Saying its worst days are behind it, a troubled Chicago community bank has a deal to merge with a neighbor.

Avondale Financial Corp., a $520 million-asset company that has announced $19 million of writeoffs so far this year, said late Tuesday it would combine with $870 million-asset Coal City Corp. in a merger of equals.

Publicly held Avondale would issue four million shares of stock-$43 million worth, based on the midday Wednesday price-in exchange for shares of privately held Coal City. The deal is scheduled to close during the first quarter of next year.

After the merger, shareholders of Coal City would own about 58.5% of the new company, to be called MF Financial Inc., while Avondale shareholders would own 41.5%. The two companies will combine their 13 branches under the name Manufacturers Bank.

Before the merger announcement Tuesday, Avondale said it would take a $6 million charge for writeoffs relating to prepayments on its mortgage portfolio. This after its first-quarter earnings were wiped out by a $13 million charge for mushrooming delinquencies in an independent jewelry store credit card program.

Robert Engelman, Avondale's president, said his company "recognized a need to partner with a bank with strong business lending capabilities," and that it was looking for such a partner even as it cleaned up its books earlier this year.

But not all analysts are convinced. Stephen Skiba, with ABN Amro Inc., Chicago, rates Avondale as a "hold" and said he does not think the merger "is a reason to get excited about the stock."

Laurie H. Hunsicker, analyst with Friedman, Billings, Ramsey & Co., Arlington, Va., was more positive. Avondale has cleaned up many of its problems, she said, and "overall, it is a pretty clean, solid company.

"It looks like a good deal, to create a bigger, better, banking company," Ms. Hunsicker, who currently rates Avondale as "accumulate," said.

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