Home BancShares chairman Johnny Allison hasn’t figured out why his bank’s stock isn’t overperforming, but as long as the company’s financials are hitting on all cylinders, he isn’t too worried.
In a Talk Business & Politics interview, Allison said the most recent quarterly performance for the Conway-based parent company of Centennial Bank was one for the record books.
“They hit all the numbers,” he said. “36% efficiency rate and we were up on the income side 52% from $50 million to $76 million. Loan growth, originated loan growth, $957 million. I’ve never been with a quarter where I don’t tell them, ‘We need more, more, more,’ but it was pretty good.”
Home BancShares reported record second quarter net income of $76 million last week. In the past year, the financial concern leapfrogged in growth thanks to an acquisition of Florida’s Stonegate Bank. Recently, the bank announced it has acquired specialty lender Shore Premier Finance, which has carved out a niche in the high-end sail and power boats business.
Last year’s corporate tax cut provided a roughly $55 million windfall to Home BancShares. Allison and the board have used the money to buy back about 800,000 shares of the company’s stock, which has been trading in the $22-$23 range over the past several months. He contends that the bank’s stock price should be in the $28-$29 range and possibly higher if growth continues.
“We’ll continue to be in the buy back mode. When they put it [our stock] on sale, we’ll buy it. We will probably reduce some debt. We’ll probably increase our dividend for our shareholders,” Allison said of future plans.
Does he have a solution to jumpstarting what he considers the undervalued stock price?
“I don’t really know except keep your head down, do the right thing, which is what we do. But in ’16 and ’17, the stock was trading at $28-$29 a share. Now it’s trading at $22-$23. That was $600 million in income ago. It’s not rational,” he contends.
Acquisitions remain a possibility, although Allison said he wants to avoid diluting shares in the process.
“We never get completely out of acquisition market. But as high priced as they are right now, they’ve become diluted to your shareholders and as the largest individual shareholder, as I said, I don’t have any intention of diluting myself, so I’m not going to dilute my shareholders,” he said. “But the truth is that there are great opportunities coming around. The prices are beginning to come back.”
With an underperforming stock price and a strong balance sheet, Home BancShares might make an attractive target for a buyout. Allison said that’s unlikely in the current environment.
“Well, we could be. When you evaluate prices from the aspect that could come our way, we’re trading at about 3.1 times tangible book. We were trading at 4 — it’s where we ought to be trading, north of $30,” he said. “I don’t know if prices are coming to us in that respect. They’re not coming to us for us to be the acquirer, so maybe we’ll be the acquired someday. That’s not my game. We’re not out there to do that. I’m just watching it happen.”
You can watch the full Allison interview in the video below.