Simmons First National Corp. announced Friday it will pay $581 million to purchase Spirit of Texas Bancshares Inc., a transaction that will make the Pine Bluff bank the largest in Arkansas and improve opportunities to generate loan growth in the booming Texas market.
The deal, expected to close in the second quarter of 2022, also will make Simmons the 26th largest bank in Texas with total combined 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 to partner with Spirit not only adds scale to our current footprint, it establishes a platform for growth in Houston, Austin, San Antonio and Tyler, among others," Simmons Chairman and Chief Executive Officer George Makris Jr. told banking-industry analysts on a call Friday.
"These markets have been among the fastest-growing in the nation in terms of population and economic activity, and projections call for this trend to continue," Makris added.
Spirit also operates in the Dallas-Fort Worth, Bryan-College Station and Corpus Christi areas.
Dean Bass, chairman and chief executive officer of Spirit, said the transaction will broaden financial services available to the bank's Texas customers.
"By joining forces with Simmons, we recognize the opportunity to align with a partner that shares our passion for providing high-quality customer service, the increased capacity to lend by leveraging a larger balance sheet and access to a broader array of products and services, including leading-edge digital capabilities," Bass said in a news release. "We believe the opportunity to join the Simmons team is very positive for our organization and will provide greater benefits to our customers and the communities we serve."
Bass will retire when the deal closes and join the Simmons board as an independent director. David McGuire, Spirit's president and chief lending officer, will join the Simmons team in a key executive position 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 Sept. 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 be about 3% dilutive at closing and the earn-back period will be about three years.
Simmons will issue 18.325 million shares of common stock priced at $31.73 per share based on Wednesday's closing. Simmons will use cash to settle any of Spirit's unexercised stock options and warrants at closing.
Simmons stock closed Friday at $29.85, down about 5% on a day when the Dow Jones Industrial Average declined by less than 1%.
On Friday's call, Simmons Chief Financial Officer Jay Brogdon said the acquisition positions the bank to expand even more 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.
"This is kind of a buy-and-build mentality; we're entering some really good markets in Texas and expanding in DFW," Brogdon said, adding that Simmons plans to increase penetration in the markets.
Banking analysts are monitoring Simmons' loan growth, which has been "disappointing in 2021," Stephens Inc. said in a report issued after the deal was announced. However, the report noted "we're optimistic the deal will support [Simmons] organic loan growth" when it closes.
There is reason to be hopeful: Texas is booming, adding population and jobs.
The U.S. Census Bureau lists the state as the third-fastest growing in the U.S. based on the 2020 census. From 2019 to 2020, the state was adding 1,000 people per day. The Austin, Houston, Dallas-Fort Worth and San Antonio metro areas all rank in the top 10 fastest-growing regions in the country.
ROBUST JOB GROWTH
The most recent labor report from the Texas Workforce Commission showed the state's economy adding 711,500 new jobs for the 12 months ending in September. Arkansas, by contrast, added 33,400 jobs for the full year ending in October, the state announced Friday.
Austin has registered 17 months of consecutive job growth and added 78,700 jobs over the year; College Station-Bryan gained 2,000 jobs; Dallas-Fort Worth jumped by 198,800; and Houston added 145,500.
More people and more jobs generally means more lending opportunities for banks.
Matt Reddin, chief lending officer at Simmons, told analysts that Spirit has a $1 billion pipeline of loans and Simmons has $2 billion of loans to close in its pipeline. "That continues to grow quarter over quarter, month over month," Reddin said.
Loan production is growing as well, though Reddin was cautious about predicting net loan growth this quarter. "It is very encouraging now as we look at 2022, especially layering in what Spirit can also bring to the table," Reddin added.
At the end of the third quarter, Sept. 30, Simmons reported that loans plummeted 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 with $153.6 million in 2020. Net interest margin also continued to fall, dropping to 2.85% from 3.21% last year.
In 2019, Simmons restructured its loan portfolio and moved away from an over-reliance on commercial real estate, construction and energy lending. Simmons sold its San Antonio and Austin portfolio to Spirit in the makeover.
Now, Simmons has its eyes on Texas and Spirit again – this time to spark lending growth.
"Strategically, the increase in our lending capacity in the markets served by Spirit translate into a great opportunity – one which may not have had the same value before our restructuring," Makris said Friday.
MORE ACQUISITIONS
This is the third acquisition Simmons has announced 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 about $278 million.
Texas has been a prime target for Arkansas banks.
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. That deal is projected 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 other acquisition announcements until that happens. Nevertheless, Makris left the door open for the remainder of 2022, though he noted the Dallas-Fort Worth and Houston markets each have populations twice the size of Arkansas so there is plenty of room to grow organically.
"That doesn't mean we're not going to have meaningful discussions with other potential partners," he added. "But our focus squarely today is to make sure we maximize the benefit of this new partnership with Spirit of Texas."
After closing, Simmons' combined assets of $28.2 billion will propel it to the top of the list in Arkansas as the largest bank by asset size chartered in the state. Arvest Bank of Fayetteville drops to second with about $26.4 billion, trailed closely by Bank OZK of Little Rock with $26 billion in assets. Bank OZK has been the state leader for about five years.