Centric Financial in Harrisburg, Pa., explored several mergers, including a merger of equals, before agreeing to be sold to First Commonwealth Financial in Indiana, Pa.
The $9.5 billion-asset First Commonwealth agreed on Aug. 30 to buy the $1 billion-asset Centric for $144 million.
Centric and its investment bank began a series of discussions with two unnamed banks about a potential sale during the second half of 2020, according to a regulatory filing tied to First Commonwealth’s pending acquisition. Centric met with a similar-sized bank during the second half of 2021.
None of the discussions resulted in a letter of intent.
Talks between Centric and First Commonwealth began in the second quarter of 2021. Patti Husic, Centric’s president and CEO, had an in-person meeting with Mike Price, First Commonwealth’s president and CEO, on Aug. 10, 2021.
In late 2021, Husic started meeting with another unnamed bank interested in buying Centric. After “limited due diligence,” the bank sent a nonbinding indication of interest on Feb. 4, 2022. However, the parties ended discussions two months later.
Husic and Price reconnected on May 12. Husic asked Price if he would be interested in sending a letter of intent to Centric’s board. The banks signed nondisclosure agreements on May 20 to begin preliminary due diligence.
First Commonwealth on June 2 sent a nonbinding letter of intent that proposed a purchase price of $14 to $16 a share.
Husic on June 13 encouraged Price to revise the proposal to include a fixed exchange ratio for a stock transaction. First Commonwealth did so the following day.
Centric’s board, during a June 21 meeting, determined that a transaction “would likely yield greater value … than would remaining independent,” the filing said. The board approved the execution of a nonbinding letter of intent, which was signed later that day.
Drafts of the merger agreement were circulated over the next six weeks.
First Commonwealth on Aug. 11 lowered the proposed exchange ratio by 9.2% after determining that its original estimate of credit costs and other one-time merger expenses was too low. Centric’s board approved the revised terms.
Centric’s board approved the merger on Aug. 30. The agreement was signed later that day and the deal was announced after the financial markets closed.
The deal, which is expected to close in the first quarter, priced Centric at 131% of its tangible book value.
“We are genuinely excited about the opportunities that our combined organizations can create,” Price said in a release announcing the deal. “This extension of our physical presence into Harrisburg and metro Philadelphia allows us to deepen our existing relationships in these markets and improve the financial lives of these businesses and their communities.”
Husic will join First Commonwealth’s board.
First Commonwealth said that, excluding merger charges, the transaction should be about 5% accretive to its 2023 earnings and roughly 7% accretive the next year. It should take about two years for First Commonwealth to earn back an estimated 3% dilution to its tangible book value.
First Commonwealth plans to cut about 35% of Centric’s annual noninterest expenses. The company expects to incur $14.6 million of pretax merger-related expenses.
First Commonwealth will eventually lose about $13 million in annual interchange revenue by crossing over $10 billion of assets.