In announcing its plan to buy Peoples Banking Corp. last April, First Liberty Financial Corp. of Macon, Ga., said it would pay Peoples' shareholders $18.5 million of stock.

Then bank stock prices nosedived in September, cutting the value of First Liberty's shares by 24% and reducing the purchase price for Blackshear, Ga.-based Peoples to $14 million.

Peoples called off the deal last week.

"We decided it was in the best interest of stockholders and customers for our bank to remain independent," said Richard E. Larson, president and chief executive officer of $100 million-asset Peoples.

The collapse of the deal with $1.5 billion-asset First Liberty illustrates the impact Wall Street's gyrations have had on community bank and thrift mergers.

In the second quarter-when bank stock prices were soaring-deals involving banks with less than $3 billion of assets reached a two-year peak of 140. The rash of dealmaking continued into July, when 54 deals-the most for any month this year-were announced.

But the pace has slipped considerably since then, with 41 deals announced in August, 27 in September, and just 15 so far in October, according to data compiled by American Banker.

"Deals seemed to die after the first week of September," said Arnold G. Danielson, chairman of Danielson & Associates, a Rockville, Md., consulting firm.

The slump in merger activity can be traced to the plunge in community bank stocks. On May 21, the Nasdaq bank index reached its 1998 high of 2,263.55. By Oct. 8, the index had fallen to 1,486.32, a 34% decline.

Greg Mitchell, senior vice president at Hovde Financial Inc. in Walnut Creek, Calif., said he expects the pace of merger announcements to remain slow at least through the fourth quarter.

Some acquisitive banks are prowling, he said, however, hoping that solid third-quarter earnings will propel stock prices. A string of positive earnings reports has helped boost the Nasdaq bank index 16% in the last three weeks.

Still, with buyers and sellers skittish about the direction of stock prices, most observers expect deals to be structured differently.

For example, purchase accounting, rather than pooling of interests, could be used in many acquisitions. This would let buyers continue stock buyback programs, which they cannot do for six months after the closing of a pooling-of-interests deal.

Cash may also become the payment of choice, opening the door for companies such as CVB Financial Corp. in Ontario, Calif.

Because it only uses cash for acquisitions, CVB has stayed on the sidelines of late, unable to compete with acquirers offering stock.

Now, said D. Linn Wiley, CEO of the $1.44 billion-asset company, "the prospects are improving. I'm finding that more banks are interested in talking to us."

Indeed, banks that had spurned potential deals just months ago are beginning to reconsider, investment advisers said. With uncertainty about the economy and a shorter list of potential buyers, some banks feel their "window of opportunity is closing," said Jeffrey C. Gerrish, a banking lawyer in Memphis.

Arnold C. Hahn, chief financial officer at Western Bancorp, a $2.3 billion-asset company in Newport Beach, Calif., said sellers must become more rational. Acquirers' stocks are not trading anywhere near their 52- week highs and may not do so for some time.

"We can't do deals at three times book anymore," Mr. Hahn said.

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