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First Horizon (FHN) & IBERIABANK Merger Gets Regulatory Nod

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Recently, the all-stock merger of equals between Tennessee-based First Horizon National Corporation FHN and Lafayette, LA-based IBERIABANK Corporation IBKC received regulatory nod from the Board of Governors of the Federal Reserve System. The merger deal has also been approved by the Tennessee Department of Financial Institutions and the Louisiana Office of Financial Institutions.

Notably, shareholders of both companies also approved the merger this April. The deal, announced in November 2019, is expected to be completed on Jul 1, 2020.

“We are pleased to receive regulatory approval to merge our two companies,” said Bryan Jordan, chairman and CEO of First Horizon. “First Horizon and IBERIABANK together will be well positioned to navigate a changing financial services landscape, deliver superior client solutions, strengthen the communities we serve and create strong returns for our shareholders,” Jordan further noted.

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.

The combined entity 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.

Terms of the Deal

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

Further, shareholders of IBERIABANK will be entitled to a 43% increase in dividend after the deal’s closure, subject to both companies’ current dividend per share.

First Horizon, with around $44 billion in assets, and IBERIABANK, with $31 billion in assets, will create the combined entity with $75 billion in assets, $57 billion in deposits and $55 billion in loans. Strategically, the combined entity will enhance through advanced technologies, innovative products and create a competitive edge in the Southern market.

Additionally, the combination will cater various commercial, consumer and small business clients with diversified products. On completion, First Horizon and IBERIABANK, maintaining the strong 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 will include nine directors from First Horizon and eight directors from IBERIABANK. IBERIABANK president and CEO Daryl Byrd will lead as executive chairman of the board and D. Bryan Jordan as chief executive officer of the new entity.

Pre-integration, the respective First Horizon or IBERIABANK branches, websites, mobile apps, financial advisors and relationship managers will continue to serve the clients. Following the conversion of operating systems which is expected in 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, return on average tangible common equity is likely to approximate 18%, while return on average assets is projected at 1.4%. Lastly, 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 and IBERIABANK have rallied 16.4% and 23.4%, respectively, over the last three months compared with 9.6% growth recorded by the industry.

Currently, First Horizon carries a Zacks Rank #3 (Hold), while IBERIABANK has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Tradeweb Markets Inc TW has witnessed upward earnings estimate revisions for 2020 over the past 90 days. Moreover, this Zacks #2 Ranked (Buy) stock has gained 37.7% over the past six months.

GAIN Capital Holdings, Inc.’s GCAP current-year earnings estimate moved north in 90 days’ time. Further, the company’s shares have surged 48.5% over the past six months. At present, it holds a Zacks Rank of 2.

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