Citizens Trust To Acquire CfS Bancshares

Will deal lead to 'merger mania' within black banking community?

Atlanta-based Citizens Trust Bank (No. 3 on the BE BANKS list with $292.4 million in assets) signed a definitive agreement to acquire CFS Bancshares Inc. in Birmingham, Alabama, (No. 19 on the BE BANKS list with $107 million in assets) to form the second largest African American-owned bank in the U.S. in a deal that may portend future consolidation within the black banking community. When the acquisition is completed, Citizens Trust’s combined assets will exceed $400 million.

Citizens Bancshares, which will rank behind only Carver Federal Savings Bank (No. 1 on the BE BANKS list with $449.6 in assets), will pay CFS Bancshares shareholders $64.62 cash per share of outstanding common stock. Though Citizens Trust has enough cash available to entirely bankroll the $9.2 million purchase, it will probably finance half the purchase price as a trust preferred debt, according to CEO James E. Young. Regulators allow this type of debt to be counted as equity and it does not negatively affect existing shareholders. The deal is subject to approval by the approximately 350 shareholders of CFS Bancshares with a vote tentatively scheduled for the third quarter of 2002.

Experts say small banks, which would include all the black-owned banks, will participate in a wave of merger activity. This will be driven partially by technology such as online banking, ATMs, debit cards, and even credit-scoring programs that computerize loan decisions. Dr. Thomas D. Boston, professor of economics at the Georgia Institute of Technology, and member of the BE Board of Economists, says small institutions must merge to succeed in a banking market radically different from what it used to be (see “Banking on Diversification,” June 2002). “The companies that adapt and institute these kinds of technological changes are going to survive this revolutionary period taking place in the banking industry,” he says. “Most of them are trying to adjust through mergers and acquisitions, and create a large enough capital base and enough economies of scale to introduce the kinds of technology needed to stay on the cutting edge.”

Besides IT, banking laws now permit banks to operate across state lines while deregulation allows banks to do financial and estate planning and offer brokerage, insurance, and investment services. African Americans are earning higher incomes and want these services at their banks. “If a black-owned bank wants to maintain its clientele, it has to be able to offer this broader range of services. One of the most effective ways it can do that is to acquire another bank to get the capitalization it needs to grow,” Boston contends.

However, in order to see “merger mania” the way we did in the ’90s when the economy was red-hot, the stock market would have to pick up, as most bank mergers are stock swap transactions where the acquirer uses its stock as currency to purchase the acquisition target. Joe Gladue, director of research at The Chapman Co. in Baltimore, Maryland, (No. 8 on the BE INVESTMENT BANKS lists with $16.7 billion in total issues) says, “We are

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