The recent slide in bank stocks has spawned a surge in repurchase efforts by smaller banks-but not by bigger ones.

In the three days that followed the Aug. 28 drop of 512.61 points in the Dow Jones industrial average, 19 small banks and thrifts announced that they would buy back almost 10 million shares of their stock. Two other small banks said that they would restart their repurchase programs.

But many of the nation's top 25 banking companies find themselves shut out of any such efforts because they are involved in a merger or acquisition. According to the Securities and Exchange Commission, they cannot repurchase shares until six months after a merger is completed.

When companies repurchase their stock they reduce the number of their shares outstanding, which automatically raises per-share earnings, which in turn lifts the price of the stock. Repurchasing shares also makes options more valuable.

Helping lead the repurchase drive were PBOC Holdings Inc., Los Angeles, the holding company for People's Bank of California, and Three Rivers (Mich.) Financial Corp. PBOC said it would buy back up to one million shares, or about 5% of its outstanding common stock; Three Rivers approved the repurchase of 70,000 shares, or 8.94% of its outstanding common.

The rush of buyback announcements struck few by surprise. In the past two weeks the decline in the Nasdaq bank index, home of many small institutions, has created some of the best bargains in the market.

"There will be a continued flurry of buyback announcements, particularly for thrifts," said banking analyst Mark Fitzgibbon of Sandler O'Neil & Partners LP. "It is a tremendous opportunity," he said. "With the flat yield curve, stock buybacks looks pretty attractive. The industry is very overcapitalized."

Repurchase programs of banks and thrifts with assets of $1 billion to $5 billion have been on the rise since the beginning of the year according to Arthur Loomis, president of Northeast Capital and Advisory Inc.

Banks and thrifts announced $184.9 million worth of buyback programs in the second quarter, up from $166.7 million in the first quarter and $81.72 million in the fourth. Mr. Loomis said that he expects the third quarter to be much higher.

But though noting the lure of buybacks at current stock prices, Mr. Loomis, said there is another side to matters.

"The more banks repurchase their stocks, the more difficult it becomes to suggest to investors that banking is a growth business," he said. "When you buy back shares, the future of the banks is based more on a dividend stream or a capital gain based on sale rather than the performance of the organization."

In other words, he said, it is another way of saying "I can't do a better job with the money."

However, Terry Maltese of Sandler O'Neil Asset Management, which is partly owned by partners in Mr. Fitzgibbon's firm, said naysayers are missing the point.

Repurchasing stock is "accretive to earnings, improves return on equity by leveraging capital, and improves franchise value," he said. "For many companies this is a very smart use of capital."

In addition, repurchasing shares is less risky than expanding a loan portfolio or making an acquisition, he said.

Besides, Mr. Maltese asserted, buybacks are providing some stability at a time of mercilessly sharp market swings.

"There's stability, because there is another buyer in the market," he said. "The message is that things are good and this is the best use of our capital."

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