PNC Financial Corp. agreed Friday to buy Ohio Bancorp of Youngstown for $249.6 million in stock, or 1.6 times book value.

For PNC, the acquisition of Ohio Bancorp, with $1.8 billion in assets, would represent virtually an in-market merger. The nearest big city to Youngstown is Pittsburgh. PNC also has offices in Sharon, Pa., considered Youngstown's twin city.

"Youngstown is economically more part of western Pennsylvania than Ohio," said Ronald I. Mandle, an analyst with Sanford C. Bernstein & Co.

|Deal Should Work'

"They aren't literally overlapping, but given the size difference between the banks and the chance for significant cost cutting, this deal should work out."

The deal, also would give PNC, with $46.6 billion in assets, a presence in northeastern Ohio for the first time. At present, PNC operates Central Trust Co. in Cincinnati, in the southwestern part of the state.

It had owned banks in the northwest and central parts of the state but sold them to Banc One Corp. in January 1991. The addition of Ohio Bancorp would double the number of PNC branches in Ohio to about 100.

Ohio Bancorp has long been seen as a likely takeover target as a midsize Midwest bank that is neither a community bank nor a large regional. This made it difficult for the bank to compete with larger, more profitable instate rivals such as Banc One Corp. and Fifth Third Bancorp.

A big loss in the third quarter opened the door further for an acquirer.

Ohio Bancorp lost $11.3 million in the third quarter, after taking a loan-loss provision $29 million to cover bad loans to Phar-Mor Inc. and corporations and individuals with ties to the Youngstown-based drugstore chain.

The retailer, among the fastest growing companies of the last decade, filed for bankruptcy in August. Ohio Bancorp had direct exposure of $11.6 million. It also had loans totaling $21 million to other companies that do business with Phar-Mor.

PNC had exposure to Phar-Mor, too. It was the agent bank for a $600 million line of credit. PNC said its secured exposure to Phar-Mor is less than $30 million, not a big amount for a bank of its size.

Under terms of the deal. PNC will exchange 1.12 of its shares for each of Ohio Bancorp.'s 7.9 million shares. The per-share value of the deal is $31.50. The 60% premium over book value roughly equals what First Union agreed to pay in its recent proposed acquisition of Dominion Bankshares, Roanoke.

"Strategically, it makes sense for PNC," said Francis X. Suozzo, an analyst with S.G. Warburg & Co. "The bank is trying to focus on its core markets."

The share price of both stocks fell Friday. PNC shares dropped 12.5 cents to $28.125, with 312,000 shares traded.

But Ohio Bancorp's shares fell 50 cents, to $28.75, with 53,000 shares changing hands.

Typically, shares of an acquired bank surge on news of a deal. But investors said an earlier run-up had brought the value of Ohio Bancorp shares close to the deal price, and profit taking caused the price to fall.

Takeover rumors lit a fire under Ohio Bancorp shares as far back as Nov. 19. Shares gained 75 cents that day, to close at $22.25. They rose steadily for several days. Then, on Nov. 24, the price soared $3.25, on 10 times normal volume.

A Big One-Day Jump

On Nov. 17, the day after Thanksgiving, shares gained $4.25, again on enormous volume, after the bank announced it was in merger discussions with several companies. Ohio Bancorp did not disclose names of other suitors.

PNC faces a challenge in improving the Ohio bank's performance and eliminating any earnings dilution that the acquisition may entail.

To avoid dilution, PNC needs to improve Ohio Bancorp's performance to about a 1.4% return on assets from the 0.7% it achieved in 1990 and 1991, according to Mr. Suozzo. Through the first six months of 1992, Ohio Bancorp's ROA was 1%.

Given PNC's ability to cut costs - it is one of the most efficient major banks - and Ohio Bancorp's dominance of the Youngstown market, an improvement is performance is likely, Mr. Suozzo said.

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