First Commonwealth to enter central Pennsylvania with Santander branch deal

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First Commonwealth Financial in Indiana, Pa., has agreed to buy 14 Pennsylvania branches from Santander Bank.

The $7.8 billion-asset First Commonwealth said in a press release Monday that it will gain branches in State College, Lock Haven, Williamsport and Lewisburg, along with $525 million in deposits and $120 million of retail and business loans.

First Commonwealth has focused most of its expansion in Ohio, where it has bought three banks and completed one significant branch deal since opening a loan production office in Cleveland five years ago. That's where the type of small deals that suit the company's conservative risk appetite had presented themselves, CEO T. Michael Price said in an interview.

"We've always said we're still interested in nice rural depositories in Pennsylvania, and these markets are such a wonderful fit," Price said. "They're small towns with very loyal customers. We think our business model will translate very well."

First Commonwealth said it will pay a 7.05% premium on average total deposits acquired at close, or roughly $37 million. The company intends to apply the cash received at closing to repay wholesale borrowings, which is expected to reduce its loan-to-deposit ratio to 90% and improve its net interest margin.

The deal, which should be immediately accretive to First Commonwealth’s earnings per share, is expected to close in the third quarter.

First Commonwealth said it expects to incur about $3 million in one-time restructuring charges. It should take less than five years to earn back any expected dilution to First Commonwealth's tangible book value.

First Commonwealth's previous branch acquisition came in late 2016, when it bought 13 branches in Ohio from FirstMerit as part of that bank's sale to Huntington Bancshares.

"That experience went extraordinarily well, and we think this could go even better," Price said, noting that Santander plans to exit central Pennsylvania. "There were Huntington branches all around the FirstMerit offices we bought."

First Commonwealth was advised by RBC Capital Markets and Squire Patton Boggs. Reed Smith advised Santander.

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