Simmons First National CEO George Makris said the $53.6 million bid for Metropolitan National Bank was grounded in thorough due diligence conducted by 10 of its veteran loan specialists who spent four days combing through the bank records.
He said the deal was financially attractive on several levels, with expectations of 25% earnings per share accretion in fiscal 2014 and 35% by 2015 after the first full year conversion. The internal rate of return for this deal is a projected 27% with a three-year payback.
There is no expected headwinds from federal regulators, and Makris expects the merger to close by the end of this year. He said at that point there will be branch consolidation in both Northwest Arkansas and Little Rock. He said the banks’ staffs will work together between now and the end of the year to assess the best course of action for the branch consolidation.
“It will be at least April of next year before we could do that, because we have to wait for the merger to close and then give 90 days notice to the customers at those closing branches.” Makris said during the Thursday afternoon’s conference call.
The $53.6 million in cash will go a long way in repaying the creditors listed in Rogers Banchsares’ bankruptcy. The most recent schedule on file with the federal court noted the bank holding company owed $52.938 million to several institutions who provided capital to Metropolitan in recent years.
Not named as a creditor is the U.S. Treasury who made $25 million available to Metropolitan National in exchange for preferred shares in the holding company as part of the TARP program. That is money that will not be recovered by U.S. taxpayers.
Simmons projects a one-time merger cost of $8.8 million related to court fees and other acquisition charges.
Makris also said the Simmons Northwest Arkansas bank charter would be consolidated with the Pine Bluff charter once the deal is complete, giving Simmons seven bank charters in all.
The win for Simmons is a major boost in deposit marketshare in the Little Rock and surrounding market. The pro forma bank will top $1.032 billion in deposits in the Little Rock metro area, some 7.4% of that marketshare. This will rank them fifth behind First Security Bank and one spot ahead of Arvest.
Statewide, the pro forma bank will have $3.457 billion in deposits with 6.49% of the marketshare. This ranks them fourth behind the pending Home Bancshare/Liberty consolidation, Regions and Arvest.
“Metropolitan has a strong brand with some 90,000 retail customers in the state’s two largest markets,” Makris said. “We look forward to merging these two banks.”
He said Metropolitan is roughly half the size it was a few years ago as the bank had no choice but shrink itself in light of capital shortfalls. However, the bank was still able to hold on to a loyal customer base, which speaks highly of a well-qualified staff. Makris said Simmons is solidifying the capital needs of Metropolitan with this acquisition, but more importantly, “we want those sales people to be able to hit the road and build that business back up again.”
Together the bank will have $2.376 billion in loans producing a yield of 6.01%. Prior the merger, Simmons portfolio is yielding 6.27% against Metropolitan’s yield of 4.98%.
Simmons also will pick the management of $370 million in trust assets, according to the supplemental documents provided by Simmons on Thursday.
Makris the capital ratios for the pro forma bank is a Tier 1 leverage ratio of 8.03%. The risk-based capital ratio will be 13.38% with the total risk-based capital ratio at 14.45%.
He said stock buybacks are on hold at this time, as the holding company will focus on this merger.
Simmons projects a cost savings of $15 million when the merger is completed. He said FDIC insurance cost savings will be roughly $1.6 million, while reduced legal fees and IT expenses will save $2.4 million. Makris said those savings will be phased in at 60% this first year and 100% thereafter. He expects Simmons will see the full benefit in the third quarter of 2014.
Garland Binns, an attorney with Dover, Dixon and Horne, said acquisition though bankruptcy proceedings are fairly rare, citing about 10 in the U.S. overall. Binns applauded the Simmons purchase as a great deal for both banks as well as a way to help the creditors listed in the bankruptcy regain a fair amount of the money they are owed.
He said Metropolitan worked together with the Ford Financial Group to get the ball rolling, and it is highly unusual for an outside bidder to stake their claim. But in this case the higher bid offered by Simmons, someone who already knows the market, looks like the best deal possible.