The Texas Triangle, the region containing the five largest cities in the Lone Star State, includes more than 70% of Texans and is one of the fastest growing areas in the country. About 21 million Texans live in the area – seven times the population of the entire state of Arkansas – which includes Austin, Dallas, Fort Worth, Houston and San Antonio.
It is thriving economically and all signs point to continued growth and prosperity. The Triangle is expected to grow by another 65%, adding another 10 million people, over the next 40 years.
Beyond population, the region is attracting tech titans who are moving their headquarters from California to Texas or embarking on major expansions in the region. Tesla, Hewlett Packard and Oracle have all announced they will move to Texas. Apple is building a billion dollar campus in the Austin area. Google is moving its employees to a 35-story tower in the Austin area.
Two of Arkansas’ largest banks are counting heavily on this growth and each has made a big bet to capitalize on it.
Next month, Home BancShares Inc. and Simmons First National Corp. are crossing the border with plans to conquer new Texas territory in hopes of boosting the decline in loan production that both lenders have seen over the past year-plus. Home is investing about $1 billion to buy an Amarillo-based bank and Simmons will spend $581 million to buy lender Conroe.
The addition of new partners provides banks in Arkansas with a two-step financial opportunity: robust loan growth and more options for expansion through acquisitions.
“These are important deals for the growth of both banks going forward,” said Matt Olney, banking analyst at Stephens Inc., which tracks both Arkansas banks and Texas financial institutions.
Texas is a target-rich environment that Home BancShares is officially entering for the first time. “It’s a pretty good size transaction for us and it can move us forward from a profitability standpoint,” said John Allison, the bank’s chairman and chief executive. “And there are great markets in Texas.”
The Arkansas lender is adding bigger markets in the Texas begging – Amarillo and Lubbock – and is moving into the triangle region with properties in Austin and Dallas.
The opportunity to acquire Happy Bancshares Inc., which operates as Happy State Bank, was so attractive that Home backed out of a deal in another state that was in the due diligence stage. “When the Texas opportunity came up, we gave up on the other opportunity and went to Texas,” Allison said.
Post-closing, Conway’s Home BancShares will have assets of approximately $25 billion, deposits of nearly $20 billion and total loans of nearly $14 billion.
For Simmons First of Pine Bluff, the acquisition of Spirit of Texas Bancshares Inc. is an expansion into the key Triangle and East Texas market. The bank has been operating in the Dallas-Fort Worth metro area for several years and is now adding Austin, College Station, Houston and San Antonio, among others.
“Population growth alone in these areas — populations in MSAs like Dallas and Fort Worth — is greater than in the state of Arkansas as a whole,” Simmons chief financial officer Jay Brogdon said. about expanding. “We think our opportunity to get into these types of markets and climates and grow our market share and grow our business organically is a real benefit. It’s a really good opportunity for our franchise to the future.”
Including Spirit operations, Simmons will have assets of $28.2 billion – which will be in Arkansas’ largest bank – and deposits of $22.3 billion, while total loans will reach $14.6 billion.
Simmons has been in aggressive acquisition mode lately – last year it bolstered its presence in Tennessee with the acquisition of two community banks, significantly expanding Simmons’ presence in key markets of Memphis and Nashville .
This will likely continue after the Spirit transaction closes, giving the bank greater exposure to Texas and creating more opportunities to acquire other banks in the state. “There really is a buy-and-build mentality here,” Brogdon said. “We are primarily focused on continuing this growth by focusing on inward mergers and acquisitions. We are focusing on our existing markets and the states we already serve.”
Likewise, Allison said Home BancShares is already responding to requests from other Texas banks to sell.
“We think we will grow Texas over the next four or five years,” Allison added. “There are a lot of opportunities in the state and since Home announced the first acquisition in Texas, the phone has been ringing and ringing and ringing. They’re coming at us right and left and we think we have an opportunity. to build a strong presence in Texas.”
According to Randy Dennis, president of DD&F Consulting Group of Little Rock, who has been a key transaction advisor for several Arkansas financial institutions, breaking into or expanding into Texas has been difficult because Texas bankers feel entitled to benefit from prices above competitive market rates.
“Texas has been a good banking market for a long time,” Dennis said. “The problem with Texas is that Texans think their banks are worth a fortune. When we rate banks in this region, we don’t include comps from Texas, because that’s not part of America. as far as pricing goes. They think the growth in Texas is such that they can get a big premium out of it.”
Texas’ population explosion and booming economy should create greater lending opportunities to boost Home and Simmons’ portfolios. Arkansas bankers say they began to see a pickup in lending activity in the fourth quarter and are looking to Texas to generate even stronger growth.
In 2021, banks in Arkansas were hampered by declining loan production, with each seeing an approximate $1 billion decline in total loans. Home’s loan portfolio fell $1.38 billion from 2020, while Simmons’ loan portfolio fell $888.4 million over the same period.
Economic and population growth in Texas provides the perfect environment to increase these numbers. Last week, Federal Reserve Chairman Jerome Powell said interest rate hikes would be imminent, a move that should increase margins for Arkansas banks as they enter Texas and rise. the loans.
Stephens Inc.’s Olney released a research note predicting three rate hikes this year at a quarter point each. Then, in a report last month on all banks in Texas, it forecast median organic loan growth of 9% this year across the state.
“These two banks will benefit from higher rates and are now well placed to do so,” he said in an interview last week.
To top it off, Dennis notes that borrowers in Texas generally seem more tolerant of higher interest rates than other businesses and consumers in the country when looking for loans.
“What Texas offers is better prices,” Dennis added. “Loan yields in Texas are better than most parts of the country. Texas is a great lending market. You get higher yields and fee structures there.”
Home and Simmons have taken steps to bolster their portfolios, and the banks each say they have more than $2 billion in their loan pipelines.
Last month, Home BancShares paid $238 million to buy a portfolio of loans focused on maritime borrowing from LendingClub Bank of Utah. The loan portfolio will be part of the Shore Premier Finance (SPF) division of Centennial Bank, which is a subsidiary of Home BancShares. SPF will service the portfolio and be responsible for granting new loans.
Simmons added more than 50 new net lending producers to the payroll last year to increase lending activity. Midway through the year, the bank established an 11-member finance team to drive commercial and industrial lending efforts.
Home, which was named the nation’s number one bank on Forbes’ 2022 list of “America’s Best Banks” last month, will operate as Happy Bank of Texas after the transaction closes. This is the third time in five years that Home BancShares has won the Forbes ranking.
Simmons will close the transaction, convert operations and integrate Spirit’s systems over a weekend and open as Simmons Bank in Texas the following Monday.
Neither bank disclosed a specific date for closing the deals, although both said the closings would take place in early April.
The expansion of banks is an example of a strong banking sector in Arkansas, according to Dennis. “These guys have built one hell of a banking franchise here in Arkansas,” he said. “There is a great growth opportunity for our banks in Arkansas.”
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