Merger deals involving sellers with less than $3 billion of assets have slowed considerably in recent quarters. And some analysts say it's not just a hiccup.

The big-bank predators appear sated for the moment, and community banks do not seem eager to make deals among themselves.

Seventy-two deals involving sale of under-$3 billion banks were announced in the first quarter, according to SNL Securities - nearly 40% fewer than a year earlier.

At that rate, 288 such deals would be announced by yearend, versus 394 in 1995 and 514 in 1994.

"It used to be that you'd throw a party and people came," said Arnold Danielson, president of Danielson & Associates in Rockville, Md. "But I've been in some situations where we thought there'd be a tremendous rush but without that one bid we wouldn't have had a deal."

Takeover activity has decreased, analysts said, primarily because the traditional acquirers are still digesting past deals, potential sellers are holding out for higher premiums, and recent high stock prices of target banks made them too expensive.

Most market watchers have predicted that this year's mergers would be dominated by smaller deals consisting of mergers of equals or in-market acquisitions by community banks. But so far there's been little activity of any kind.

"The universe of sellers is much smaller now," said Steve Didion, analyst at Hoefer & Arnett in San Francisco. "The ones that want to sell get picked over pretty quickly, so now the consolidation becomes a much slower process."

Some analysts said mergers would not pick up again until potential sellers realize they probably aren't going to see the same premiums that were being offered as recently as six months ago.

"Anyone that's dreaming of better than two times book is really just dreaming," said James Moynihan, senior vice president at the Advest Group in Boston.

Part of the reason for lower premiums lies in the success of bank stocks in the past 12 months. The American Banker index of 298 banks with less than $3 billion of assets showed a 31.1% increase in market capitalization during that period. High bank stock prices make a hefty premium too expensive for the acquiring bank.

The stock of the Bank of Granite, for example, a $465 million-asset institution in Granite Falls, N.C., is trading at nearly 2.5 times book - a deterrent for any acquirer.

"It's a chicken-and-the-egg thing," said John A. Forlines Jr., chairman of the bank. "People want to take over successful banks, but successful banks usually have high stock prices, and people don't want to pay that much for them."

With 53 consecutive quarters of improved earnings, the bank has no intention of selling, he said, nor does it wish to make an acquisition, which would likely be dilutive.

Another reason to think that the slowdown may not be reversed soon is that traditional acquirers are rethinking their retail delivery strategies. Expanding market share is no longer so dependent on acquiring banks with extensive branch networks, analysts said.

"Those that want to stay independent are getting their wish," said Jeffrey L. Cohn, vice president of Buckingham Research Group in New York, "and for those that want to sell, their expectations are a little too high right now, and that's causing some gridlock."

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