With three bank acquisitions pending and one recently completed, Greater Bay Bancorp in Palo Alto, Calif., spent nearly $3 million on merger expenses in the first quarter.

But these expenses were more than offset by the company's sudden and staggering gains in warrant income.

Greater Bay, which has $3.2 billion of assets, reported that it had $8.6 million of nonrecurring warrant income in the three months ended March 31 - up an astounding 215,000% from $4,000 the year earlier.

Net income rose 107.7%, to $13.5 million. However, Greater Bay president and chief executive officer David Kalkbrenner said his company's core earnings, which exclude nonrecurring warrant income, merger-related costs, and extraordinary items, are more important.

Investment income "plays no role whatsoever in our long-range plans," Mr. Kalkbrenner said in an interview last week.

Greater Bay's core profit was $10.8 million, or 73 cents a share, besting analyst forecasts by 4 cents.

"That is a good, solid trouncing of the estimates," said David Winton, an analyst at Keefe, Bruyette & Woods Inc. in New York.

Mr. Winton said he expects warrant gains to continue, though he said the pace will undoubtedly slow. But Mr. Kalkbrenner and other analysts say Greater Bay need not rely on warrant income to meet its earnings goals.

Still, warrant gains have helped Greater Bay support a rapidly expanding pool of loans. Its loans rose to $2.1 billion in the first quarter - compared with $927 million the year before - and its allowance for loan losses has kept pace: 2.15% of loans. The industry average is 1.4%, according to the Federal Deposit Insurance Corp.

Mr. Winton said he has increased his 2000 earnings estimate for Greater Bay five times. U.S. Bancorp Piper Jaffray has raised its 2000 earnings estimate for Greater Bay seven times - from $2.40 a share to $3 - said analyst Eric J. Reim.

"They are performing so much better than anyone else, it is hard to find fault," he said.

Mergers have fueled much of Greater Bay's growth. It has completed four deals in the last year and is buying three more banks in booming Northern California. These deals - for Coast Bancorp in Santa Cruz, Bank of Santa Clara, and Bank of Petaluma - are expected to close before the fourth quarter.

"You create high expectations when you have a record of performance," Mr. Kalkbrenner said. "I respond to that by saying, 'We will look at our peer group and outperform that.' "

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