Tech updates 2018 priority at two lenders

Bank of Ozarks, Simmons adding software, employees

Posted: January 28, 2018 at 1:49 a.m.

Arkansas' largest publicly traded banks had mixed loan growth last year and expect increased investment in technology this year, while anticipating being less aggressive in acquisitions, its executives said in recent conference calls.

Simmons First National Bank in Pine Bluff said it will invest up to $100 million in technology over five years.

In 2013, the largest bank in Simmons' system was in Pine Bluff with about $3 billion in assets.

"All of us were operating on systems appropriate to our size then," said George Makris, chairman and chief executive officer. "That is not the case today. At $15 billion [in assets], we're afforded the luxury of going to the market and picking our applications that are best of class that will take us to whatever size we choose to grow."

Simmons has outside consultants working on determining what its branch of the future will look like, Makris said.

"But even more important is, what's our digital bank going to look like going forward?" Makris said.

Simmons has budgeted $25 million for technology investments this year, Makris said.

Bank of the Ozarks in Little Rock is expanding its technology department by almost doubling its employees from 2016 to this year.

"We believe this focus is critical in today's rapidly evolving banking environment where technology, automation and artificial intelligence are becoming increasingly important in driving efficiency and speed and quality of service," George Gleason, chairman and chief executive officer, said.

Bank of the Ozarks plans to enhance its infrastructure for information technology, information systems, cybersecurity, business resilience, enterprise risk management, internal audit, compliance and training, Gleason said.

Bank of the Ozarks expanded its number of employees in its Ozark Labs technology department from 17 to 25 since 2016 and plans to add 33 employees this year.

Simmons had good loan growth in the fourth quarter, but Bank of the Ozarks and Home BancShares in Conway had disappointing nonpurchased loan growth because of early payoffs by borrowers.

Simmons had $10.8 billion in loans in the fourth quarter, a $4.5 billion increase from the third quarter, Makris said.

Excluding the $4.2 billion in loans acquired in October, Simmons' loan balances increased $274 million, Matt Olney, a banking analyst in Little Rock with Stephens Inc., said in a recent research brief.

Simmons is expecting nonpurchased loan growth of 10 to 12 percent this year, an improvement from previous projections of high single-digit growth, Olney said.

In the fourth quarter, Home BancShares' nonpurchased loans grew by only $45 million compared with the third quarter.

That pace would be only 2 percent growth for 2017, Olney said.

"That was below our forecast of 8 percent [growth for the year]," Olney said. "This marks the fourth consecutive quarter of disappointing loan growth due to elevated pay-downs."

Bank of the Ozarks had nonpurchased loan growth of $687 million in the fourth quarter.

But record levels of payoffs kept the loan growth below Stephens' forecast of $1 billion, Olney said.

A recent article in the American Banker publication noted that Bank of the Ozarks continues to get many questions about its commercial real estate lending. The lending is considered to be more risky than conservative loans on existing buildings with high occupancy rates.

Bank of the Ozarks' real estate specialties group, which focuses on commercial real estate lending, is the catalyst for its loan growth, Gleason said in the bank's Jan. 16 conference call. Bank of the Ozarks has made real estate loans in more than half the states in the country.

Bank of the Ozarks has worked to increase its loans outside the real estate specialties group.

The real estate group accounted for 46 percent of nonpurchased net loan growth in the fourth quarter, and all other areas of lending grew by 56 percent, Gleason said. Still, the real estate group originated $9.1 billion in loans last year.

Five of the 10 analysts on the call asked Gleason questions related to the bank's commercial real estate loans, leading Gleason to defend the practice, the American Banker said.

"I have been doing this job for over 38 years and our bank is now roughly 750 times the size it was when I started," Gleason said. "We have made money every year and for the past decade we have posted industry-leading results almost every year."

Simmons closed on two bank acquisitions last month. It is totally focused on converting those two banks to Simmons' systems, one in February and one in May, Makris said.

But it is still interested in acquisitions and is having productive discussions, Makris said.

"We still believe that the [acquisitions] market will be active throughout 2018," Makris said. "I would expect toward the end of the year for us to be back in the ballgame."

Home BancShares and Bank of the Ozarks are not anticipating acquisitions soon.

There are still a lot of banks in Florida looking to sell, said Dave Seleski, regional president with Home BancShares.

"You're either a buyer or a seller in Florida," said Seleski, who was chairman and chief executive officer of Stonegate Bank before it sold to Home BancShares last year.

Those potential sellers are talking to Seleski, said Home BancShares' Chairman John Allison.

"But I said we're just not going to do them here with the stock at this level," Allison said.

Shares of Home BancShares have traded between about $21 and $30 in the past 52 weeks and closed Thursday at $24.24 in trading on the Nasdaq exchange.

Bank of the Ozarks' Gleason has similar thoughts about growth through acquisition.

Bank of the Ozarks' commitment to buying banks where the deal is profitable in at least three areas is "undiminished," Gleason said.

"And we certainly have a better prospect of doing triple [profitable] transactions when our stock price is trading at a more appropriate level than it has been recently," Gleason said.

Bank of the Ozarks shares traded for $51.55 at market close on Thursday.

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