Two Ohio community banking companies agreed to join forces Thursday, and they aspire to become much larger through acquisitions.
Citizens Bancshares, Salineville, and Mid Am Inc. of Bowling Green announced a merger of equals valued at roughly $630 million. The deal would create the nation's 96th-largest banking company, with $4 billion of assets, 144 branches, and more than 2,300 employees.
Executives said the transaction would let the combined institution compete against megabanks, reduce business costs, and expand product offerings.
"We will continue to grow this franchise through acquisitions, and we can do that far better together than apart," said Marty E. Adams, president and chief executive officer of Citizens.
Mr. Adams, whose company has bought 11 banks in eastern Ohio since 1987, would head the company's commercial banking operation and continue to explore merger opportunities. With a bigger platform and a market capitalization of $1.3 billion, acquisitions anywhere in the nation would be considered, in addition to neighboring, in-region deals, he said.
"This widens our radar screen," said David R. Francisco, president and chief operating officer of Mid Am, who would become chairman and CEO of the combined company.
Citizens, with $1.8 billion of assets, is headquartered about an hour west of Pittsburgh. It is the parent of Citizens Banking Co., Freedom Financial Life Insurance Co., and Freedom Express Inc. The company also bought an Internet service provider firm last year.
Mid Am, with $2.2 billion of assets, operates six banks in western Ohio, including Mid American National Bank and Trust Co., and eight financial service affiliates offering insurance, investment, and trust products.
The agreement would create the first statewide "super community bank" in Ohio and help Mid Am improve its sluggish earnings growth of the past 18 months, analysts said.
The combined companies would also have a better chance to maintain a lofty stock valuation. Both banks are currently highly valued on Wall Street.
"This deal should prove good for Citizens and be an immediate boost for Mid Am," commented Douglas Walouke, an analyst at Ohio Company. "In the end, shareholders ultimately benefit from these mergers of equals."
The name of the new entity has yet to be determined. The combined company, to be headquartered in Bowling Green, would operate in Ohio, Michigan, western Pennsylvania, West Virginia, and Florida. It would also rank as the 98th-largest U.S. banking company in total deposits.
Because the companies do not overlap geographically, no branch closings are anticipated. Job cuts are expected to occur through attrition, officials at the companies said, adding that they expect to reduce noninterest expenses by about 10%, mostly through back-room consolidation.
The deal would incur a one-time, pretax restructuring charge of $20 million to $30 million before closing. Company officials expect the deal to be accretive to earnings by yearend 1999.
A 22-member board of directors would be formed consisting of 11 representatives from each company. A newly formed executive committee-with equal representation-is also in the making.
Mr. Francisco, 51, is to be succeeded by Mr. Adams, 45, by 2003. Edward J. Reiter, chairman and CEO of Mid Am, is to become senior chairman and head the executive committee. James C. McBane, vice chairman of Citizens, is to be vice chairman of the combined company.
Under the tax-free swap, Mid Am shareholders are to get 0.77 share of Citizens common stock for each share owned. The deal-a pooling of interests-is expected to close in the fourth quarter.
Details of the transaction, including succession issues and senior executive restructuring, were hammered out this week. The companies have been engaged in informal discussions for several months, Mr. Adams and Mr. Francisco said.
Added Mr. Francisco: "Only one out of seven of these merger-of-equal deals ever happens, and the people at the top have to be flexible at getting it done."