Indiana-based Independent Alliance Banks (IAB) has agreed to merge with local lender First Merchants in a deal valued at about $251.3m.

IAB has 16 banking centres in the Fort Wayne area. It has total assets of $1.1bn, total loans of $753m, and total deposits of $861m.

IAB Financial Bank, the subsidiary of IAB, will merge with and into First Merchants Bank as part of the deal.

Under the terms of the deal, IAB shareholders can receive 1.6530 shares of First Merchants common stock for each share of IAB common stock owned.

The combined entity will operate as First Merchants Bank and will become the second largest financial holding company based in Indiana with assets of $8.3bn.

The merged group will have 122 banking offices in 31 Indiana counties, and two counties in Ohio and Illinois.

First Merchants president and CEO Michael Rechin said: “The iAB franchise is a logical geographic extension for us given the less than 20-mile proximity of our nearest banking center locations. iAB Financial Bank’s markets in Northeast Indiana, and specifically Fort Wayne, offer outstanding growth opportunities for First Merchants in Indiana’s second largest market.

“We expect this combination to be mutually beneficial to First Merchants and IAB shareholders. We anticipate earnings per share accretion of approximately 2% in 2017 and approximately 5% annually over the longer term through the combination of identified expense savings of 38% plus the company’s organic growth resulting in a tangible book value earnback of 3.75 years.”

iAB Financial Bank CEO Michael Marhenke and COO William Thatcher will become market executives in First Merchants Bank’s newly acquired market, while Thatcher will become regional president.

The deal is expected to be wrapped up in the third quarter of 2017, subject to shareholder and regulatory approvals. The integration process will be completed during the fourth quarter of 2017.