The faltering economy has sunk yet another banking merger.

Two Ohio companies, the $3.3 billion-asset First Place Financial Corp. in Warren and the $1 billion-asset Camco Financial Corp. in Cambridge, said late Friday that they have mutually agreed to call off the deal they announced in May, citing "deteriorating market conditions."

It is the 32nd deal to fall through this year, compared with 13 for all of last year, according to SNL Financial LC. It is also at least the third one involving two Ohio companies to collapse.

First Place initially agreed to buy Camco for about $97 million, but with its shares down nearly 60% since the deal was announced, the price had been cut by more than half, to under $48 million.

Daniel Arnold, an analyst at Sandler O'Neill & Partners LP, said both companies have had "significant" credit deterioration over the past few quarters.

In its fiscal first quarter, which ended Sept. 30, First Place's ratio of nonperforming loans jumped 64 basis points from Dec. 31, to 2.39%. The company swung to a loss of $6.16 million from a profit of $6.25 million a year earlier.

Camco's third-quarter earnings increased 27% from a year earlier, to $1.07 million, though nonperformers rose to 3.52% of its loans. The ratio had been 3.13% at Dec. 31.

"I think from First Place's point of view the prospects for a deal that would dilute tangible book value and add an institution that has credit issues and operates in troubled markets probably turned them off," Mr. Arnold said. "From Camco's perspective, they probably looked at the price of the deal and said this is significantly lower than when we announced it."

Steven R. Lewis, First Place's president and chief executive officer, said now is not a good time for First Place to be integrating another company.

"From our perspective, we need to see some stabilization in the marketplace before we begin diluting our resources away from managing the bank," Mr. Lewis said in an interview Monday. "Our people have to wear multiple hats, and I just think in this type of environment, in both cases, it made more sense for … our management talent, to stay focused on managing the respective institutions, instead of the enormous amount of work that goes into achieving a combination."

Camco's CEO, Richard Baylor, did not return calls for comment.

Mr. Arnold said that he thinks some investors might question whether regulators had objections to the deal and that they might wonder whether First Place's application for government capital through the Treasury Department's Troubled Asset Relief Program could be in jeopardy.

"They never received regulatory approval for this transaction. I think you could have some investors saying: 'Well, did the regulators say anything about this deal? And how does that affect Tarp?' " Mr. Arnold said. "And that maybe creates a little bit of a cloud of uncertainty."

But Mr. Lewis said "there is zero correlation" between the terminated deal and the request for government capital. He also said the companies withdrew their merger application on their own and that they were given no indication regulators might not approve it.

First Place asked for roughly $75 million, the maximum it would be eligible to receive. The company has not decided yet whether it would take the money if approved, because its banking unit is well-capitalized, Mr. Lewis said.

Christopher McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he was surprised when First Place announced the Camco deal, but not that it was canceled. "The current environment is going to be a challenge to get the expected earnings accretion that they talked about at the outset, so termination is probably the best way to go," he said.

He said First Place has a target tangible equity to tangible asset ratio of 6% to 7% and the Camco deal would have put the ratio at or slightly below 6%.

"I think preserving capital in this environment right now is paramount," Mr. McGratty said. "I think the next question is whether the company receives Tarp. It would provide a material boost to capital ratios in a challenging environment for the industry. If they do get it, it'd be viewed as a positive."

With organic growth hard to come by in the Midwest, many banking companies there have counted on mergers for growth in recent years. But it has become increasingly challenging to get deals done as the credit crisis has worsened.

In November 2007 the $149 million-asset Century Bank in Parma, Ohio, said it planned to go public and use the proceeds to fund a $35.9 million cash and stock deal to acquire the $244 million-asset Liberty Bank in Beachwood, but in May the companies mutually agreed to cancel the deal. They cited an unforeseen delay in regulatory approval. In April the $908 million-asset PVF Capital Corp. of Solon called off its deal to sell itself to the $2.8 billion-asset United Community Financial Corp. of Youngstown.

The day before First Place announced the Camco deal, its shares had been at $11.86. By Friday they had fallen 59%, to $4.31.

As the market reacted to news of the canceled deal Monday, First Place's shares fell slightly, but Camco's shares plunged 36%, closing at $3.50 Monday.

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