather than commercial projects. In fact, the bank has deemphasized real estate lending this year, she points out.

Leader in Central Valley

ValliCorp is the largest local banking company in California's fast-growing Central Valley. It operates the Bank of Fresno and Merced Bank of Commerce.

Among its most profitable niches are agribusiness clients who operate in one of the nation's richest farming regions and large numbers of local health-care professionals.

ValliCorp shares were unchanged Wednesday at $7.25, or 92% of their book value. Other banks in its peer group "sell for at least book value, many with higher degrees of credit risk," said Campbell K. Chaney, an analyst with Sutro & Co., San Francisco.

Moreover, ValliCorp's stock trades at only about 6.3 times Mr. Chaney's 1992 estimated earnings of $1.14 a share.

Mr. Chaney, who projects 25% earnings growth for the company over the next three years or so, believes that it has "a low valuation for a company with significant earnings momentum."

He believes the stock could trade at $10 a share in 12 to 18 months.

PHOTO : Silicon Valley Hurt By West Coast Jitters

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