Ind. Company Makes $33M In-State Deal

Continuing its expansion drive in its home state, First Merchants Corp. of Muncie, Ind., announced last week that it would buy Decatur Financial Inc. for $33.2 million of stock.First Merchants, with $1.4 billion of assets, would exchange 9.13 shares of its common stock for each share of Decatur, which has $128 million of assets. The deal would be worth about $225 a share, or 2.3 times Decatur's book value, on the basis of First Merchants' stock price at midday Monday.

First Merchants also offered Decatur shareholders the option of taking $237 a share in cash. If more than 40% of them choose this option, First Merchants would pay out a combination of stock and cash, the company said.

Brad J. Ness, an analyst at Howe Barnes Investments in Chicago, said both sides made out well.

"First Merchants is not necessarily overpaying," he said, and Decatur "is getting paid about 17 times earnings, which is a pretty good price in this depressed banking market."

First Merchants, which bought two Indiana banks last year, plans to make more deals in Indiana and Ohio in coming months, said chief financial officer James Thrash. The Decatur deal is expected to close about midyear.

- Taran Provost

4Q Profit Fell 58% at Pa. Banking Company

Susquehanna Bancshares Inc. reported a 58% drop in fourth-quarter net income due to a restructuring charge and bonuses for top employees.The Lititz, Pa., company said this week that it is consolidating the back-office operations of its 10 subsidiary banks at one site.

Susquehanna's subsidiaries will move all their deposit operations and branch administration functions to the company's headquarters in Lititz, said Robert S. Bolinger, president of the $4.3 billion-asset company.

"We've permitted most of those banks to operate pretty autonomously, so we have 10 back-office operations going simultaneously" he said. After the consolidation, he said, "there will be one location for everything, except loan operations."

Susquehanna said it took a $7.4 million charge in the fourth quarter, mainly to cover severance packages and job assistance services for employees who lose jobs in the restructuring.

Partly as a result, its net income for the quarter fell to $4.5 million, from $10.9 million the year earlier. Yearend income was $43.4 million, a 4% drop from 1998.

End-of-the-year employee bonuses also hurt net income, Mr. Bolinger said.

The company, which owns banks in Pennsylvania, Maryland, and New Jersey, said the consolidation and job cuts will save it $6 million annually.

- Taran Provost

Cleveland Thrift Makes $7M Kentucky Deal

TFS Financial Corp. of Cleveland said it would buy Penfed Bancorp of Falmouth, Ky., for $6.9 million in cash.The $24-per-share deal, announced late Monday, is for 1.47 times Penfed's book value and 36.4 times its trailing earnings.

Penfed, the parent of Pendleton Federal Savings Bank, has $35 million of assets and two branches. Assuming the deal closes in the second quarter, TFS said, Penfed would operate as a subsidiary and retain its name, board of directors, and senior management.

TFS, parent of Third Federal Savings and Loan Association, has $6.2 billion of assets. It operates 36 branches in Ohio and six in Florida.

- Matt Andrejczak

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