Regions Financial Corp.'s announcement Monday of a deal to buy First Bancshares of Texas, its second such announcement this summer, did little to stir the Birmingham, Ala., company's shares.
Ronald C. Jackson, Region's director of investor relations, said that $33 million deal for First Bancshares, a privately held company headquartered in Houston, is a continuation of the company's strategy to purchase smaller community banks. He said Regions was looking at the Texas market as an opportunity to cross-sell products of Morgan Keegan products, the brokerage that Regions acquired on March 30. Analysts agreed that the acquisition would support Morgan Keegan and expressed little concern about possible integration risks.
The First Bancshares deal is to close in the fourth quarter, as is Regions' deal to buy $284 million-asset Park Meridian Financial Corp., of Charlotte, N.C.
The Park Meridian deal was announced June 27.
Jason Goldberg of Lehman Brothers Inc. said that he expects Regions to do more such deals to enhance the Morgan Keegan franchise, and added that branches to be divested from the new First Union/Wachovia franchise could well end up with Regions.
"The company is doing the right steps to remain competitive," said Les Muranyi, an analyst with Moody's Investors Service. He said that including First Bancshares makes sense because it supports Regions declining deposit ratio. "The company is robust and liquid, but purchasing some $100 million in deposits is a positive step to reverse that trend," he said. First Bancshares will add $134 million in deposits, around 70% of which are core deposits, Mr. Jackson said.
Nevertheless, Michael L. Granger, an analyst with J.P. Morgan Securities Inc., warned that growing in Texas might not be an easy task for Regions. Texas is a desirable market and a region with strong economic growth but also a highly competitive market, he said. He added that the acquisition could prove expensive if Regions should fail to hold up against players already established in that market.
Trading at lower-than-average volume, shares of Regions rose 0.09% on Monday, a mixed day for financial stocks. The American Banker index of top 50 banks ended up 0.05%, while its thrift index rose 1.69%.
Elsewhere, investment banks fell, led by Merrill Lynch & Co., which ended the day down 1.09%. Analysts of J.P. Morgan and Keefe, Bruyette & Woods Inc. cut their estimates for Merrill on Monday.
Meanwhile, Joseph Roberto of Keefe Bruyette initiated coverage for Peoples Holding Co. of Tupelo, Miss., with an "outperform" rating.
Mr. Roberto wrote that the $1.2 billion-asset company is under way to diversify its retail franchise traditionally focused on their customers' basic banking needs into financial services for more affluent clients.
"The company's vision is to be the financial services adviser and provider of choice in each of its communities," Mr. Roberto wrote. He expects Peoples to report profits of $2.40 per share for this year, and $2.75 in 2002, up from $1.83 last year.
He wrote that the stock is trading at a slight discount to the Keefe Bruyette regional bank average and set a target price that implies 16% upside. On Monday Peoples shares were unchanged.