Continuing the consolidation of Midwest banking, National City Corp. of Cleveland and Mercantile Bancorp. of St. Louis each said Monday they had agreed to make sizable acquisitions.
National City said it would pay $800 million for Fort Wayne (Ind.) National Corp., a $3.3 billion-asset banking company. The acquisition would give $53 billion-asset National City the second-largest deposit share in Indiana, after First Chicago NBD Corp.
Meanwhile, $30 billion-asset Mercantile announced it would enter Kentucky for the first time with a $285 million deal for CBT Corp., a $1 billion-asset banking company based in Paducah. The deal complements Mercantile's southern Illinois presence.
Both target companies said they were motivated to sell by increased competition and rising expenses, particularly for technology.
Analysts have predicted the Midwest will be a hot spot for bank mergers because it has one of the more fragmented banking markets in the country. "The Midwest is very populated with banks of all sizes," said Timothy Willi, an analyst at A.G. Edwards in St. Louis. "There is a lot of consolidation yet to happen."
Analyst James Schutz of ABN Amro Chicago Corp. said the deals were not surprising, considering the large number of banks in the region. "There are lots of available candidates in the Midwest," Mr. Schutz said. "And it's not like (mergers have) quieted down."
Both deals were expected to have a positive impact on earnings within a year.
National City chairman and chief executive officer David Daberko described the acquisition of Fort Wayne National as a "fill-in" deal and one his company has wanted to do for some time. "We think this is a very logical, low-risk transaction," he said. "This is a franchise we have pursued for many, many years."
Combined with its pending acquisition of First of America Bank Corp. of Kalamazoo, Mich., National City would have assets of $78.2 billion when the deals close in the second quarter.
Like its Dec. 1 agreement to buy First of America, the Fort Wayne deal would allow National City to leverage its technology investments and its skills serving retail and midsize business customers.
But after two such large purchases, National City is likely to stay out of the acquisition game for awhile, Mr. Daberko said. "This fills our plate," he added.
National City said it would take a $50 million charge to account for merger expenses in the second quarter, when the Fort Wayne deal is expected to close. It would be completed just before closing of the First of America deal.
National City expects the Fort Wayne acquisition to add to earnings beginning in 1999. It said it would cut $33 million, or 35%, of Fort Wayne's expenses. National City is paying a price equivalent to 21 times Fort Wayne's estimated earnings for 1998 and three times its book value.
Mercantile is paying less for CBT. The price of its deal represents 19 times estimated 1998 earnings and 2.3 times CBT's book value. Mercantile will take a $20 million charge in connection with the deal around the time of its expected close in the third quarter. The company said the deal should modestly add to 1998 earnings.
William J. Jones, president and chief executive officer of CBT Corp., said necessary investment in technology and the desire of shareholders for more liquidity influenced the sale of his company. The thinly traded CBT is actually the second Paducah banking company to agree to a sale in recent months. The $1.5 billion-asset Peoples First Corp. agreed to sell to Union Planters Corp. of Memphis in November.
Both National City and Mercantile said their offers were partly inspired by the target banks' markets, which they described as stable and growing. Mr. Jones said Paducah is the center of a strong trade area along the Ohio River in western Kentucky. Mr. Daberko described Fort Wayne and nearby South Bend, both in northern Indiana, as strong economies and good manufacturing hubs with plenty of midsize businesses in need of lenders.
