CIT Group in New York has agreed to buy Mutual of Omaha Bank in Nebraska.
The $50.6 billion-asset CIT said in a press release Tuesday that it will pay $1 billion in cash and stock for the $8.3 billion-asset Mutual. The deal, which is expected to close in the first quarter, priced Mutual at 138% of its tangible book value.
This is the fifth-biggest bank deal announced in 2019. It excludes Synergy One Lending, Mutual’s mortgage unit.
CIT said the acquisition will enhance and diversify its funding profile, noting that Mutual’s homeowners association banking business should be “a source of scalable lower-cost deposits.” The deal also provides CIT with more products, technology solutions and a larger geographic footprint.
Mutual has $6.8 billion in deposits, including $4.5 billion from more than 31,000 community associations and $2.3 billion in other commercial and consumer deposits. The bank also has $3.9 billion in middle-market commercial loans.
CIT said it sees an opportunity to increase the amount of deposits to homeowners associations and related businesses to $9 billion over the next five to seven years. It would then use the low-cost funds to make more middle-market loans.
“Following our multi-year strategic transformation, we entered the next phase of our plan focused on thoughtful growth and value creation,” Ellen Alemany, CIT’s chairman and CEO, said in the release.
“This transaction squarely aligns to those goals by immediately enhancing our deposit and commercial banking capabilities and improving our profitability,” Alemany added. “This is a unique opportunity to accelerate our strategic plan through the addition of a market-leading HOA deposit franchise, a broader set of product and technology solutions and an expanded business footprint.”
In the last three years, CIT has reduced annual operating expenses by $150 million, while divesting more than $14 billion in noncore assets.
CIT said the deal should lower its cost of deposits by 20 basis point and increase its return on tangible common equity ratio by 80 basis points in 2020. The deal is expected to be 2% accretive to 2020 earnings per share and have double-digit accretion by 2023.
CIT said it plans to cut about 28% of Mutual of Omaha’s annual noninterest expense, or $54 million. CIT said it expects to incur $110 million in merger-related expenses. It should take CIT five years to earn back a projected 5.5% dilution to its tangible book value.
J.P. Morgan Securities, Evercore and Sullivan & Cromwell advised CIT. Keefe, Bruyette & Woods and Squire Patton Boggs advised Mutual.