The pace of bank and thrift deal announcements picked up in the third quarter, but their value plummeted to the lowest total in more than three years.

The number of announcements rose 25% from the second quarter, to 99. But the aggregate value of these prospective transactions plunged to $8.1 billion -- the least since the second quarter of 1996, according to data compiled by Sheshunoff Information Services, an American Banker affiliate.

Observers attributed the decline partly to the hammering bank stocks have endured in recent months because of fears of interest rate increases. What is more, no blockbuster transactions were announced in the quarter; nearly half the period's deals involved companies with less than $100 million of assets.

"Bank stocks took another hit in the third quarter, and that crippled deal prices," said Chris L. Hargrove, president of Professional Bank Services, a consulting firm in Louisville, Ky.

Despite rising activity in the third quarter, 1999 is shaping up to be among the slowest years in this decade for mergers and acquisitions. Through the first nine months, 283 deals were announced, compared with 379 a year earlier and 373 in the same period of 1997.

And interest in small banks is starting to diminish. From 1994 to 1998, banks with less than $100 million of assets accounted for 54% to 67% of the deals, according to Alex Sheshunoff & Co. in Austin, Tex. At the current pace, only 47% of the deals this year would be for small banks.

Merger and acquisition specialists say the market is flooded with sellers but fewer active buyers than in previous years. Indeed, many of the most active buyers of small banks -- such as Premier Bancshares in Atlanta, Western Bancorp in Newport Beach, Calif., First American Corp. in Nashville, or CNB Corp. in Evansville, Ind. -- are themselves being bought by larger banking companies.

"There is an oversupply of banks looking to sell, and there are no buyers for them," said Charles I. Miller, managing director of investment banking at Alex Sheshunoff.

Mr. Hargrove concurred. "Last summer you could practically sell anything," he said. "Now the $5 billion- to $10 billion-asset buyer is not excited about the $100 million-asset bank anymore."

The looming abolition of pooling-of-interests accounting is playing a major role in the shift away from small-bank acquisitions, observers added. They said potential acquirers would rather buy one bank with more than $500 million of assets than five smaller ones before the pooling method disappears Jan. 1, 2001.

A senior executive from Old National Bancorp in Evansville said his $7 billion-asset company is largely seeking to buy banks that can expand its market share.

A deal for a $100 million-asset bank "would have to be an exceptional situation," said Thomas F. Clayton, senior vice president at Old National.

Furthermore, buyers are targeting cities with higher growth potential, ones where most of the nation's small banks are not based. And even those banks that do operate around metropolitan areas cannot necessarily consider themselves attractive targets.

Charles E. McMahen, vice chairman of Compass Bancshares Inc., an $18 billion-asset company in Birmingham, Ala., said that Compass has opted not to pursue several small-bank deals this year.

"The banks were either not high-performing or did not have a niche that complemented our strategy," said Mr. McMahen. Compass did, however, announce deals for $285 million-asset Western Bancshares Inc., Albuquerque, and $805 million-asset Arizona Bank in Tucson.

Then there is pricing. Though many small banks say they are for sale, they are holding out for last year's prices.

"Banks are harshly learning that they are not worth what they thought," said Mr. Miller.

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