Flush with capital and facing stiff competition for customers, many regional banks appear to be mulling acquisitions as they look to accelerate growth.
On earnings conference calls in recent days, some bank executives said that they are eyeing deals in business lines, like insurance or mortgage servicing, in hopes of boosting fee income while others entertained the notion of expanding into new markets via whole-bank acquisitions. BB&T Chairman and Chief Executive Kelly King even told analysts that he would “absolutely” be interested in acquiring a fintech firm that it could learn from as part of its ongoing push to improve its digital offerings.
Analysts said that the increased M&A chatter is being driven by a number of factors, including banks’ desire to deploy pent-up capital, smaller banks’ need to achieve scale and larger banks’ quest to improve efficiency or boost top-line revenue at a time when commercial loan demand remains sluggish.
“I think that everybody is talking to everyone. I think there are a lot of conversations going on,” said Chris Marinac, an analyst with FIG Partners in Atlanta. Although Marinac said that there’s no “one-size-fits-all” approach, the common denominator is that banks “want to make more money, and they see M&A as a way to make more money.”
Marty Mosby, an analyst with Vining Sparks, also said there’s a clear divide in how banks are talking about M&A. Banks under the $50 billion asset threshold are eyeing combinations with other banks in an effort to achieve some scale, he said, while larger banks are more likely to be considering selective acquisitions in certain business lines.
He said pressure from investors pressures to deploy capital is also stimulating more M&A discussions, though he added that the pressure could ease somewhat if regulators allow banks subject to stress testing to return more of their capital to shareholders.
“They didn’t know how much [capital] they really needed so they kept building,” he said. “They overshot and regulatory pressures kind of encouraged that, and you saw a lot of these banks sitting on a lot of capital. That’s an issue because that’s going to hold down your returns.”
Terry Turner, the president and CEO of Pinnacle Financial in Nashville, Tenn., said he would be interested in doing a deal if it could give the $20.7 billion-asset company a foothold into metropolitan Atlanta. Pinnacle recently completed its acquisition of BNC Bancorp in High Point, N.C., in a deal that nearly doubled its size.
First Horizon National in Memphis is still focused on integrating its purchase of the $10 billion-asset Capital Bank Financial in Charlotte, N.C., and most likely wouldn’t be interested in another acquisition before the latter half of next year, President and CEO Bryan Jordan said on the company’s earnings call on Oct. 13.
That deal, expected to close this quarter, would boost First Horizon’s assets to nearly $40 billion. Asked what type of deal First Horizon might do next, Jordan hinted that it would not be a small one. The company has a “very low” appetite for “doing anything incremental,” he said.
The $31.7 billion-asset Synovus in Columbus, Ga., recently completed its acquisition of outdoor retailer Cabela’s banking deposits and President and CEO Kessel Stelling didn’t sound too keen on a whole-bank acquisition when asked about it by analysts.
While the company has been approached by other institutions interested in selling, Stelling told analysts that, “we don't have to do a whole-bank M&A deal to continue to improve our operating performance.”
“We have the capital to do it. I think we have horsepower to do it. I think we have the regulatory standing to do it as evidenced by the approval of the Cabela's transaction,” he said. “But internally, our appetite is the same and that is, if it makes strong, strategic and financial sense, we would look at it. If it doesn't, we'll continue to invest in our own people.”
Others, like BB&T and M&T Bank Corp. in Buffalo, N.Y., have been constrained from bank M&A by regulatory orders or legal issues.
Darren King, chief financial officer at M&T, indicated the $120.4 billion-asset company could be interested in M&A, now that it has settled allegations of loan fraud in its Wilmington Trust unit. He shied away from putting a firm number to his ideal acquisition target, but said that M&T has typically acquired organizations between 20% and 40% of its size.
“But we've done smaller [deals], and where it makes sense in footprint, where it's a strong combination, and where the returns make sense, we're definitely open to it and we've done those,” he said. “We'll pretty much talk to anybody if they've got a compelling story."
BB&T’s King, meanwhile, expressed an interest in an insurance acquisition, saying that’s an area where a recent consent order from federal regulators does not restrain the bank from engaging in M&A activity.
The $220 billion-asset BB&T agreed to the order in January, after federal regulators said they had identified “significant deficiencies” in the company’s Bank Secrecy Act and anti-money- laundering compliance program.
King said he was optimistic regulators would lift its consent order “in the not too distant future,” giving the company more leeway to do deals — should the right opportunity present itself. In that case, he said, BB&T could be interested in bank targets in its existing market, ideally starting around $20 billion in assets.
“I want to be very clear, however, that it is not a signal BB&T is getting ready to go out on some big rampage of M&A,” he said. “We are very conservative. … We are most focused on our shareholders and we are simply not going to do dilutive deals.”
BB&T’s last whole-bank acquisitions came in 2015 and 2016, when it bought a pair of Pennsylvania companies, Susquehanna Bancshares and National Penn Bancshares, in a span of eight months. On Thursday’s call, King said that, while those deals are beginning to gain traction, they are still “not nearly where they need to be.”