First Merchants Corp. agreed to buy Lincoln Bancorp for $74 million to $77 million in an effort to expand its presence in Indiana.

The news recently sent Lincoln shares up 35.4% to $14.01. First Merchants was down 17 cents at $19.49.

Each Lincoln shareholder will receive $15.76 a share in cash or 0.7004 shares of First Merchants stock for each Lincoln share. The deal represents a 52% premium to Lincoln's closing price Tuesday.

Michael J. Stewart, First Merchants' chief banking officer, will serve as president of the newly consolidated First Merchants Bank of Central Indiana. Mike Baker and Jerry Engle will serve as regional presidents.

First Merchants said the two banks will have combined assets of $4.7 billion and will create the largest financial holding company in central Indiana, with 82 banking offices.

The deal — which is expected to close in the fourth quarter — is expected to modestly lower 2009 earnings and add to earnings starting in 2010.

First Merchants operates four bank units including First Merchants Bank and Lafayette Bank & Trust. In July, First Merchants reported its second-quarter net income rose 5.4% as it said it remained "confident in its ability to produce net income sufficient to maintain adequate capital levels, dividend payouts and a growing balance sheet." Lincoln — which has a significant presence in Indiana — reported second-quarter net income rose 20%.

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