A plunge in Western Bancorp's stock price has cost the $2.3 billion- asset California company its first acquisition in San Diego.

Peninsula Bank of San Diego said late Friday that it had terminated its July 24 merger agreement with fast-growing Western after the deal's value slid 20% from its announced price of $114 million.

Peninsula had the right to call off the merger if Western's stock traded 10% below the Keefe Bank Index for 10 consecutive days. Western's stock price has recovered of late but not enough to save the merger.

"It would have been difficult for us to take this deal to our shareholders," said John G. Rebelo Jr., chief executive officer of $430 million-asset Peninsula.

Western, a multibank holding company based in Newport Beach, had agreed to pay $45.75-or 4.2 times book value-for each share of Peninsula stock. When Peninsula called off the deal, Western's share price was $31.50, down 25% from the time the merger was announced.

"It's unfortunate," said Matthew P. Wagner, president and CEO at Western. However, given the company's languishing stock price, he said he was not surprised by Peninsula's decision. "We did the deal at the peak of the market, and it has adjusted dramatically since then."

Expanding into San Diego is part of Western's long-term strategy. The company has branches in Los Angeles and Orange counties and had planned to build Peninsula into a $1 billion-asset subsidiary by acquiring other banks in San Diego County.

Still, Mr. Wagner played down the blow to Western, which is owned by such institutional investors as Castle Creek Capital, Franklin Mutual Advisers, and Wellington Management Company LLP. He said the company will continue to look for deals in San Diego. And "if something doesn't come through, we'll concentrate on our markets in Los Angeles and Orange counties," he said.

But Western could be hard-pressed to find a merger partner with as much promise as Peninsula, which has a loyal customer base and a strong management team, analysts said. Established in 1975, Peninsula is the third-largest independent bank in San Diego.

"The San Diego market is compelling, and Peninsula was a strategic fit," said Erick J. Reim, a bank analyst at Piper Jaffray & Co. in Minneapolis.

The deal for Peninsula was one of three announced by Western in 1998. Last month it closed the $100 million stock purchase of Bank of Los Angeles-though it had to settle out of court a lingering $30 million lender liability lawsuit against the Los Angeles institution before doing so.

It also has an $81.1 million stock deal pending to acquire PNB Financial Group in Newport Beach. That transaction is expected to close during the first quarter.

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