First Commonwealth to acquire CenterGroup in Cincinnati

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First Commonwealth Financial in Indiana, Pennsylvania, said it struck a $54.6 million, all-stock agreement to acquire CenterGroup Financial in Cincinnati.

The $12 billion-asset First Commonwealth would absorb the $348 million-asset CenterBank as part of the transaction. The deal, expected to close in the first half of next year, priced the seller at about 153% of its tangible book value.

First Commonwealth is in the midst of expanding its commercial lending operation in Cincinnati. CenterBank would give it three branches, a loan production office and a mortgage team in Ohio's third-largest city. About 65% of CenterBank's customer base is made up of business clients.

"We have known the CenterBank team for a long time and believe their customer-focused, commercially oriented business model is a strong cultural alignment and augments our existing Cincinnati growth plans," Mike Price, First Commonwealth's president and CEO, said in a press release announcing the deal. "The expansion of our branch network within greater Cincinnati allows us to attract additional talent, create meaningful customer relationships, and deepen our penetration within the market."

First Commonwealth plans to cut about 40% of CenterBank's annual operating expenses, which totaled $7.3 million in 2023, according to the Federal Deposit Insurance Corp. It estimated $5.7 million of merger-related charges. The bank projected the deal would prove 2% accretive to its 2025 earnings and 3% the following year.

First Commonwealth expects to earn back an estimated 2% dilution to tangible book value within three years.

The merged bank would rank No. 21 in the Cincinnati metropolitan area, with 10 locations, $355.2 million of in-market deposits and a 0.2% market share, according to an investor presentation.

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First Commonwealth operates 125 branches in western and central Pennsylvania and throughout Ohio. It has commercial lending operations in Pittsburgh and Harrisburg in Pennsylvania, as well as Canton, Cleveland, Columbus and Cincinnati in Ohio.

For the third quarter, First Commonwealth posted net income of $32.1 million, compared to $37.1 million in the second quarter and $39.2 million a year earlier. The company's earnings decreased from prior quarters in part because of increased funding costs amid higher interest rates this year. The Federal Reserve lowered rates by a total of 1 percentage point in the second half of this year, however, including a 25 basis point reduction this week.

CenterBank reported third-quarter earnings totaling $839,000. For the first nine months of 2024, its earnings totaled $1.9 million, down 14% from the same period in 2023.

"We have admired First Commonwealth's business and reputation within this market and are excited to be a part of its further expansion in Cincinnati," Stewart Greenlee, president and CEO of CenterGroup, said in the release. 

"This combination also adds expanded banking products to our organization resulting in an enhanced experience for our customers, employees and community," Greenlee added.

The deal is subject to approval by CenterGroup's shareholders and First Commonwealth's regulators.

So far this year, about 120 bank sales with an aggregate value of more than $15 billion were announced. For all of 2023, there were 98 announcements with a total value of $4.15 billion, according to S&P Global Market Intelligence.

At least 46 banks based in the Midwest confirmed plans to sell this year. The Midwest is the most targeted region in 2024, the S&P data show.