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Arkansas Banks Ready for Opportunity Amid ChaosLock Icon

5 min read

The three publicly traded financial companies headquartered in Arkansas were jolted last month by the global market uncertainty, but executives are looking past the daily market prices to the future opportunities that could shake out of the coronavirus pandemic.

Home BancShares Inc. (HOMB) of Conway opened the year at $19.72 before falling 48% to $10.19 on March 23. Little Rock’s Bank OZK (OZK) started the first quarter at $30.80 before dropping more than 47% to $16.16 on April 1. Simmons First National Corp. (SFNC) of Pine Bluff began January at $26.87 before tumbling 43% to $15.22 on March 12.

All three companies rode record profits into March before everything changed in reaction to the coronavirus threat.

“There’s never been a shutdown of the economy like this,” said George Makris, chairman and CEO of Simmons. “It is unprecedented. The question on everyone’s mind is: When does it start to get back to normal?”

The impact of the virus and government responses to it combine to create an unparalleled event. In terms of a comparable market meltdown, the bursting real estate bubble of a dozen years ago comes close.

“There wasn’t a day during the Great Recession that we weren’t originating loans and serving our customers,” said Tim Hicks, chief administrative officer & executive director of investor relations at Bank OZK. “Obviously, this came on faster and will hopefully be over faster. Who would’ve predicted this downturn would’ve come with a virus?”

He likens 2020 with 2008 in that great opportunities will arise from great chaos. Among the opportunities are new acquisition possibilities as some lenders brace for elevated losses expected to dot the financial sector this year.

“There will be some banks that don’t have the capital they need to survive the downturn or didn’t have the conservative underwriting in place to weather the storm,” Hicks said.

“We have the highest capital level of the 100 top banks in the nation. We’re real proud of that accomplishment and how that positions us for opportunities in the future.”

Bank OZK ended 2019 with a Tier One leverage ratio of 15.36%, the highest among the 100 largest U.S. banks. “That ratio shows the strength and stability of the bank,” Hicks said.

Among Arkansas concerns in the 100 largest banks, Home BancShares ranked No. 14 at 11.27%, Simmons First ranked No. 46 at 9.59% and Arvest Bank ranked No. 86 at 8.44%. All are considered well capitalized by regulatory standards.

“All the Arkansas banks should be in a good position to deal with any challenges,” said Tracy French, president and CEO of Home BancShares’ Centennial Bank. “It is an uncertain time right now. Capital and cash are a priority today. We’re very strong in both areas to greet whatever challenges lie ahead.”

The shakeup in the economy is ex-pected to present new lending opportunities for well capitalized banks and to open doors for new relationships, Hicks said.

“Customers are looking for opportunities too,” he said. “We’ll have to see what the future brings. It’s too soon to tell exactly what the opportunities will be until we get more certainty in the market. But there will be some.”

First opportunities will come when details of the government-backed small business loan package are finalized.

“We have a strong small business lending group,” said Hicks. “We’re ramping up to support our small lending market.”

“We think the SBA program is going to be really, really beneficial for our customers,” said Makris of Simmons.

“It’s going to be the salvation for many businesses as we hope to get back to normal during the next 3-4 months.”

“Our focus is to take the government programs and provide service to customers, said Centennial Bank’s French. “The Payroll Protection Program, everyone’s working hard to get that ready.”

Differing Buyback View

Stock buyback programs are a common tool for public companies to profit when share prices are whipsawed by the market. Bank OZK has followed a different path that ignores investing cash to reclaim undervalued shares.

“We have never authorized a share repurchase program even though some of our peers have,” Hick said. “We’ve elected to retain our capital supported by very strong earnings.”

Unlike Bank OZK, Home BancShares and Simmons First have delved into stock repurchase over the years.

On March 5, Simmons tripled the possible size of its repurchase program from $60 million to $180 million. The company has bought back about $31.6 million of stock since approval in October.

“We remain committed to leveraging our strong balance sheet to responsibly reduce the number of outstanding shares of our common stock, which we continue to believe is an attractive investment, particularly at current trading prices,” Makris said as part of the March 5 announcement.

Until the recent activity, Simmons hadn’t repurchased any of its shares since the third quarter of 2013. By contrast, Home BancShares has busied itself since the second quarter of 2017. Home’s 2017 total of $20.8 million pales in comparison to its 2018-19 repurchasing.

“We’ve been buying back quite a bit over the past two years,” French said.

During 2019, Home BancShares invested nearly $85 million to reacquire shares. Buybacks topped $104 million in 2018.

“This past year was our best year in terms of profitability,” French said. “The past two years have been phenomenal. Up until two months ago, the economy was off and running.

“We’re looking forward to the other end of the rainbow when people can go back out to eat and the kids are back in school.”


Highest Core Capital to Assets Ratio* Among Largest U.S. Banks

    Total Assets
(in millions)
Tier 1
Leverage Ratio
1 Bank OZK
Little Rock
$23,556 15.36%
2 Truist Financial Corp.
Charlotte, NC
$473,078 14.73%
3 Barclays Bank Delaware
Wilmington, DE
$33,871 14.58%
4 Goldman Sachs Bank USA
New York
$228,836 13.20%
5 Comenity Bank
Wilmington, DE
$13,958 12.94%
6 Santander Bank
Wilmington, DE
$84,671 12.77%
7 Hilltop Holdings Inc.
Dallas
$15,172 12.71%
8 HSBC Bank USA
New York
$172,888 12.03%
9 CIT Group Inc.
New York
$50,833 11.88%
10 Capital One Financial Corp.
McLean, VA
$390,365 11.67%
11 Commerce Bancshares Inc.
Kansas City, MO
$26,066 11.38%
12 WesBanco Inc.
Wheeling, WV
$15,720 11.30%
13 Morgan Stanley Bank
Salt Lake City
$146,645 11.27%
14 Home BancShares Inc.
Conway
$15,032 11.27%
15 Hope Bancorp Inc.
Los Angeles
$15,667 11.22%
       
36 IberiaBank Corp.
Lafayette, LA
$31,713 9.90%
42 BancorpSouth Bank
Tupelo, MS
$21,053 9.69%
43 Regions Financial Corp.
Birmingham, AL
$126,240 9.65%
46 Simmons First National Corp.
Pine Bluff
$21,259 9.59%
76 U.S. Bancorp
Minneapolis
$495,426 8.77%
86 Arvest Bank
Fayetteville
$19,446 8.44%
93 Bank of America Corp.
Charlotte, NC
$2,434,079 7.94%
*Tier 1 leverage ratio is calculated by dividing a bank’s tier 1 capital by its average total consolidated assets and certain off-balance sheet exposures.
**As of Dec. 31.
Source: S&P Global Market Intelligence
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