The Federal Reserve today issued an order approving the acquisition of Citizens Republic Bancorp by FirstMerit Corporation.
FirstMerit Corp, which had announced the acquisition last September was waiting for regulatory approval before consummating the transaction which is still subject to shareholder approval. Completion of the acquisition is expected to occur in the second quarter of 2013.
According to a press release from FirstMerit, Citizens’ shareholders will receive 1.37 shares of FirstMerit common stock in exchange for each share of Citizens’ common stock. The $912 million acquisition is a stock for stock transaction and the largest acquisition ever made by FirstMerit.
During 2010, FirstMerit acquired two failed Illinois banks from the FDIC, George Washington Savings Bank and Midwest Bank and Trust Co, which had combined assets of $3.58 billion. Since 1990, FirstMerit has completed a total of 16 acquisitions.
FirstMerit, a bank holding company operating in Ohio, Illinois and Pennsylvania, is the 76th biggest bank in the United States with $14.9 billion in total assets. Citizens Republic Bancorp is the holding company for Citizens Bank which has total assets of $9.6 billion and operates in Michigan, Wisconsin and Ohio.
After completion of the transaction, FirstMerit will become the 55th largest bank in the United States with $19 billion in deposits, $24 billion in total assets and $15 billion in loans. The combined banks will have over 5,000 employees working at 415 branches in the contiguous states of Wisconsin, Illinois, Ohio, Pennsylvania and Michigan.
FirstMerit is projecting that the acquisition of Citizens Republic will be 7.5% accretive to 2014 earnings after projected cost savings of $59 million on a pre-tax basis.
In its approval of the transaction, the Federal Reserve noted that FirstMerit was well capitalized and well managed and that the combined banks would not result in a monopoly of the banking business in any relevant markets. Despite becoming the 55th largest bank in the U.S., FirstMerit would control less than 1% of total assets of $9.9 trillion held by all FDIC insured banks. Based on the experience and resources of management at FirstMerit, regulators feel confident that the combined organization will operate in a safe and sound manner.
Citizens Republic incurred massive losses in the wake of the financial crisis and shareholders suffered huge losses as the stock price dropped from the $140 level to below $10 per share. Net losses for the three years ending December 31, 2011 totaled $865 million and the Bank was forced to accept $300 million in TARP bailout funds from the U.S. Treasury during December 2008. After making three payments to the U.S. Treasury during 2009, Citizens suspended further dividend payments to the U.S. Treasury.
Citizens Republic has made a strong recovery since the huge losses incurred during the financial crisis. For the year ended December 31, 2012, the Bank had net income of $348 million and is well capitalized.
Upon acquisition of Citizens Republic, FirstMerit will repay the U.S. Treasury $345 million owed on TARP preferred stock, which includes deferred dividends owed of $45 million. According to Cathleen Nash, president and CEO of Citizens, “The Citizens Board and management team believe that combining with FirstMerit will deliver significant value for our shareholders, while allowing them to participate in the tremendous upside potential of a stronger bank with increased scale.”
FirstMerit has a long history of profitable operations and is regarded as one of the best capitalized and most stable banks in the country. As a conservatively run regional bank, FirstMerit was able to remain profitable every quarter during the financial crisis. For investors seeking income yield along with potential capital growth, FirstMerit is worth consideration. The Bank currently pays almost a 4% dividend.