Simmons bank is well positioned to continue a measured expansion of its operations within a zone extending 350 miles from central Arkansas, according to its leadership.
“Over the next several years we plan to continue to expand within our regional area and to seek out smaller banks to fill in the service gaps that exist between our existing locations,” Simmons First National Corp. Chairman and CEO George A. Makris Jr. said in an interview Thursday.
Makris, who has been leading Simmons since the first of the year, provided insight into the business rationale behind each of Simmons’ four most recent financial institution acquisitions dating back to the Metropolitan National Bank merger finalized in the fall of 2013.
“Metropolitan was a real good opportunity for us because it provides a greater traditional retail banking presence for Simmons in central and northwest Arkansas with a big branch network including a lot of customers and a lot of deposits and a good amount of traditional banking loans,” Makris said. “That really enhanced our presence in those markets.
“With Delta Trust, we acquired a smaller banking franchise as well as a really good trust department that went hand-in-hand with ours,” Makris said. “They have in-house retail investments, which we didn’t have before. And they had an insurance agency, both property and casualty and health and life, which we didn’t have.”
Makris said that where Metropolitan provided Simmons with a large customer base, Delta provided Simmons with new financial products that it did not have prior to the merger.
“We get the customers first and then we get the product lines to round out our financial services offerings,” Makris said.
Makris said that the acquisition of Community First Bancshares Inc. of Union City, Tenn., provides Simmons with an initial foothold in that state and an entry into the world of consumer finance.
“They have a great franchise across the state of Tennessee and they had a couple of areas of expertise that we also did not have, one of them being consumer finance,” Makris said. “Now technically speaking consumer finance is sub-prime lending, but they have it down to an art.”
Makris said that First State worked with regulators to come up with a checklist with which to screen potential finance customers.
“So there is no discriminatory lending issue,” Makris said. “There is also no steering issue, which is a big deal today in consumer lending. If a consumer’s credit score is above a certain number, they are a bankable customer and if they are below that level, they are a potential consumer finance customer.
“Then you delve into why that credit score is what it is,” Makris said. “Quite honestly, a lot of the folks that fall into that category have a medical claim collection or something like that — a single issue that caused their credit score to drop below that threshold. But otherwise they have great equity in their home; they’ve had the same job for 25 years; their income level is great; they own their car. From a rest-of-the-story standpoint, they are great.”
Makris said that in the wake of the 2008 financial crisis, federal regulations made it harder to assist customers in the type of single-issue problems that cause their credit score to drop below the threshold level.
“Prior to the financial crisis, we had the ability to deal with this type of situation through traditional banking,” Makris said. “But with the Consumer Financial Protection Bureau and some of these regulations like Dodd-Frank, that has become a lot more stringent. A lot of the decision-making was taken out of the lender’s hands.”
After 2008 the federal government enacted new regulations in an attempt to prevent the problems that led to the recession, including the passage by the U. S. Congress of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the creation of the Consumer Financial Protection Bureau.
Makris said that Simmons now has an edge on consumer finance in the state.
“Right now it’s really not done,” Makris said. “There are still some restrictions we operate under. We’re investigating how to do that because really it’s to the consumer’s benefit to deal with a program like ours because the alternative is payday lenders. We work with the regulators and develop programs that make them comfortable and meet consumer’s needs.”
Makris said that Community First also brings an expertise in small business lending to the table.
“We already did some small-business lending but it has never been a prime business for us,” Makris said. “Small-business lending is something we want to be better at and this will really help us.
Liberty Bank of Springfield, Mo., is another strong source of small business lending expertise, Makris said.
“They are a preferred lender,” Makris said. “This means that they can obligate the Small Business Administration as the guarantor of a loan without talking to them first. From the point of the consumer, this means that they can get a decision on a loan in a couple of days. That will really enhance our small-business lending.”
Makris said that Liberty was in need of a suitor with excess liquidity.
“They were in desperate need of liquidity,” Makris said. “They had loans that they could make but they just didn’t have the deposit base to do it. We’ve got $500 million in excess liquidity so we can immediately take that into this new market and they can go get those loans they previously had to pass up.”
How they choose
Makris said that while Simmons was able to acquire banks in Missouri and Kansas several years ago through the Federal Deposit Insurance Corp., this is not the preferred acquisition model.
“We are happy to be in these locations and we found great partners in these mergers, but the FDIC only offers failed banks,” Makris said.
“We found these last four merger partners in a variety of ways,” Makris said. “One of the ways is that we already know them — like we did with First State and like Delta where three of their top six executives are from Pine Bluff. That kind of personal relationship helps. Being a publicly traded company, we also have very good relationships with investment bankers who help draw institutional investors into our ownership group. When they have a client who is considering merging, if they think we are a good fit, then they may introduce us.”
Makris said that institutional investors will often inform Simmons when they find a bank that may be a good merger partner.
Makris said that Simmons will continue to seek out new opportunities within its self-defined 350-mile territory extending out in a radius from central Arkansas.
“We are at a point where our next acquisition could likely take us over the magical $10 billion asset level,” Makris said in reference to a provision of the Dodd-Frank Act that puts small regional banks under the same regulatory oversight given to the largest American financial institutions. “The rules of the game change. So we don’t want to be $10 billion and $1. That’s probably an inefficient size.”
Makris said that Simmons management will have to determine how best to break through this $10 billion asset level threshold.
“Our focus will still be on that 350-mile radius,” Makris said. “When you look at our Tennessee footprint, we have a great presence in western Tennessee and middle Tennessee and Knoxville. There is real estate in between where we have voids. There are probably going to be some banks with assets between $300 million and $500 million with a defined geographic footprint that will fill some of these voids.”
Makris said that Simmons will seek out big banks in new markets including Texas, Oklahoma and Mississippi.
Acquisition time line
• November 2013 — Simmons completes acquisition of Metropolitan National Bank with $991 million in assets;
• March 2014 — Simmons agrees to purchase $431 million in assets of Delta Trust & Banking Corporation and its subsidiary Delta Trust & Bank;
• May 2014 — Simmons agrees to purchase $1.9 billion in assets of Community First Bancshares Inc. and its subsidiary First State Bank;
• May 2014 — Simmons agrees to purchase $1.1 billion in assets of Liberty Bancshares Inc. and its subsidiary Liberty Bank.
Simmons FDIC assisted acquisitions:
• May 2010 — Simmons announced the purchase of Southwest Community Bank in Springfield, Mo., with assets of $100 million.
• October 2010 — Simmons announced a second acquisition with the purchase of Security Savings Bank in Olathe, Kan., with $480 million in assets and four locations in the Kansas City Metropolitan Statistical Area, three in Salina, Kan., and two in Wichita, Kan.
• Sept. 14, 2012 — Simmons acquired $279 million assets of Truman Bank with four locations in the St. Louis area.
• Oct. 19, 2012 — The acquisition of Excel Bank represents Simmons’ fourth FDIC assisted transaction. The acquisition of $201 million in assets of Excel Bank of Sedalia, Mo., includes locations in Sedalia, Green Ridge, Lee’s Summit (Kansas City area) and Kirkwood (St. Louis area.)