$581 million from Simmons lands in a Texas bank
Simmons First National Corp. announced on Friday that it will pay $581 million to buy Spirit of Texas Bancshares Inc., a transaction that will make Pine Bluff Bank the largest in Arkansas and improve opportunities to generate loan growth in the Texas market booming.
The deal, which is expected to close in the second quarter of 2022, will also make Simmons the 26th largest bank in Texas with combined total assets of $28.2 billion. Spirit is based in Conroe, near Houston, and has 37 locations covering the largest metropolitan areas in Texas.
“Strengthening our franchise in Texas is a strategic priority for us and partnering with Spirit not only adds scale to our current footprint, but also establishes a platform for growth in Houston, Austin, San Antonio and Tyler, among others,” the chairman and chief executive of Simmons said. Chief Executive George Makris Jr. told banking industry analysts in a call Friday.
“These markets have been among the fastest growing in the country in terms of population and economic activity, and projections predict that this trend will continue,” Makris added.
Spirit also operates in the Dallas-Fort Worth, Bryan-College Station, and Corpus Christi areas.
Dean Bass, president and CEO of Spirit, said the transaction will expand the financial services offered to the bank’s Texas customers.
“By joining forces with Simmons, we recognize the opportunity to align with a partner who shares our passion for delivering high quality customer service, the increased ability to lend by leveraging a larger balance sheet, and access to a broader range of products and services, including cutting-edge digital capabilities,” Bass said in a press release. “We believe the opportunity to join the Simmons team is very positive for our organization and will bring greatest benefits to our customers and the communities we serve.”
Bass will retire upon closing of the deal and join Simmons’ board of directors as an independent director. David McGuire, president and chief loan officer of Spirit, will join the Simmons team in a key leadership role in Texas.
Spirit had total assets of $3.2 billion, total loans of $2.3 billion and total deposits of $2.7 billion as of September 30. Simmons had assets of $25.1 billion, total loans of $12.4 billion and total deposits of $19.6 billion at the end of the third quarter. .
The acquisition will have a dilutive effect of approximately 3% at closing and the payback period will be approximately three years.
Simmons will issue 18.325 million common shares at a price of $31.73 per share based on Wednesday’s close. Simmons will use cash to settle Spirit’s unexercised stock options and warrants at closing.
Simmons stock closed Friday at $29.85, down about 5% on a day the Dow Jones Industrial Average fell less than 1%.
During Friday’s call, Simmons chief financial officer Jay Brogdon said the acquisition positions the bank to grow even further in Texas once the deal closes. The two banks have some overlap in the Dallas-Fort Worth markets, but none in other key areas such as Austin, Houston and San Antonio.
“It’s kind of a buy-and-build mentality; we’re entering very good markets in Texas and growing in DFW,” Brogdon said, adding that Simmons plans to increase his market penetration.
Banking analysts are watching Simmons’ loan growth, which has been “disappointing in 2021,” Stephens Inc. said in a report after the deal was announced. However, the report notes that “we are optimistic that the agreement will support [Simmons] organic loan growth” at closing.
There is reason for hope: Texas is booming, adding population and jobs.
The U.S. Census Bureau ranks the state as the third fastest growing in the United States based on the 2020 census. From 2019 to 2020, the state was adding 1,000 people daily. The metropolitan areas of Austin, Houston, Dallas-Fort Worth and San Antonio all rank among the top 10 fastest growing regions in the country.
SOLID JOB GROWTH
The Texas Workforce Commission’s latest labor report showed the state’s economy added 711,500 new jobs for the 12 months ending September. Arkansas, on the other hand, added 33,400 jobs for the full year ending in October, the state announced on Friday.
Austin posted 17 consecutive months of job growth and added 78,700 jobs during the year; College Station-Bryan created 2,000 jobs; Dallas-Fort Worth jumped 198,800; and Houston added 145,500.
More people and more jobs usually mean more lending opportunities for banks.
Matt Reddin, director of loans at Simmons, told analysts that Spirit has a $1 billion loan pipeline and Simmons has $2 billion of loans to close in its pipeline. “It continues to grow quarter over quarter, month over month,” Reddin said.
Loan production is also increasing, although Reddin was cautious about forecasting net loan growth this quarter. “It’s very encouraging now that we look to 2022, especially adding what Spirit can bring to the table as well,” added Reddin.
At the end of the third quarter, on September 30, Simmons reported that loans had fallen to $10.8 billion, from $14 billion in the third quarter of 2020. Net interest income was down to 145, $2 million in the quarter, compared to $153.6 million in 2020. Net interest margin also continued to decline, falling to 2.85% from 3.21% last year.
In 2019, Simmons restructured its loan portfolio and moved away from an overreliance on commercial real estate, construction and energy loans. Simmons sold his San Antonio and Austin portfolio to Spirit during the makeover.
Now Simmons has his sights set on Texas and Spirit again – this time to drive loan growth.
“Strategically, increasing our lending capacity in the markets served by Spirit translates into a great opportunity – which may not have had the same value before our restructuring,” Makris said on Friday.
This is the third acquisition announced by Simmons this year. In the third quarter, Simmons became the 8th largest bank in Tennessee when it completed the acquisitions of Landmark Community Bank of Collierville and Triumph Bancshares Inc. of Memphis. The transactions were valued at approximately $278 million.
Texas has been a prime target for banks in Arkansas.
In September, Home BancShares Inc. announced it would pay $919 million to acquire Happy Bancshares Inc., which is based in Amarillo and operates more than 60 branches in the panhandle and central Texas. This agreement is expected to close in the first quarter of 2022.
Simmons officials said Friday they will focus on integrating the Spirit properties and do not expect any further acquisition announcements until that happens. Nonetheless, Makris left the door open for the remainder of 2022, though he noted that the Dallas-Fort Worth and Houston markets each have populations twice as large as Arkansas, so there are plenty of place to grow organically.
“That doesn’t mean we’re not going to have meaningful discussions with other potential partners,” he added. “But our focus today is to make sure we maximize the benefits of this new partnership with Spirit of Texas.”
Post-closing, Simmons’ combined assets of $28.2 billion will propel it to the top of the list in Arkansas as the largest chartered bank by asset size in the state. Arvest Bank of Fayetteville falls to second place with about $26.4 billion, followed closely by Bank OZK of Little Rock with $26 billion in assets. OZK Bank has been the state lead for about five years.