Raleigh-based First Citizens Bank will become the sixth-largest bank headquartered in the Southeast with its acquisition of a 176-branch bank based in South Carolina with a similar name – First Citizens Bank and Trust – and a family connection.
The deal to purchase the South Carolina bank, technically a merger, is valued, at a minimum, at $636.9 million. When completed, Raleigh-based First Citizens will have more than 575 branches in 18 states and the District of Columbia.
“I think it makes a great franchise,” said Bill Wagner, a Raleigh-based investment banker with Raymond James. “It makes two strong banks even stronger.”
“Banking benefits from efficiency and consolidation and scale and getting bigger,” Wagner added.
The combination will create the nation’s largest family-controlled bank. It will boast $30.7 billion in assets, $26.1 billion in deposits and $18 billion in loans.
“We believe the proposed merger will make us a better, stronger, more efficient bank in a competitive banking environments,” Frank Holding Jr., chairman and CEO of the Raleigh bank, said in an interview.
First Citizens of North Carolina is a publicly traded bank, but the Holding family owns a controlling interest – 52.2 percent of the voting stock. Frank Holding Jr. is the third generation of the Holding family to lead the company.
The Holding family also owns a controlling interest – 63.9 percent of the voting stock – in the financial institution the Raleigh bank is acquiring, First Citizens Bank and Trust Co., which is based in Columbia and has branches in South Carolina and Georgia.
“Being a family-controlled bank, we understand the decisions we make today can have profound consequences for many, many years to come,” Holding Jr. said. “So we believe this proposed merger will help us solidify our place in the financial arena and strengthen our foundation for the future.”
Three Holding brothers – Frank Holding Jr.’s father and two uncles – acquired control of the South Carolina bank in 1964, when it had just a single branch. Today Frank Holding Jr. sits on the board of directors of the South Carolina bank.
Given the family ties, speculation about combining the two banks has swirled within banking circles for years.
“I think this deal has been talked about for as long as I have been around,” Wagner said. “It’s been a deal that made sense for a number of reasons.”
So why do the deal now?
Tony Plath, a finance professor at UNC Charlotte, speculated it’s a response to consolidation within the banking industry that is creating new regional competitors with a presence in both North Carolina and South Carolina – something neither of the First Citizens have today.
In addition, Plath said, putting the two banks together positions the combined bank to do “bigger and better deals” in the future.
The deal will give Raleigh-based First Citizens entree into the South Carolina market, where First Citizens Bank and Trust has 156 branches — more than any other bank in the state. However, the South Carolina bank ranks fourth in deposits in the state, according to Federal Deposit Insurance Corp. data.
Holding will lead the combined business. The chairman and CEO of the South Carolina bank, Jim Apple, 61, intends to retire when the deal is completed.
“With the need to identify the new leadership structure for the combined company, I think my retirement at this time, it’s coming at a good time for the company, it’s coming at a good time for me and really for my family also,” Apple said.
Apple, who joined the South Carolina bank in 1993, said during his tenure the bank’s assets increased six-fold via a combination of opening new banks and acquiring new banks. Apple has been the bank’s CEO since 1998.
Combining the two First Citizens, he added, “is a way for us to take a giant growth step at one time.”
Wall Street approves
The reaction to the deal from investors in the Raleigh-based bank was upbeat. Investors in the South Carolina-based bank were jubilant.
Shares of Raleigh-based First Citizens closed Wednesday at $251.91, up 7 percent. Shares of South Carolina-based First Citizens, an over-the-counter stock that is thinly traded, closed at $1,025, up 45 percent.
The leadership team of the combined bank, which will be announced later, will include executives from both organizations, the banks said in a joint announcement.
The South Carolina bank posted net income of $51.9 million last year, compared with $61.5 million in 2012.
The two banks have a history of working together. Since the mid-1990s, they have had what Holding referred to as a “vendor-client relationship,” with the Raleigh bank providing information technology and data processing services to the South Carolina bank.
The deal was forged by a special committee of independent directors of each board and has been approved by each company’s board of directors.
The deal calls for shareholders of South Carolina’s First Citizens Bancorporation to receive 4 shares of Raleigh’s First Citizens BancShares Class A common stock and $50 in cash. Alternatively, shareholders can elect to receive 3.58 shares of Class A stock and 0.42 shares of Class B stock.
The ultimate total value of the deal will range between $636.9 million and $676.4 million, depending on the options chosen by shareholders.