First Financial Bancorp in Cincinnati is buying Summit Financial, a national equipment lender, for $121 million in cash and stock.
The deal, announced Tuesday, is consistent with First Financial’s strategy of acquiring specialty lenders with national platforms, said President and CEO Archie Brown.
In 2019, the $16 billion-asset company bought Bannockburn Forex, a Cincinnati firm that focuses on foreign currency advisory, hedge fund analytics and transaction processing and in 2015 it acquired Indianapolis-based Oak Street Holding, a specialty lender focused on the insurance industry.
“As the banking model changes, traditional banking comes under more of a threat from the largest banks and maybe fintechs, having some niche businesses with unique, distinct capabilities is part of a long-term strategy for navigating the new environment,” Brown said.
Acquiring Summit won’t stop First Financial from exploring the possibility of additional deals, Brown added.
The company “would certainly entertain bank M&A, but we’re on record that we’re looking for more nonbank acquisitions,” Brown said. “We certainly would love to do something in the wealth space, certainly I’d be interested in adding a deep capability in Small Business Administration lending, and then we’d be interested in the payments space.”
Summit has funded more than $4 billion in equipment leasing and finance deals since its founding in 1993 and is projected to originate another $400 million in 2022.
Tuesday’s deal is expected to close before the end of 2021. Once it does, Summit, also headquartered in Cincinnati, will retain its brand identity and operate as a First Financial subsidiary. CEO Rick Ross and his entire management team will join First Financial.
Oak Street and Bannockburn also retained their names and leadership teams after First Financial acquired them.
“These companies have a recipe for success,” Brown said. “Our view is let them continue to do what they do successfully and give them the advantages the bank can give them to do more of it.”
Oak Street’s loan portfolio totaled $558 million at Sept. 30, while Bannockburn contributed $32 million in noninterest income, about a quarter of First Financial’s $126 million total.
First Financial has agreed to pay $111 million in cash and $10 million in stock for Summit. Analyst John Rodis, who covers First Financial for Janney Montgomery Scott, is estimating tangible book value dilution between 6% and 7% with an earn-back period of less than five years. First Financial is projecting mid-single-digit earnings-per-share accretion in 2023, growing to double-digit accretion in 2024.
“Projected EPS accretion is solid while TBV earn-back is a bit longer than desired but also a function of a mostly cash transaction,” Rodis wrote in a research note. “Overall, this appears to be a nice use of excess liquidity.”
