The Texas Triangle, the region containing the Lone Star State's five largest cities, includes more than 70% of Texans and is one of the highest-growth areas in the nation. About 21 million Texans live in the region -- seven times the population of the entire state of Arkansas -- that includes Austin, Dallas, Fort Worth, Houston and San Antonio.
It is flourishing economically and all signs point to continued growth and prosperity. The Triangle is projected to grow another 65%, adding another 10 million residents, in the next 40 years.
Beyond population, the region is luring technology titans that are moving corporate headquarters from California to Texas or committing to major expansions in the area. Tesla, Hewlett Packard and Oracle all have announced they will relocate to Texas. Apple is building a $1 billion campus in the Austin area. Google is moving employees into a 35-story tower in the Austin area.
Two of Arkansas' largest banks have a lot riding on that growth and each has made a big bet to cash in on it.
Next month, Home BancShares Inc. and Simmons First National Corp. cross the border with plans to conquer new Texas territories in hopes of boosting sagging loan production the two lenders have experienced over the past year and longer. Home is investing about $1 billion to buy an Amarillo-based bank and Simmons will spend $581 million to buy a Conroe lender.
Adding new partners presents the Arkansas banks with an opportunity for a financial two-step: robust loan growth and more options to expand through acquisitions.
"These are important deals for the growth of both banks moving forward," said Stephens Inc. banking analyst Matt Olney, who tracks both Arkansas banks as well as financial institutions across Texas.
Texas is a target-rich environment that Home BancShares is officially entering for the first time. "It's a pretty good-sized transaction for us and it can move the needle for us from a profitability perspective," said John Allison, the bank's chairman and chief executive officer. "And there are some great markets in Texas."
The Arkansas lender is adding larger markets in the Texas panhandle -- Amarillo and Lubbock -- and moves 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 walked away from a deal in another state that was in the due-diligence stage. "When the Texas opportunity came up, we dropped the other opportunity and went to Texas," Allison said.
After closing, Home BancShares of Conway will have assets of about $25 billion, deposits of close to $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 key market in the triangle and east Texas. The bank has been operating in the Dallas-Fort Worth metro area for several years and now adds Austin, College Station, Houston and San Antonio, among others.
"The population growth alone in those areas -- the populations in MSAs like Dallas and Fort Worth -- is greater than the entire state of Arkansas," Simmons Chief Financial Officer Jay Brogdon says of the expansion. "We think our opportunity to go into those types of markets and into those climates and grow market share and grow our company organically is a real positive. This is a really good opportunity for our franchise going forward."
Including the Spirit operations, Simmons will have assets of $28.2 billion -- vaulting it to the largest bank in Arkansas -- and deposits of $22.3 billion while total loans will grow to $14.6 billion.
Simmons has been in an aggressive acquisition mode of late -- last year it added to its Tennessee footprint with the acquisition of two community banks, significantly expanding Simmons' presence in the key markets of Memphis and Nashville.
That likely will continue after closing on the Spirit transaction, which will give the bank more exposure in Texas and create more opportunities to acquire other banks in the state. "There's very much a buy-and-build mentality here," Brogdon said. "A big focus of ours is continuing that growth with a focus on M&A from the inside out. We're focusing on our existing markets and the states we already serve."
Likewise, Allison said Home BancShares already is fielding inquiries from other Texas banks willing to sell.
"We think we'll grow Texas over the next four or five years," Allison added. "There's lots of opportunity in the state and since Home has announced the first Texas acquisition, the phone has rung and rung and rung. They're coming at us right and left and we think we have an opportunity to build a strong Texas presence."
Breaking into or expanding in Texas has been difficult because Texas bankers feel entitled to pricing above competitive market rates, according to Randy Dennis, president of DD&F Consulting Group of Little Rock, which has been a key advisor on transactions for several Arkansas financial institutions.
"Texas has been a good banking market for a long time," Dennis said. "The problem with Texas has been that Texans believe their banks are worth a fortune. When we value banks in this region, we don't include Texas comps because it's not part of America as far as pricing goes. They believe that the growth in Texas is such that they can get a significant premium on it."
Texas' population explosion and booming economy should create greater lending opportunities to boost portfolios at Home and Simmons. The Arkansas bankers say they began to see a turnaround in loan activity in the fourth quarter and are looking to Texas to deliver even stronger growth.
In 2021, the Arkansas banks were hampered by shriveling loan production, with each seeing about $1 billion decreases in total loans. Home's loan portfolio dropped by $1.38 billion from 2020 while Simmons' fell $888.4 million over the same period.
Economic and population growth in Texas provides the ideal environment to boost those numbers. Last week, Federal Reserve Chairman Jerome Powell said interest rate increases are coming soon, a move that should boost margins for the Arkansas banks as they enter Texas and increase lending.
Olney of Stephens Inc. has issued a research note predicting three rate increases this year at a quarter point each time. Then, in a report last month on all Texas banks, he projected median organic loan growth of 9% this year across the state.
"Both of these banks will benefit from higher rates and are in a good position today to do that," he said in an interview last week.
To top it off, Dennis notes that Texas borrowers generally seem more tolerant of higher interest rates than other businesses and consumers nationwide when seeking loans.
"What Texas offers is better pricing," Dennis added. "The loan yields in Texas are better than in 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 beef up 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 purchase a loan portfolio focused on marine-based 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 will be responsible for originating new loans.
Simmons added more than 50 net new loan producers to the payroll last year to increase lending activity. At mid-year, the bank established an 11-member finance team to spark commercial and industrial lending efforts.
Home, which last month was named the nation's number one bank on the Forbes 2022 "Best Banks in America" list, will operate as Happy Bank of Texas after closing on the transaction. It's the third time in five years Home BancShares has won the Forbes ranking.
Simmons will close on the transaction, convert operations and integrate Spirit's systems all over one weekend and open as Simmons Bank in Texas the following Monday.
Neither bank has disclosed a specific date to complete the deals though both have said closings will occur in early April.
Expansion at the banks is an example of a strong banking sector in Arkansas, according to Dennis. "These guys have built one heck of a banking franchise here in Arkansas," he said. "There is a great growth opportunity for our Arkansas banks."