First Citizens BancShares Inc., one of the nation's most prolific bank acquirer since the Great Recession, has announced the largest deal in its 122-year history.
The Raleigh bank said Friday it has agreed to pay $2.16 billion worth of First Citizens stock to purchase CIT Group Inc. of New York.
The deal, if approved by shareholders and regulators, would make First Citizens the nation's 19th largest bank with $109.6 billion in total assets and more than 11,000 employees as of June 30. It is projected to close in the first half of 2021.
First Citizens describes itself as "being in a continuous merger and integration cycle for the last 10-plus years, acquiring 26 companies, resulting in superior business performance and stock price performance over this time period."
Some of the those deals came from First Citizens being a preferred acquirer of failed banks by the Federal Deposit Insurance Corp. during the Great Recession.
It has made nine deals in the past three years, most recently Entegra Financial Corp. of Franklin, N.C., and Community Financial Holding Co. Inc. of Duluth, Ga.
However, the CIT deal dwarfs all of those individual purchases.
Meanwhile, CIT's three acquisitions since 2014 represent more than $30 billion in total assets.
The transaction is unusual in several ways for both banks.
First Citizens is the buyer, with its shareholders owning 61% of the combined bank, even though CIT had nearly $14 billion more in total assets at $61.7 billion to First Citizens' $47.9 billon.
First Citizens has 550 branches in 19 states. CIT is primarily an online-based financial institutions outside 92 branches, most of which are OneWest-branded branches in southern California that it acquired in 2015.
The combined bank would be based in Raleigh with Frank Holding Jr. remaining chairman and chief executive. Ellen Alemany, chairwoman and chief executive of CIT, will be vice chairwoman. First Citizens would control 11 of the combined bank's 14 board members.
"This is a transformational partnership for First Citizens and CIT, designed to create long-term value for all of our constituents including our stockholders, our customers, our associates and our communities," Holding said in a statement.
"We have long admired CIT's market-leading commercial business, including their strong market position across multiple asset classes. Together, First Citizens and CIT will be able to leverage both companies' unique attributes ... well-positioned to compete across the United States."
CIT shareholders will received 0.0620 shares of First Citizens class A common stock for each share of CIT common stock they own.
"This transaction will more fully unlock the potential in our core franchises," Alemany said.
The banks project 10%, or $250 million, in targeted pro forma combined noninterest expense savings. It projects achieving half the cost savings in 2021 and all of it by the end of 2022.
Tony Plath, a retired finance professor at UNC Charlotte, said First Citizens' main incentive for buying CIT is access to a national brand name in consumer loans.
"Nobody’s looking for deposits these days — First Citizens' strength — and everybody’s stressed for loan growth," Plath said.
"It would seem to me that CIT could drive a harder bargain here unless CIT’s commercial loan book is really stressed by the COVID-19 times we live in. CIT has always been know for its asset-based finance commercial book, and that’s a risky segment of the commercial loan market.
"But, it pays higher margins, precisely because receivables and inventory lending are riskier segments of the commercial market," Plath said.
Plath said that "in a crisis situation, capital and liquidity always trump loan growth and profitability, and Frank’s got the balance sheet strength, in terms of both capital and liquidity, to make this work. "
"The First Citizens/CIT combination should be interesting to watch over the next few years" given they have "completely different cultures."
"If they can pull off the integration, however, this thing could be really interesting. First Citizens is loaded with low-cost core deposits from a loyal, stable, and well-heeled consumer deposit base, and they have a solid commercial loan book.
"If you put First Citizens’ attractive deposit book together with CIT’s higher-yielding loans, you should get some really attractive net-interest margins out of the combination."
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