Simmons OKs deal for lender next door

Tennessee bank has 32 locations

Simmons First National Corp. has agreed to pay $243 million in stock for Community First Bancshares of Union City, Tenn., the Pine Bluff bank said Tuesday.

Community First has $1.9 billion in assets and 32 Tennessee offices. Its $1.6 billion in deposits makes Community First the fifth-largest Tennessee-based bank.

When the purchase closes later this year, Simmons will have about $6.3 billion in assets and be the third-largest Arkansas-based bank, behind Arvest Bank and Centennial Bank. And Simmons will have more than 170 offices in Arkansas, Kansas, Missouri and Tennessee.

The acquisition is Simmons' third major deal in less than a year.

Simmons bought Metropolitan National Bank of Little Rock -- and its almost $1 billion in assets -- out of bankruptcy last year for about $53 million. Earlier this year, Simmons agreed to pay $66 million to buy Little Rock-based Delta Trust & Bank, which has about $430 million in assets.

That is a total of more than $360 million spent on the three acquisitions.

"We've certainly used up our excess capital," said George Makris, Simmons' chairman and chief executive officer.

Union City in northwest Tennessee has almost 11,000 residents, but Community First's subsidiary bank, First State Bank, has offices across Tennessee, including in the Memphis, Nashville and Knoxville metropolitan areas.

Simmons shares closed Tuesday at $36.66, down 8 cents, in trading on the Nasdaq exchange. The purchase of Community First was announced after the market closed.

"At first glance, there seems to be a lot of similarities between Simmons and Community First," Matt Olney, a banking analyst for Stephens, said during a conference call Tuesday.

Makris agreed with Olney.

Community First was founded in 1877. Simmons is also more than 100 years old.

Community First does a lot of agricultural lending in northwest Tennessee, Makris said. Simmons is one of the largest agricultural lenders in Arkansas.

In some markets in northwest Tennessee, Community First has more than 50 percent of the deposits, Makris said.

Executives at Simmons and Community First got to know each other a couple of years ago, Makris said. "And quickly we determined that their culture is a lot like ours," he said. "They are a true community bank, offering a wide range of services, from consumer lending, commercial lending, a little bit of trust business."

The bank expanded into the Nashville area several years ago and recently into the Knoxville area, Makris said.

"They have great growth potential in Jackson, in middle Tennessee and in eastern Tennessee," Makris said.

The acquisition of Community First, a privately owned bank with second- and third-generation owners, will be a stock-only purchase.

"What we think we bring to the table [for Community First] is access to capital and liquidity of their privately held stock," Makris said. "Based on our conversations with them, for them to grow, capital was one of their needs."

Community First's First State Bank is so well known in Tennessee that Simmons may not change the bank's name, Makris said.

"They do a great job in northwest Tennessee," Makris said. "When you visit that market, it's obvious they are the No. 1 player there. Most of their loan growth is coming from the Nashville and Knoxville [metropolitan areas].

"They have a 127-year history of the First State brand. It would be a mistake for us to immediately change that. So we've got some research to do in the market to determine what the proper timeline is, if at all [to change the name]. But I think we can successfully operate as First State Bank [in Tennessee] as long as we decide to do that."

With the purchase, Simmons believes it will be able to expand its $185 million credit-card portfolio and its trust business into Tennessee, Makris said.

There has been an outbreak of major acquisitions by large banks in Arkansas in the past year.

Conway-based Home BancShares announced last year it would pay $280 million to buy Liberty Bancshares of Jonesboro and this year said it would pay $43 million in stock to buy Florida Traditions Bank of Dade City, Fla.

Little Rock-based Bank of the Ozarks said in January that it would pay $216 million to buy Summit Bancorp of Arkadelphia.

The attraction for Simmons, Home BancShares and Bank of the Ozarks is that they have a well-valued stock, said Randy Dennis, president of DD&F Consulting Group in Little Rock, a bank consulting firm.

"Their stock is trading high," Dennis said. "They've done some good transactions and the market highly values their stock. That gives them a currency to buy with."

Until Simmons acquired Metropolitan last year, there were few banks interested in selling to Simmons, Dennis said. But that deal caused Simmons' stock to jump, increasing the interest in Simmons as an acquirer, Dennis said.

The advantage for the acquired banks, all of which are privately owned, is that, after the purchase, they own a public stock that can be traded much easier than private stock, Dennis said.

"Some of these banks, perhaps the ownership is getting older and wants to get out," Dennis said. "They anticipate getting out sooner rather than later. That is one of the issues you see out there."

A Section on 05/07/2014

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