It's a match made in Florida.
The North Carolina-based lender BB&T Corp. (BBT) - Get Report said Thursday it agreed to buy Atlanta-based rival SunTrust inc. (STI) - Get Report for an estimated $26 billion in stock, in what would be the biggest bank merger in a decade.
After executives projected that the deal by itself would boost their earnings per share by at least 9% in 2021, BB&T rose 4% to $50.46 and Suntrust gained 10.2% to $64.72 by the close of Thursday's trading.
BB&T, based in Winston Salem, North Carolina, boasts an extensive network of branches in Virginia, Maryland and Pennsylvania, and under the proposed deal it would become Georgia's biggest bank by deposits.
But the real prize is SunTrust's sprawling franchise in Florida, where BBT currently ranks No. 7, according to regulatory filings. Once the deal is completed, the combined firm would become the state's third-biggest lender, with dominant positions in Orlando, Tampa and Miami.
"You drive around all the big retirement areas in Florida, they're bustling and growing, and there's a lot of young people as well," said David Hendler, principal at the bank-analysis firm Viola Risk Advisors in Montebello, New York. "Plus there's a lot of wealth down there, with a multiplier effect."
Under the agreement, BB&T CEO Kelly King would serve as CEO of the combined company through 2021, when SunTrust CEO William Rogers will take over. BB&T shareholders will own 57% of the combined firm, which will eventually be renamed, with a new headquarters established in Charlotte, North Carolina.
"In order to survive in this really quickly changing world, it's important to be willing to change," King told Wall Street analysts on a conference call to discuss the merger agreement.
The deal could portend the start of a frenzy of consolidation in the banking industry, as firms adapt to new federal regulations adopted since the financial crisis of 2008.
Ian Katz, a financial-policy analyst at the research firm Capital Alpha Partners LLC in Washington, wrote in a note to clients that the merger would exploit a sweet spot in U.S. banking regulation for lenders with $250 billion to $700 billion of loans and other assets.
The category, established by a Federal Reserve proposal in October, allows regional banks to leap over the $250 billion threshold without tripping the stricter regulatory standards applied to giant banks like JPMorgan Chase & Co. (JPM) - Get Report , Bank of America Corp. (BAC) - Get Report , Citigroup Inc. (C) - Get Report and Wells Fargo & Co. (WFC) - Get Report .
BB&T currently has about $226 billion of total assets, while SunTrust has $216 billion, for a combined $442 billion. That would rank the lender as the sixth-biggest in the U.S.
There's "an unoccupied super-regional space in the U.S. market that could be filled by future mergers and acquisitions," Katz wrote. "The industry was due for a big deal."
According to Viola's Hendler, BB&T's executive team has proven itself as one of the most talented in the financial industry, with clean accounting and strong earnings. SunTrust, meanwhile, has struggled to manage through the boom-bust cycles of Florida's real estate market, he said.
BB&T is "viewed as a plain-jane, constant performer," Hendler said. "SunTrust is the opposite."
According to a presentation on BB&T's website, the firms plan to cut their combined annual expenses by about $1.6 billion by 2022, or roughly 12.5%. The two banks have significant geographical overlap, with roughly 740 branches within two miles of each other, representing 24% of the combined total.
But here's what really matters for shareholders going forward: the rapid population and economic growth taking place in the southeastern U.S., and especially in Florida, when compared with other parts of the country.
According to the presentation, the combined company's branch footprint would have annual economic growth averaging 4%, unadjusted for inflation -- the highest among large U.S. banks.
"Florida is the best state in terms of a business climate," Hendler said.