Wall Street gave a lukewarm reception on Wednesday to Meridian Bancorp's $376 million stock swap deal to expand its New Jersey franchise.

After the stock market closed Tuesday, Meridian announced plans to acquire Cranford, N.J.based United Counties Bancorp for a pricey 2.2 times book value -- a deal that analysts said will be dilutive until 1997.

In moderate to heavy trading Wednesday, Reading, Pa.-based Meridian's stock closed at $32.50, down 62.5 cents. Meanwhile, United Counties rose 47 cents to end the session at $152.50.

Under a letter of intent, Meridian would gain 36 branches in central New Jersey and $1.7 billion in assets, effectively quadrupling its base in the state and doubling its branch network.

If the deal -- expected to be completed by yearend -- falls through, Meridian would receive $12.5 million and an option to purchase 318,000 shares at $120.

Analysts praised the strategic value of the transaction, but questioned the 3% to 5% earnings dilution in the first 18 months as a continuing trend in Meridian's acquisitions.

Gerard Cassidy, banking analyst at Hancock Institutional Equity Services, said the company's 15 deals since 1990 have been "primarily dilutive." He warned the bank risks a backlash from investors if that trend continues.

In a statement, Meridian chairman and chief executive Samuel McCullough said the deal "is consistent with Meridian's low-risk expansion strategy and will be accretive to earnings per share within [the bank's] stated policy for 18 months."

Analysts say the price was justified because of the strength of the franchise, which has a healthy loan portfolio. Last year, United Counties earned $24.2 million, with a 1.49% return on average assets.

"What will dictate how successful a merger this is how they find cost savings," said Anthony Davis, an analyst at Dean Witter Reynolds Inc.

Merrill Ross, analyst at Richmond, Va.-based Wheat First, Butcher & Singer, predicted that Meridian could meet the savings target through branch consolidations and by reducing United Counties' strong reserves for problem assets.

However, she noted that only a fraction of the bank's earnings came from loans, noting that United Counties' portfolio has dropped to $369 million from $469 million in 1989. That is about a 25% loan-to-deposit ratio.

"The trick will be making the branches earn money, generating fee income," she said. "They don't generate any loans."

David Sparks, chief financial officer of Meridian, predicted that $150 million in new loans would be hooked in the first full year of the acquisition as the bank targets consumer and lower-middle-market borrowers.

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