Why more banks are becoming multiregional

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Several expansion-minded banks are leaving their comfort zones.

Simmons First National in Pine Bluff, Ark., is set to enter three Midwestern states as part of its planned purchase of Southwest Bancorp in Stillwater, Okla. At the same time, F.N.B. Corp. in Pittsburgh and Iberiabank in Lafayette, La., are setting up shop in the Carolinas.

The moves, which will create a new group of multiregional financial institutions, provide more proof that banks remain under pressure to build scale to boost returns and offset the cost of regulation. In many markets, it also means increased competition from banks that are quickly extending their reach.

Technology, meanwhile, is making it easier than ever for banks to pursue such endeavors.

"Banks have to find ways to spread the ever-increasing costs and, in some cases, lessening revenue over a bigger infrastructure," said David Powell, president of consulting firm Vitex. "You can do that by expanding your footprint and gaining new customers."

Other reasons exist for entering new markets.

F.N.B., which agreed last year to buy Yadkin Financial in Raleigh, N.C., wants to enter North Carolina so it can be in the state's biggest metropolitan markets and, by extension, gain access to a bigger pool of high-quality commercial prospects. The $21 billion-asset company is on pace to complete the deal later this quarter.

"North Carolina brings us a broader set of customers to go after," Vincent Delie Jr., F.N.B.'s president and CEO, said during a recent speech in Raleigh, noting that there are more than 190,000 businesses in the state that his lenders can target. "It's a numbers game. … We have to be in multiple markets to drive revenue while keeping a low risk profile."

Sometimes all it takes is finding the right personnel to convince a bank to enter a new territory.

That was the case at Iberiabank, which is also settling into the Carolinas after hiring Samuel Erwin to open an office in Greenville, S.C. The company said last month that Erwin, a former CEO of Palmetto Bancshares, had become a regional president responsible for South Carolina.

Palmetto was sold in 2015 to United Community Banks in Blairsville, Ga.

Iberiabank looks to "aggressively" pursue new markets, often with de novo expansion, said Michael Brown, the $20.7 billion-asset company's chief operating officer. Iberiabank CEO Daryl Byrd is from South Carolina, which "takes some of the risk out of" the expansion, Brown said.

Some banks are looking to deploy capital in a way that will produce better returns.

The $8.2 billion-asset Simmons, for instance, had been exploring ways to grow once the prospect of buying failed banks dried up.

"We found ourselves with excess capital and a good currency," said George Makris, Simmons' chairman and CEO. "It's turned out to be a very timely process for us."

Timely, because Simmons is set to cross $10 billion in assets after it buys the $2.5 billion-asset Southwest. At that point, Simmons will face a cap on interchange fees that will cost it about $7.3 million in annual revenue beginning in 2019. The company will also have to perform mandatory stress testing; its first report will likely be due in July 2020.

Simmons First is eager to keep growing, Makris said.

"We're really excited about the states that we serve and, quite honestly, we would like to continue that expansion," he said, though it is unlikely the company "will go state-jumping."

F.N.B., in contrast, was willing to state-hop, passing over Virginia when it agreed to buy Yadkin. Delie said his team made that decision after determining that Virginia seemed "too frothy" for its liking. F.N.B. and Yadkin also share a similar mindset, culture and capabilities, he added.

Entering a new market can also help banks diversify the industries included in their loan portfolios, said Vincent Hui, senior director of Cornerstone Advisers. While that's not usually "the primary factor" for entering new markets, it is "a collateral benefit," he said.

Several factors are helping banks such as F.N.B., Iberiabank and Simmons extend their reach to larger swaths of the country. Technology is playing a big role by making it easier, and less costly, for banks to offer services across a larger area.

F.N.B. isn't "fixated on the continuity" of its branch network due to its investment in digital banking, Delie said. The company is in the midst of a tech project — called clicks-to-bricks — where it installs kiosks driven by QR codes to help customers learn more about products and services. F.N.B. plans to install those kiosks in Yadkin's branches after the deal closes.

F.N.B. also prefers to give its regional leaders a significant amount of autonomy. Lenders are allowed to make local decisions on commercial loans of up to $10 million, Delie said during his speech in Raleigh.

Makris also emphasized the importance of having decentralized operations. "One of the things we try really hard to do is make sure we keep decision-making at the local level," he said.

"With electronic banking tools, it is getting much easier for banks to reach other markets without having to have the enormous physical presence that they used to have," Powell said. "You don't necessarily have to [have branches to fill in gaps] if you have a good e-banking presence to kind of a set a foothold."

While aggressive expansion should intensify competition, especially among institutions that had never crossed paths before, the bankers involved are accustomed to fighting for deposits and loans in their core markets. The expansions just move those battles to new areas.

"There's still plenty of competition out there, I promise you," Makris said.

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