Regions Financial rethinking M&A after First Horizon-Iberiabank deal
For the better part of the past year, Regions Financial executives have stuck to the same story when asked about bank M&A: It’s disruptive and expensive and the Birmingham, Ala., company can grow just fine without it.
However, Regions is more open to making a deal after First Horizon in Memphis, Tenn., and Iberiabank in Lafayette, La., this week announced a merger agreement that bore no premium, according to Chief Financial Officer David Turner. At an investor conference on Thursday, he said Regions would be open to a low- or no-premium deal — with a few caveats, of course.
“That changes the calculus, but let’s not get carried away with that," Turner said at the BancAnalysts Association of Boston conference. "Before you even get to that calculation, you’ve got to think about what is the strategic rationale to begin with. For us, having more density in our existing markets would be a rationale.”
He also said Regions would carefully consider a potential target’s deposit base. Lots of checking accounts and business operating accounts are much more favorable than a bank that has a lot of money markets, certificates of deposit and rate-chasing depositors, Turner said.
At $129 billion in assets, Regions is probably unlikely to buy a very small bank. But Chris Marinac, director of research at Janney Montgomery Scott, said a deal that gives Regions at least 5% accretion in earnings per share would be worth its time, regardless of the acquisition's size.
“My sense is that asset size is less the focus. It’s more about EPS gains,” Marinac said.
Regions had not budged on its stance on M&A even after BB&T and SunTrust announced in February that they would merge to create the nation’s sixth biggest bank. But if sellers’ asking prices begin to come down, Turner said, Regions might consider a deal.
“I think we could participate in something like that perhaps, but we’re not running out trying to knock doors down right now,” he said.
Turner also highlighted a few fee-income areas that could provide a revenue boost in a lower-interest-rate environment, such as deposit service charges, mortgage banking revenue and wealth management income.
He also discussed credit quality, which he characterized as “benign” but normalizing. Regions' net charge-offs rose 12% year over year to $92 million in the third quarter, and the company reclassified $500 million of loans in its criticized business loans portfolio as substandard.
Regions is also closely monitoring certain industries, including energy, agriculture and fast-casual restaurants, Turner said.
“We don’t have any concentrations like we did pre-crisis, so we don’t have any one thing that can really upset us, but we have to pay attention to certain of those segments,” he said.