KS Bancorp in Smithfield, N.C., has lost employees and customers since First Citizens BancShares went public with a hostile takeover bid.
The $368 million-asset company said in a legal filing Wednesday that First Citizens' decision last July to disclose its efforts had “created significant unrest,” stating that one loan officer who recently resigned did so out of fear that he would lose if his job if a deal took place.
KS Bancorp had three fewer employees at Dec. 31 than in mid-2017, according to the Federal Deposit Insurance Corp.
The filing also claimed that potential clients delayed or canceled plans to move deposits and lending relationships to KS Bancorp. The company noted that new business in its wealth management division totaled just $300,000 in the third quarter after topping $5.3 million over the first half of last year.
KS Bancorp was responding to a lawsuit that the $34 billion-asset First Citizens filed in February over the smaller institution’s decision to adopt a shareholder rights plan and authorize a stock repurchase program. The case was assigned to the North Carolina Business Court.
First Citizens, of Raleigh, N.C., has amassed a nearly 9% stake in KS Bancorp in recent months. It wants the court to throw out the rights plan, claiming that the move is discriminatory and harms its investment. First Citizens has permission from the Federal Reserve to buy up to 80% of KS Bancorp’s outstanding stock.
KS Bancorp, in its response to the lawsuit, asserted that its rights plan is similar to those adopted by many other companies and financial institutions. The plan “seeks to protect shareholders against unwelcome attempts by outsiders to disrupt business and to cause would-be acquirers to negotiate directly with the board to maximize value for shareholders,” the filing said.
KS Bancorp also argued that it is being harmed by the hostile takeover, pointing to the loss of employees and business.
“Even if First Citizens is unable to acquire control of KS, First Citizens’ actions could force the board to sell KS prematurely to another purchaser and destroy the long-term value of KS to the detriment of its shareholders,” the filing said.
KS Bancorp included a March 2 letter from First Citizens demanding that it take legal action against its board for an alleged breach of fiduciary duty. The letter, written by Craig Nix, First Citizens' chief financial officer, and addressed to KS Bancorp CEO Harold Keen and the rest of the board, also called for an end to the planned repurchase program.
The quarrel goes back to last June, when First Citizens privately offered to buy KS Bancorp for $33 a share. KS Bancorp, which was reorganizing into a Subchapter S corporation, was in the process of reducing its shareholder ranks.
In mid-July, First Citizens increased its offer to $35 a share, or roughly $45.9 million, and went public with its effort.
“We are disappointed by KS Bancorp’s rejection of our offer without any discussion,” Frank Holding Jr., First Citizens’ chairman and CEO, said in a press release that disclosed the takeover bid. “We believe that KS Bancorp shareholders will favor the immediate liquidity at a substantial premium that our acquisition proposal would provide.”
Keen responded at that time by claiming First Citizens’ initial offer “did not rise to a level of pricing” to persuade the board to sell. He added that the hostile takeover provided “evidence that First Citizens’ corporate culture is not in line with KS Bank’s community banking values.”
It is unclear why First Citizens is fighting so hard to buy a bank that is just 1% of its size.
The deal could help First Citizens compete more effectively with BB&T in nine North Carolina markets — Clayton, Four Oaks, Garner, Goldsboro, Kenly, Selma, Smithfield, Wendell and Wilson — where KS Bancorp has branches.
BB&T had a commanding 31.9% deposit market share in those markets in mid-2017, according to the latest data from the FDIC. First Citizens could increase its market share to 26.6% from 19.8% if it were to successfully buy and integrate KS Bancorp.
Some industry observers have suggested that First Citizens could be looking to block a competitor from entering or expanding in those markets.