CIT Group Completes Mutual of Omaha Bank Buyout for $1B

With an aim to expand its commercial banking operations, CIT Group Inc. CIT has acquired Omaha, NE-based Mutual of Omaha’s savings bank subsidiary, Mutual of Omaha Bank, for $1 billion. This stock-cum-cash transaction was announced in August 2019.

Of the total purchase value, $850 million was in cash and nearly 3.1 million CIT Group shares were issued to Mutual of Omaha Insurance Co. Over the coming months, Mutual of Omaha Bank will begin transitioning to the CIT Group brand, and its retail branch locations will adopt the CIT Bank brand.

The deal did not include Mutual of Omaha's mortgage subsidiary, Synergy One Lending.

CIT Group Chairwoman and CEO Ellen R. Alemany said, “The completion of this transaction accelerates CIT's strategic plan to further enhance our capability as a leading national bank and create additional long-term shareholder value.”

Deal Details & Benefits

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 now part of CIT Group. As of Sep 30, 2019, data, CIT Group will have total deposit of roughly $42 billion and total assets worth nearly $60 billion.

The acquisition is likely to help CIT Group diversify and improve its funding profile, as the homeowners’ associations banking operations of Mutual of Omaha Bank provides low cost deposits.

Alemany commented “The addition of the homeowner association deposit channel has significant growth potential and will reduce CIT's overall cost of funds, and the middle market banking franchise will expand our footprint and customer base.”

Further at the time of announcement of deal, it was projected that transaction will increase CIT Group’s earnings per share by 2% in 2020, 3% in 2021, and 8% in 2023. Further, earnings are likely to grow in double-digits rate over the long run. The projections were based on CIT Group's consensus estimate and include projected cost savings. Moreover, the company expects cost savings of $54 million over the next three years.

Also, CIT Group’s deposit costs are expected to decrease nearly 20 basis points (bps). 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.

The company targets to achieve common equity tier 1 (CET) ratio of 10.5% within the next 12 months. It has suspended its share buyback until it meets the CET 1 target.

Our Viewpoint

The deal is expected to help CIT Group to work on the next phase of its growth strategy. 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 operating expenses by $150 million over the last three years. The company plans to further cut roughly $50 million in annual expenses by this year end. These efforts, along with the aforementioned acquisition, are likely to boost CIT Group’s financials going forward.

Shares of this Zacks Rank #3 (Hold) company have rallied 15.8% over the past year, underperforming the industry’s growth of 19.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Of late, consolidation in the banking sector has been rising, thanks to the easing of stringent regulations. Several banks like Fifth Third Bancorp FITB, Associated Banc-Corp ASB, BancorpSouth Bank, People's United Financial, Inc. and Prosperity Bancshares, Inc PB are undertaking opportunistic buyouts. These efforts will not only result in geographic expansion but also help diversify revenue sources.

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