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First Commonwealth Financial pausing M&A to 'digest' latest Ohio deal

After announcing a $106 million bank deal, Indiana, Pa.-basedFirst Commonwealth FinancialCorp. will likely hold off on further M&A until summer 2017.

First Commonwealth, a bank holding company with $6.75billion in assets, agreed to buy Lewis Center, Ohio-based ($556.1 million) ina stock-and-cash transaction valued at approximately $14.50 per share.

The deal marks First Commonwealth's third foray into theOhio market since 2015; the bank bought First Community Bank, a small lender based in Columbus,in 2015. The company is also in the process of purchasing 13 Ohio bank branches fromFirstMerit Corp.

First Commonwealth President and CEO Mike Price said duringa conference call Oct. 3 that the DCB Financial deal will most likely be thelast until summer 2017, as the company needs time to "digest what is onour plate" before considering additional mergers or acquisitions. Pricealso said the deal will make the company the largest community bank in DelawareCounty and the third-largest community bank in Columbus.

First Commonwealth shares fell on news of the deal, closingthe day down 3.27% to $9.76. The broader SNL U.S. Bank index slipped 0.50%during Monday trading.

First Commonwealth expects the transaction to beapproximately 4% accretive to earnings in 2017, and approximately 7% accretiveto earnings in 2018 after cost savings are fully phased in. The companyestimates that tangible book value dilution at closing will be less than 4%,and expects an earnback period of less than five years, including estimatedone-time charges.

An analyst on the call questioned the target's fee income,which he deemed "fairly erratic." Going forward, Price said heexpects fee income growth to be relatively modest, or about 5% in new growthyear over year.

"They have reconstituted their mortgage division andhave done a nice job over the last year of getting that gain on sale up,"Price said. "We're looking for that to just continue the currenttrajectory on a relatively new entrée for them, which was an SBA business."

First Commonwealth management said there will be no branchclosures as part of the deal. Instead, the company will look to save onoperational costs, and will continue targeting an efficiency rating below 60%.

The buyer expects the deal to have a slight positive impacton the margin, in the range of one basis point.

"It's not a lot, but it is positive,"CFO James Reske said.