3 banks expanding horizons

Arkansas institutions making out-of-state acquisitions

Joggers pass a Simmons Bank branch at 2800 Kavanaugh Blvd. on Wednesday. The bank is one of three Arkansas-based banks with plans to grow this year through acquisitions.
Joggers pass a Simmons Bank branch at 2800 Kavanaugh Blvd. on Wednesday. The bank is one of three Arkansas-based banks with plans to grow this year through acquisitions.

Last year, Little Rock-based Bank of the Ozarks became the largest bank in the state and now has $18.9 billion in assets.

This year, Home BancShares of Conway and Pine Bluff-based Simmons First National Corp. expect to pass $10 billion, the threshold where federal regulators significantly increase fees and scrutiny. Home BancShares and Simmons won't have to face the extra fees and scrutiny until mid-2018.

In a Tuesday conference call, George Gleason, chairman and chief executive officer of Bank of the Ozarks, said it is building an infrastructure to support a $50 billion bank.

Bank of the Ozarks completed its two largest deals last year -- Community & Southern Holdings of Atlanta, with $3.9 billion in assets, and C1 Bank of St. Petersburg, Fla., which had $1.7 billion in assets.

Bank of the Ozarks had Dennis James, its director of mergers and acquisitions, "severely constrained" last year until the bank closed on the deal and converted the two major acquisitions, Gleason said.

James now has a "massive list" of potential bank acquisition targets, Gleason said.

"[James] is working to prioritize what would be very financially attractive transactions for us to consider," Gleason said. "We're fully engaged and there does seem to be a lot of folks out there who would like to be part of our company."

Gleason wouldn't give the minimum size of a potential acquisition because some could offer a unique benefit. But small banks that don't add significant value in some way won't be targets for acquisition, he said.

Home BancShares has $9.8 billion in assets and will likely have about $10.5 billion in assets when it closes this year on the purchases of two Florida banks. The purchases were announced in November.

Simmons announced in December its plans to buy Southwest Bancorp of Stillwater, Okla., which has about $2.5 billion in assets. Simmons will have more than $11 billion in assets when the deal closes in the fall.

Simmons' chairman and chief executive officer, George Makris, said during a conference call Thursday that a protest comment was filed on the final day for public comments with federal regulators in connection with Simmons' purchase of Hardeman County Investment Co. Inc. of Jackson, Tenn., and its bank subsidiary, First South Bank.

The comment was filed by the same group that filed comments on applications in two previous purchases made by Simmons, Makris said.

Simmons' application for the Hardeman purchase has been removed from the Federal Reserve Bank in St. Louis and now will be processed in Washington, Makris said. Simmons has no indication of how long it will be before the application is processed, Makris said.

Regulators eventually approved Simmons' two previous applications that were slowed by the same individual's earlier comments, Makris said.

The comment was filed by Matthew Lee and his Inner City Press/Fair Finance Watch, a group out of New York that routinely protests public bank applications, said Randy Dennis, president of DD&F Consulting Group in Little Rock.

"Usually, they are not founded on fact," Dennis said. "They present a very one-sided view, if any side at all."

As it did with the two previous filings, Simmons will continue with the closing process, Makris said. That way, if the comment is denied, Simmons will have little left to do to complete the closing, he said.

Bank of the Ozarks and Home BancShares plan to expand their business in California. Bank of the Ozarks has offices in California and Home BancShares plans to open one there before April.

Both banks have the major portions of their loans in New York. At the end of the third quarter, Bank of the Ozarks had $2.4 billion in New York loans and Home BancShares had more than $960 million.

At the end of the third quarter last year, Bank of the Ozarks had loans in eight California metropolitan areas, with a total of $672 million.

Home BancShares had about 5 percent of its New York business in California, John Allison, Home BancShares' chairman, said during a conference call on Thursday. That would mean Home BancShares has about $48 million in loans in California. Home BancShares is expecting eventually to have about $200 million in loans in California, Allison said.

Gleason said the bank expects a tremendous increase in loans in California this year.

All three banks have good efficiency ratios. Bank of the Ozarks' efficiency ratio was 34.27 percent in the fourth quarter, meaning it costs the bank $34.27 to earn $100. Home BancShares had an efficiency ratio of 36.19 percent and Simmons' efficiency ratio was 55.47 percent. An efficiency ratio below 60 percent is considered good.

Is it possible that Bank of the Ozarks or Home BancShares could be acquisition targets themselves?

It's unlikely, said Matt Olney, a banking analyst with Stephens Inc. in Little Rock.

Bank of the Ozarks is trading at well over 3 times book value and Home BancShares is trading at more than 4 times book value, Olney said.

"That makes them as an acquisition target much more difficult," Olney said, meaning banks wouldn't normally pay that much to buy another bank.

Olney, who owns no stock in any of the three banks, was prevented from commenting about Simmons because Stephens served as financial adviser to Simmons in its purchase of Southwest Bancorp.

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