With an aim to expand its commercial banking operations, CIT Group Inc. CIT has inked a deal to acquire Omaha, NE-headquartered Mutual of Omaha’s savings bank subsidiary, Mutual of Omaha Bank, for $1 billion. The transaction, anticipated to close in the first quarter of 2020, is still subject to the regulatory approvals.
The deal is expected to help CIT Group diversify and improve its funding profile, as the homeowners’ associations (HOA) banking operations of Mutual of Omaha Bank provides low cost deposits. Notably, the deal does not include Mutual of Omaha's mortgage subsidiary, Synergy One Lending.
Ellen R. Alemany, CIT Group CEO noted, "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 that complements CIT's existing franchise."
The deal value of $1 billion comprises mostly cash and an approximate $150 million worth of CIT Group shares. The exact worth of shares to be issued is expected to be disclosed by the company later on.
Total assets worth $8.3 billion (which includes $3.9 billion of middle-market commercial loans), $6.8 billion of total deposits and 26 commercial branches of Mutual of Omaha Bank are part of this deal. Following the deal’s closure, CIT Group will have total deposit of roughly $42.1 billion and total assets worth nearly $58.9 billion.
The deal is projected to increase CIT Group’s earnings per share by 2% in 2020, 3% in 2021, and 8% in 2023. Further, earnings will likely grow in double-digits rate over the long run. These are based on CIT Group's consensus estimate and include projected cost savings. Moreover, the company projects cost savings of $54 million over the next three years, post acquisition.
Following completion of the transaction, CIT Group is anticipated to witness an expansion of nearly 20 basis points (bps) in its deposit cost. The company expects its return on tangible common equity to advance 20 bps in 2020, and further expand by more than 100 bps, over a period of two years.
Also, the company targets to achieve common equity tier 1 (CET) ratio of 10.5%, of which 10% will be reached immediately at the deal’s closure, while the remaining is expected to be achieved within 12 months. The company has suspended its share buyback until it meets the CET 1 target.
The above-mentioned deal will aid CIT Group’s strategic plan to grow in the next phase. As part of its plan (including the goal to become a leading commercial bank), the company has divested more than $14 billion worth of non-core assets.
Additionally, it has lowered its operating expenses by $150 million over the last three years, and plans to further cut roughly $50 million in annual expenses by 2020. Furthermore, the company has announced an expansion of its investment management and advisory capabilities. These efforts, together with the aforementioned deal, will likely boost CIT Group’s financials in the days ahead.
Shares of this Zacks Rank #3 (Hold) company have rallied 14.3% year to date, underperforming the industry’s rise of 21.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Amid challenging operating environment, banks are trying to diversify their revenue sources and improve market shares through inorganic growth strategies. Over the past month, several banks, including Associated Banc-Corp ASB, Canadian Imperial Bank of Commerce CM and OceanFirst Financial Corp OCFC, have announced acquisitions which are projected to be accretive to the earnings following their closure.
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