The McColls and McCoys aren't the only bankers who know to do a deal. A good many small and mid-sized banks are also skilled at expanding their franchises, and that created a feeding frenzy in the first half of 1994.

Susquehanna Bancshares Inc. first ventured south of the Mason-Dixon line five years ago, when it bought Farmers & Merchants Bank of Hagerstown, MD. But that was a light raid compared to this year's full-scale assault, when it picked up three Maryland thrifts with a combined $900 million in assets.

Upon completion, these deals will boost the Lititz, PA, bank holding company's assets from $2.1 billion to $3 billion. They will also give it almost as many assets in Maryland as it has in Pennsylvania, says Bob Bollinger, the company's president and chief executive.

Susquehanna's three acquisitions this year would hardly be worth noting were it not for so many other TABULAR DATA OMITTED TABULAR DATA OMITTED banks of comparable size making their own acquisitions. If anything, the company typifie a class of banks that have been extremely active in what was by far the busiest first half of any year since U.S. Banker began tracking financial institution merger and acquisition activity in 1986.

The largest and most publicized transaction was, of course, BankAmerica Corp.'s purchase of Continental Bank Corp., but more typical were deals where $1-billion-or $2-billion-asset holding companies swallowed $50-million-asset community banks in adjacent markets.

Total announced M&A activity for all financial institutions in the first half o 1994 more than doubled to $32.4 billion. In the first half of 1993, the dollar volume was only $14.1 billion. Goldman, Sachs & Co. with 10 deals worth at leas $7.7 billion (the value for some deals was not disclosed), led all advisors. Goldman, with $2.8 billion in bank deals, also led that category.

In the thrift group, Salomon Brothers led with 4 deals worth $1.7 billion. Curiously, the overall thrift volume, with 59 deals worth $9.1 billion, nearly matched the 66 bank deals worth $9.6 billion. Never before have thrift sales come so close to matching commercial bank sales in a U.S. Banker M&A survey.

Several factors made thrifts so popular.

One is the near-completion of the Resolution Trust Corp.'s task of selling seized institutions' distressed assets. With fewer weak savings institutions available at fire sale prices, banks in an acquisition mode are instead making offers to viable operations. That was relatively uncommon as recently as 18 months ago.

Secondarily, thrift deposits still sell at discounts to commercial bank deposits. They always have, although the discount has lessened in the last two years.

The narrowing of that gap occurred partly because thrifts have become significantly more profitable, and in some cases are entertaining multiple offers.

Nonetheless, commercial banks still seem to prefer buying other banks. Bollinge says Susquehanna settled for the Maryland thrifts because there were no commercial banks available in the areas where it wanted to expand. At least the thrifts will broaden the holding company's product line into mortgage origination and servicing, two areas where it had not done much business previously.

Whether it's Susquehanna's Bollinger or another banker who's talking, the executives at acquiring institutions say they aren't out buying for buying's sake, but argue that expansion is necessary for any institution that is going t keep its independence.

"You need to grow to survive," says Donald Lesch, chairman of Indiana Federal Corp., a $650-million thrift holding company in Valparaiso, IN. This year, his firm announced its intent to purchase two community banks from towns beyond Chicago's Indiana suburbs.

For funding, Indiana Federal must tap the same capital markets as the much larger holding companies like Banc One Corp. and Norwest Corp. And like any public company, the only way the thrift will garner that funding is by promisin shareholders a decent return. That requires growth, says Lesch.

In fact, depository institutions' stock price and growth have for years been inextricably linked. As often as not, if a bank wants to grow, it needs a stock price supported by good earnings growth, and a high price/earnings ratio. To steadily improve its earnings and its P/E, it has to keep making acquisitions.

Shares of stock are typically the currency with which acquisitions are paid for via pooling of interest deals. In such acquisitions, the buyer exchanges its stock for that of the seller, and the balance sheet accounts of two institution are combined, explains Paul Haklisch, a principal with the New York investment bank Sandler O'Neill & Partners, L.P.

The other common method is a purchase accounting deal--where a buyer pays for a target institution outright--but as Haklisch says, that leaves buyers more leveraged than before in that their capital is matched against a higher level o assets. The accounting standards that govern corporate acquisitions prohibit a bank from adding the equity capital of an acquired institution to its own.

Still, by this year, banks had extra capital to work with, and conditions permitted them to fund more deals through the purchase accounting method than i years past. Bollinger says two of Susquehanna's acquisitions were purchase accounting deals, and the third was done via a pooling of assets.

By and large, most successful deals involved institutions in cities and towns near ones already served by an acquiror. For example, First National Bancorp, a $2.3-billion banking company in Gainesville, GA, now has 17 banking subsidiaries, TABULAR DATA OMITTED most of which are in the suburban and rural counties northeast and northwest of Atlanta.

"We're really interested in the I-75 corridor," says Richard McNeece, First National's chairman and chief executive. "It's fast-growing, businesses are being formed, and household income is better than in our core area."

How much longer the M&A feeding frenzy will continue is a question with no precise answer.

The pressure remains to do deals, since "the economic growth of the '90s will b less than what we saw in the 1970s and 1980s," adds McNeece.

"You've got to be more than healthy," he says. "You've got to have market share and control your overhead."

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