First Citizens BancShares in Raleigh, N.C., is aggressively pursuing a small bank in eastern North Carolina.

The $34 billion-asset First Citizens disclosed in a press release Thursday that it sent an offer to buy KS Bancorp that the Smithfield company’s board rejected on July 11. The $43 million bid valued the $368 million-asset KS Bancorp at $33 a share.

First Citizens is now appealing to KS Bancorp’s shareholders by sharing a letter it sent to the board this week that raised the offer to nearly $46 million, or an 84% premium to the target’s tangible book value. The company said it is willing to pay KS Bancorp shareholders with cash or perpetual preferred stock.

Frank B. Holding, Jr., CEO of First Citizens.
First Citizens, led by CEO Frank Holding Jr., wants shareholders of KS Bancorp to pressure the company's board to discuss a merger.

The moves are intended “to inform KS Bancorp's shareholders of the compelling proposal that would provide immediate liquidity to them at a substantial premium to book value and the market’s assessment,” First Citizens said in the release.

“We are disappointed by KS Bancorp’s rejection of our offer without any discussion,” Frank Holding Jr., First Citizens’ chairman and CEO, said in the release. “We believe that KS Bancorp shareholders will favor the immediate liquidity at a substantial premium that our acquisition proposal would provide.”

KS Bancorp rejected the overture because it is looking to boost shareholder value by restructuring itself as an S corporation, First Citizens said in its release. First Citizens said it believes the restructuring would likely involve the buyout of “a significant number” of KS Bancorp investors.

First Citizens is trying to take advantage of a potential opportunity associated with KS Bancorp’s planned restructuring, a spokeswoman said. First Citizens, which has longstanding ties to Smithfield, and KS Bancorp have a common culture and a similar customer base, she said.

A call to KS Bancorp was not immediately returned.

First Citizens, where the Holding family controls the majority of voting shares, is the nation’s largest family owned bank. The family also owns Fidelity BancShares in Fuquay-Varina, N.C., and Southern BancShares in Mount Olive, N.C.

The company has developed a reputation as a serial acquirer with a willingness to pursue atypical deals. Its operations extend into far-flung states such as California, Colorado, Pennsylvania and Wisconsin, often the result of buying failed banks.

First Citizens also completed a complex acquisition in 2014 when it bought First Citizens Bancorp. in Columbia, S.C., which was also owned by the Holding family. The company, which bought Cordia Bancorp in Midlothian, Va., last year, has also disclosed plans to buy a minority stake in Carter Bank & Trust in Martinsville, Va.

First Citizens’ pursuit of KS Bancorp is interesting. First Citizens already controls nearly half of the deposits in Smithfield, where KS Bancorp is the third-biggest bank, with 12.4% market share, based on June 2016 data from the Federal Deposit Insurance Corp.

KS Bancorp’s other branches are in mostly rural towns in eastern North Carolina where First Citizens already has operations. First Citizens has the fourth-largest market share in North Carolina, while KS Bancorp isn't among the state’s top 40 depository institutions.

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