Bank stock investors found their biggest gains last year away from the megamerger path, an American Banker analysis shows.

While mergers grabbed the biggest headlines, the stock market withheld judgment and instead rewarded companies in which it could perceive clear and consistently profitable strategies.

Regardless of size, the banks that acquired selectively or opted for internal growth tended to post the best gains for shareholders in 1998.

Investors bid up companies "with top-line revenue growth that didn't need deals to grow and that reached a kind of efficiency plateau," said Stephen Biggar, banking analyst with the Standard & Poor's Equity Group.

Companies with asset problems lost the most ground, and the big newly merged companies ended up somewhere in the middle, the survey showed.

The leaders in share price appreciation among companies in the American Banker index of 225 best-capitalized banks included Premier Bancshares of Georgia, whose stock rose 46%, to $28.1875; Bank of New York Co., up 39%, to $40.25; and Centennial Bancorp of Oregon, 38%, to $18.75.

The American Banker index gained 9.25% for the year. The Nasdaq bank index, populated by smaller-capitalization issues that never recovered from last summer's market meltdown, shed 11.77%.

The Dow Jones industrial average added 16% and the S&P 500 was up 26.69%

The biggest declines were mainly attributable to misjudgments of loan values. These banks took hits from a flood of early mortgage repayments or by relying too much on one basket of credits.

That group included Republic Bancshares of Florida, down 50.5%, to $13.125; Imperial Bancorp of Los Angeles, off 49.4%, to $16.625; and Silicon Valley Bancshares of California, losing 39.4%, to $17.125.

Subprime lenders, among 1997's highest fliers, virtually fell off the chart in 1998 as accounting methods came under fire and the values of their loan portfolios had to be marked down.

Stock buyers did selectively award acquisitions, such as the 1998 teaming of Firstar Corp. of Milwaukee and Star Banc Corp. of Cincinnati. The post-merger Firstar Corp. was the year's biggest gainer, at 62%, to $93.

But the money-centers that dominated the top ranks in past years were virtually absent.

Citigroup, created from the pairing of Citicorp and Travelers Group, was off 1.8%. BankAmerica Corp., having merged with NationsBank Corp., was down 1.1%.

Bank One Corp., combining the former Banc One Corp. with First Chicago NBD Corp., gained a relatively meager 3.4%. Wells Fargo & Co., which merged with Norwest Corp., was up 3.1%.

"We sought out companies with minimal exposure to Russia and Asia and looked for a greater percentage of income to be generated from fee-based businesses," said Susan Flischel, portfolio manager for the Countrywide Equities Fund.

Investors should begin to consider big purchasers this year, Mr. Biggar said.

Also missing from the list of top gainers were banking companies that announced big share buybacks, countering the common conception that repurchases significantly boost stock value.

Looking ahead, investors will continue to reward "the companies that meet or exceed expectations and have more fees as a total of net income," said James McDermott, chairman of Keefe, Bruyette & Woods.

The banking sector may also play catch-up to the broader market, Mr. McDermott said. "If their earnings are realized and overall economic growth remains modest, it should be a good year for bank stocks."

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