HomeBancshares Johnny Allison: Acquisitions, Higher Interest Rates Ahead

HomeBancshares Chairman Johnny Allison told a Conway crowd that the community bank it helped start in 1999 has exploded with growth and is about to get much larger.

Allison was the featured speaker at the Conway Chamber of Commerce CEO luncheon series, which was held on the campus of Central Baptist College.

Allison said that the bank holding company capitalized with about $25 million thanks to support from Conway residents in 1999. Eleven of the original 15 employees are still with the bank, which went public in 2006.

Today the company, which is the parent firm to Centennial Bank, has more than $4.15 billion in assets with $3.38 billion in deposits and $2.5 billion in loans. Its share price has been a darling during the last year. On Tuesday, the stock closed just under $28, near its 52-week high of $29.66. It has traded as low as $20.00 a share in the last year.

Recently, the bank holding was assigned an A+ by The Street Ratings, an independent financial services rating firm.

The bank's record earnings and ability to handle acquisitions efficiently is driving the growth. In the first quarter of 2012, HomeBancshares posted record profits of $14.5 million and Allison said he doesn't expect the foot to come off the gas pedal anytime soon.

“The first quarter was a record, it was a grand slam, and I don't see any reason why the second quarter isn't going to be any better,” said Allison.

BUYER'S MARKET
In the last two years, HomeBancshares has been on an acquisition spree, primarily in Florida, adding 7 banks to its footprint in the Sunshine State's panhandle. Its most recent acquisition — the first non-FDIC purchase — added branches in Southern Alabama.

Allison said there are 6 target banks for acquisition that HomeBancshares expects to make a play for within a month.

“We'll make a decision on the lead bank in the next week,” Allison said in an interview with Talk Business.

Of the 6 banks, 4 are standard market transactions and 2 could be FDIC-assisted deals. The bid date on one FDIC transaction is up in the next 3 weeks, he said.

Allison said that if the primary target is acquired, it will be a “complicated” deal. If it falls through, bank management will work its way down the list of prospects through the remaining 5.

“We've got the ability to grow about $2 billion. We've got enough capital to grow $2 billion today,” Allison said.

If a deal comes together in the next 30 days, as expected, it won't be the end of the buying binge. Allison said he hopes to have 2 deals done this year and he's hungry for more.

“We've played small and did a bunch of them [acquisitions] and now we've g

ot a big footprint and now we're going after the bigger fish if they're out there,” he said. “I think you're going to see M&A [mergers and acquisitions] coming back, but the prices — the expectations of the sellers — is getting more realistic than it has in the past.”

Allison said he's turned down deals from banks bought with private equity money that didn't make much sense at the time. He also said that $150-$200 million banks — even if they're making money and the assets are clean — are not worth much more than book value in the current market.

“I'm selling at two times book,” said Allison. “One guy said, 'You're selling a little pricey, aren't you, Johnny?'. And I said, 'Do they pay all professional athletes the same amount of money?'  He said, 'No, they don't.' I said, “We're in the top echelon of performance of all banks in the country. We deserve those multiples. So I think our multiple will continue to expand.”

LOOKING TO THE FUTURE
Allison said that any immediate prospects for acquisition are out of state, but he does expect to return to Arkansas for bank growth.

“We don't have an Arkansas bank on the map right now. Everything we've got on the map is Florida and maybe a little Alabama,” he said.

Allison said that northwest and northeast Arkansas are two regions of the state where he expects to focus at some point in time.

“I like those markets and I think they're extremely important to the state. At some point in time, we need to be in those markets,” said Allison.

He's glad he stayed out of northwest Arkansas during the last few years due to the massive market correction undertaken by many area banks.

“It is a dynamic market, it is a good market. It's home of the University of Arkansas, Tyson Foods, J.B. Hunt and Walmart. It's going to be good again. And Jonesboro's a good market too,” Allison said. “We may have already been in those markets except these opportunities [in Florida] have taken our focus.”

Allison also cautioned that interest rates — currently being kept low by the Feds — will ultimately rise. He's concerned with the government's ability to regulate the increase.

“We need to get interest rates at a realistic level and anything you hold an artificial level is going to bite you. The longer you hold it, the more it's going to bite I'm afraid. I'm afraid we could see Carter administration rates and those that lived through that, it's a scary time. We go from virtually no interest to 20 percent — I don't know if we're going there, but it's definitely going up,” he said.