Simmons First National Corp. believes it can find cost savings of 35 percent after it closes its acquisition of Southwest Bancorp in the third quarter next year, the Pine Bluff bank said Thursday.
Simmons announced Wednesday it has agreed to buy Southwest Bancorp, which has about $2.5 billion in assets. Simmons will pay about $594 million in stock and cash for Southwest Bancorp, based in Stillwater, Okla.
Simmons closed at $61.85 Thursday, down $2.90, in trading on the Nasdaq exchange. Southwest Bancorp closed at $28.50 Thursday, up $4.70, in trading on the Nasdaq. There were 1.7 million shares of Southwest Bancorp traded, compared with its average volume of 33,000 shares.
One major cost savings will be in the efficiency of the two banks, George Makris, Simmons' chairman and chief executive officer, said in a conference call about the purchase.
Southwest's efficiency ratio is in the 60 percent to 70 percent range, Makris said. That means it costs between $60 and $70 for Southwest to make $100.
Simmons efficiency ratio is 56 percent, Makris said.
If Simmons can lower Southwest's efficiency ratio to Simmons' level, "that will be a pretty good savings by itself," Makris said.
There also will be significant savings by eliminating the expenses Southwest has because it is a publicly traded company, Makris said.
In a similar transaction Simmons had several years ago -- the purchase of First State Bank in Tennessee -- Simmons ended up having cost savings of slightly more than 30 percent, Makris said.
"We believe 35 percent is a very achievable number [with Southwest]," Makris said.
Stephens Inc. of Little Rock has a buy rating on Southwest with a price target of $30, which represents the implied per share value of the deal, Matt Olney, a banking analyst with Stephens, said in a research brief Thursday.
Stephens has a hold rating on Simmons.
Stephens was the financial adviser for Simmons in the transaction.
When the deal closes in the third quarter next year, Mark Funke, Southwest's chief executive officer, will join the Simmons board and be president of Simmons' Southwest Division in Colorado, Kansas, Oklahoma and Texas.
The branches in those four states will remain Bank SNB branches but will offer Simmons products such as credit cards and trust services, Makris said.
The acquisition allows Simmons to add business in new markets -- Colorado, Oklahoma and Texas. Simmons already has business in Southwest's fourth state -- Kansas. Simmons also has offices in Arkansas, Missouri and Tennessee.
Even though Simmons isn't in Oklahoma, it is in Fort Smith, which is at the Arkansas-Oklahoma state line, said Randy Dennis, president of DD&F Consulting Group, a bank consulting firm in Little Rock.
"A lot of eastern Oklahoma gravitates toward Fort Smith," Dennis said. "Simmons has a good presence in Fort Smith and western Arkansas, which gives it a leg up there."
Southwest will add a health-care lending niche that Simmons doesn't have, Olney said.
Southwest has $228 million in health care loans, Olney said.
"We're well aware of [Southwest's] expertise in health care lending," Makris said. "That is exciting to us."
In addition, Southwest will be able to add lines of business Simmons has that Southwest doesn't, such as mortgage lending, treasury services, credit cards and equipment financing, Olney said.
The Southwest acquisition will help Simmons become more concentrated in commercial loans, Olney said in his report. Eighty-eight percent of Southwest loans are commercial loans compared with 57 percent of Simmons' loans, Olney said.
Business on 12/16/2016