PNC Bank Corp. agreed Monday to buy Midlantic Corp. for $3 billion, in a deal that would catapult the Pittsburgh-based bank into the No. 2 market position in both New Jersey and the Philadelphia-Trenton marketplace.

The deal would create the 11th-largest bank in the country, with $76 billion of assets. And PNC, which has been hounded by concerns over its exposure to interest rates, declared that the purchase would insulate it from big swings in rates.

The announcement marked an acceleration of mergers in the banking industry. It came just three weeks after First Union Corp. agreed to buy New Jersey's largest bank, First Fidelity Bancorp. That deal apparently spurred the latest one, analysts said.

"Clearly PNC wanted to solidify its New Jersey position, before First Union gets in there and starts wreaking havoc," said Nancy Bush, an analyst with Brown Brothers Harriman & Co.

PNC, however, said it had been pursuing a deal like this long before First Union arrived in the Northeast.

"This made extraordinary sense for us," said Thomas O'Brien, PNC's chairman and chief executive officer. "We have been saying for 10 years that our No. 1 and No. 2 priorities are to grow our Philadelphia and Delaware Valley franchise and move to the adjacent New Jersey marketplace."

In New Jersey, PNC would rank second, behind First Union and ahead of UJB Financial Corp.

Like other analysts, Ms. Bush criticized what she called the high price tag for Midlantic, more than 2.1 times book value.

"These parameters seem to be within the going rate for New Jersey banks - that is to say, expensive," she said.

PNC rejected that criticism, saying there would be no earnings dilution next year, after the deal closed.

The bank first entered New Jersey in March, when it bought most of Chemical Banking Corp.'s branch system in the state for $504 million.

PNC said it will use Midlantic's excess capital to help buy the Chemical branches, instead of issuing $300 million of preferred stock to help finance the transaction, as had been planned.

Since a lot of the PNC and Midlantic's branches overlap, PNC will have significant opportunities to cut costs. The company said it had already identified 69 branches to close.

Mr. O'Brien predicted there would be between $80 million and $85 million of cost savings in 1996 and a further $150 million in 1997, or 33% of Midlantic's current expense base.

Some analysts were skeptical that this number could be reached. "It is definitely on the high end," said Dennis Shea, an analyst with Morgan Stanley & Co. Most of it would come from the Philadelphia area, since Midlantic's New Jersey operation was already lean to start with, he added.

Ms. Bush said Midlantic "was one of the first banks to use the services of Chandrika Tandon, the industry's cost-cutting guru, so there's not a lot of fat left on its bones."

PNC would pay Midlantic's shareholders 2.05 PNC shares for each of their shares. That price, equal to $55.09 per Midlantic share when trading opened Monday, represented a 33% premium to Midlantic closing Friday price.

Midlantic shares closed up $6.25 on Monday, to $47.625. PNC shares fell $1.75, to $25.125.

The transaction would radically alter PNC's balance sheet, which is heavy on wholesale funding and commercial and industrial loans.

PNC said wholesale funding would drop as a percentage of overall funding from 41% to 30%, and the ratio of loans to deposits will shrink from 107% to 102%.

PNC was stung by large securities losses in the autumn of last year, caused by rising interest rates. It paid a $130 million premium to cap $5.5 billion of those securities if a certain interest rate went above 6.5%.

As part of the Midlantic transaction, that cap would be dismantled, causing a $60 million charge this year. Overall, the bank would take a $190 million charge this year, or 53 cents a share.

The net interest margin would increase from 2.72% to 3.62% next year, PNC said.

PNC said the deal would be accretive to earnings by next year, adding 7 cents a share, with total earnings per share at $2.87. In 1997 the deal will add 20 cents a share, to $3.25, the bank said.

As part of the deal, Midlantic would get three seats on PNC's board of directors, and Midlantic chairman and president Garry Scheuring would become the new company's vice chairman. He would have responsibility for the New Jersey and Philadelphia market and for consumer banking in all markets.

For Midlantic, the deal would bring to a close a stunning turnaround at a bank nearly closed five years ago because of bad loans.

Mr. Scheuring took over the helm in 1991, and has overseen impressive improvement. But as First Fidelity executives said of their own bank, he said that Midlantic is too small, with $14 billion of assets, to compete alone.

Midlantic talked with several banks, but settled on PNC in recent weeks. Among the banks thought to have been talking with Midlantic were NationsBank Corp., CoreStates Financial Corp., and Bank of New York Co.

PNC said that it did not plan to expand into New England or the Southeast, but that more in-market mergers were possible.

Midlantic had retained Merrill Lynch & Co. as an investment banking adviser for the transaction. PNC used Smith Barney & Co. to write a fairness opinion.

PNC also reported second-quarter earnings of 59 cents per share, compared with analysts' consensus estimates of 57 cents per share.

Midlantic reported second-quarter earnings per share of $1.05. First Call Corp.'s consensus estimate of 11 analysts was 95 cents per share for that quarter.

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