The acquisition of Central, which has $4.5 billion in assets, would be the second major merger this year for PNC and shows PNC's penchant for picking small, profitable companies in markets where its competitors have not ventured.
PNC completed the acquisition of the $4.7 billion Citizens Fidelity Corp. of Louisville, Ky., in February.
"Central Bancorp. is a well-managed, strategically located, high- performance company whose financial results have been excellent," said Thomas H. O'Brien, PNC's president and chief executive officer.
PNC also announced yesterday that it had agreed to acquire First Bank & Trust Co. of Mechanicsburg, Pa., a subsidiary of First BanCorp Inc., for $26 million. First Bank had assets of $119.7 million on June 30. Its headquarters and two offices are in Mechanicsburg, in Cumberland County west of Harrisburg.
Under the terms of the deal, each outstanding share of First BanCorp common stock would be exchanged for 1.9 shares of PNC's common stock.
"When this deal is completed, PNC will significantly enhance its position in the economically strong and growing region of south-central Pennsylvania," O'Brien said.
Both deals require approval by shareholders of the affected companies and by banking regulators. Banking law permits a bank holding company to control up to eight Pennsylvania banks. PNC, which ranks behind Mellon Bank Corp. as the state's second-largest bank company, owns five Pennsylvania banks.
Under the deal with Central Bancorp., each outstanding share of Central Bancorp. common stock would be exchanged for 1.067 shares of PNC common stock. Central Bancorp. has about 14.1 million shares outstanding.
Based on current stock prices, the transaction would have a value of about $682.6 million. PNC noted that the transaction equaled 2.5 times the book value of Central Bancorp. on June 30 and 13 times the estimated earnings for Central in 1987.
PNC shares traded yesterday at $45.375, down 62.5 cents from Thursday's close, and Central was up $2.25 to $45 a share, both in over-the-counter trading.
O'Brien said the Central deal would result in a reduction of about 3 percent in PNC's fully diluted earnings per share for 1987, excluding gains
from securities and unusual transactions, which include the sale of PNC's mortgage-banking subsidiary and the provision for loan losses in lesser- developed countries.
This deal, as others PNC has forged, surprised industry observers but was heralded as shrewd.
"This is a typical PNC-type deal," said Nancy Bush, banking analyst for Butcher & Singer Inc. in Philadelphia.
"They have a boilerplate acquisition strategy. They go after smaller institutions that will cause them little dilution, and they go into markets that no one expects them to go."
PNC has doubled its size since 1983 to become the nation's 15th-largest banking company and one of the most profitable. It has done so by sleuthing out unlikely, but money-making, deals, such as Central and Citizens Fidelity Corp., and refusing to pay the top-dollar prices that other banks have paid for acquisitions.
"It saves money, makes sense, and it all fits together," said Roger S. Hillas, chairman of PNC and its subsidiary, Provident National Bank. "The real name of the game is making money, and we're pretty good at that."
PNC consistently ranks among the nation's most profitable banking companies, according to various performance bench marks reviewed annually by Salomon Bros. Inc. PNC nabbed the fourth spot in Salomon's 1987 review of bank performance.
PNC reported annual profits as of Dec. 31 of $286 million and per-share earnings of $4.19. For the six months ending June 30, it showed net income of $98 million and per-share earnings of $1.38.
PNC's performance and track record of making mergers work give industry observers confidence that the company can make its latest acquisitions profitable as well.
"It's a natural extension of their market, and the dilution they're admitting to is not major to acquire $4 billion in resources," said Richard Wines, president of the investment-banking firm of Ryan Beck Co./Midlantic.
PNC plans to complete the Central merger, which resulted from several months of negotiations, in the first quarter of 1988, said Charles Thayer, PNC treasurer and senior vice president.