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First Horizon (FHN) & IBERIABANK Conclude Merger of Equals

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Recently, First Horizon National Corporation FHN and IBERIABANK Corporation completed the all-stock merger of equals, after receiving the regulatory nod from the board of governors of the Federal Reserve System last month. The merger deal has also been approved by the Tennessee Department of Financial Institutions and the Louisiana Office of Financial Institutions.

Notably, this April, shareholders of both companies also consented to the merger, which was announced last November.

The combined entity will operate under the name of First Horizon, headquartered in Memphis, TN, and maintain its operating presence in all the existing markets of both companies. Also, it will be listed as one of the largest financial service companies, headquartered in the South, along with inclusion in the top 25 banks in the United States, in terms of deposits.

Shares of IBERIABANK have ceased trading since Jul 2, and the combined entity’s common shares will trade on the NYSE under the ticker symbol ‘FHN’.

The new company is aimed at capturing market opportunities and boosting the client base. Moreover, the companies’ expanded scale, technological advancement and increased product offerings will help capitalize its market share.

“The completion of this merger marks a significant milestone for our clients, associates, shareholders and communities,” said Bryan Jordan, president and CEO of First Horizon. “The combined company’s enhanced scale, diversified business model and expertise in financial services uniquely positions us to better serve our clients and communities, accelerate our growth and create long-term shareholder value,” added Jordan.

Terms of the Deal

Per the terms of the deal, each common shareholder of IBERIABANK received stock equivalent to 4.584 of First Horizon shares for every IBERIABANK share held. Specifically, IBERIABANK shareholders in total, own 44% of the combined entity, while shareholders of First Horizon hold 56%.

Tennessee-based First Horizon and Lafayette, LA-based IBERIABANK created the combined entity with $79 billion in assets, $60 billion in deposits and $58 billion in loans, as of Mar 31, 2020. Strategically, the combined entity will grow on advanced technologies, innovative products, and create a competitive edge in the Southern market.

Additionally, the combination will cater to various commercial, consumer and small business clients with diversified products. On completion, First Horizon and IBERIABANK, maintaining the impressive working cultures, aim to offer superior client services.

Members from both First Horizon and IBERIABANK will lead the combined entity. The organization’s board of directors includes nine directors from First Horizon and eight directors from IBERIABANK. IBERIABANK president and CEO Daryl Byrd will lead as the board’s executive chairman, while D. Bryan Jordan would be the firm’s chief executive officer.

Pre-integration, the respective First Horizon or IBERIABANK branches, websites, mobile apps, financial advisors and relationship managers will continue to serve clients. Following the conversion of operating systems which is expected in mid-2021, IBERIABANK will take on the First Horizon name.

Financial Benefits

Pre-tax cost synergies are anticipated to approximate around $170 million on annual run-rate cost savings, including redundancies in overhead, bank branches, operations and computer services.

Per First Horizon’s expectations, the deal is likely to be 16% accretive to earnings by year-end 2021, while around 22% EPS accretion is projected for IBERIABANK.

The combined entity is likely to record operating and return metrics, with cost savings on a fully-phased in basis. Remarkably, the return on average tangible common equity is likely to approximate 18%, while return on average assets is projected at 1.4%. Lastly, an efficiency ratio of around 51% is estimated.

Bottom Line

In the current scenario, banks are moving toward consolidations to dodge the elevated costs of regulatory compliances, the coronavirus mayhem and increased investments in technology, in a bid to be competitive. Furthermore, the current interest-rate scenario has taken a toll on banks’ net interest margins, thereby clipping overall profitability.

Therefore, such moves have caused investors to become optimistic about banks’ growth prospects. Shares of First Horizon have rallied 14.3%, over the last three months, compared with 8% growth recorded by the industry.


 

Currently, First Horizon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

State Street Corporation STT has witnessed upward earnings estimate revisions for 2020 over the past 30 days. Moreover, this Zacks #2 Ranked (Buy) stock has gained 12.5% over the past three months.

GAIN Capital Holdings, Inc.’s GCAP current-year earnings estimate moved north in 30 days’ time. Further, the company’s shares have rallied 8.2% over the past three months. At present, it carries a Zacks Rank of 2.

First Republic Bank FRC has witnessed upward earnings estimate revisions for the ongoing year in the past 30 days. This Zacks #2 Ranked stock has appreciated 16% over the past three months.

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