First Merchants valued the acquisition at $74 million to $77 million, depending on its stock price when the deal closes in the fourth quarter. That's about a 35-percent premium over Lincoln's closing price yesterday of $10.35 a share.
Lincoln CEO Jerry Engle said the banking downturn is so severe that Lincoln executives feared at least three years would pass before the stock would recover to $14 per share, where it traded late last year. Lincoln shares hit $20 in early 2007, well before the subprime credit crisis pulled the financial system into the doldrums.
Lincoln, which wasn't exposed to subprime mortgages, has struggled to make strong earnings at a time when large banks are bidding up the price of deposits to maintain their balance sheets, Engle said.
"I haven't heard anyone say we've hit the bottom yet," he said. "We knew that we had to do something. The time was right."
Engle will move to First Merchants as president of the Indianapolis market for its First Merchants of Central Indiana arm.
The acquisition expands First Merchants' presence in the Indianapolis area from the northern suburbs into other fast-growing suburbs on the west and south sides.
First Merchants has five locations in Carmel, Fishers, Noblesville, Westfield and on the far north side of Indianapolis.
Lincoln Bancorp, the parent of Lincoln Bank, has Hendricks County locations in Avon, Brownsburg and Plainfield. In Johnson County, Lincoln branches are in Bargersville, Franklin, Greenwood and Trafalgar.
In Morgan County, the bank operates in Mooresville. Other branches are in Crawfordsville, Nashville and Frankfort.
Lincoln loan-production offices also are in Carmel and Greenwood.
After the acquisition closes, First Merchants will have 82 branches in Indiana and Ohio.
The $890 million in Lincoln assets will bring First Merchants to $4.7 billion.