Centennial Bank Looks to Bag More FDIC Transactions This Year

Top executives at Home BancShares Inc. recognized a rare opportunity was headed their way when the government last year announced its intention to facilitate the sale of failed financial institutions around the nation.

The Conway bankers were determined to be a player in the bidding process that landed two south Florida banks in March. The fiscal effect of the federally assisted acquisitions of Old Southern Bank of Orlando and Key West Bank was stunning.

Total assets topped $3 billion, net income soared to $15.1 million, and earnings per share doubled to 56 cents for the quarter ending March 31. The first-quarter results were equivalent to the company's fifth-best year.

"When you have this happening, these transactions become more interesting," said Randy Sims, CEO of Home BancShares and its Centennial Bank. "The downside is the transactions are becoming much more competitive. We still have lots of capital. We're still on the hunt. If it makes sense, we'll go after it."

Sims credits Johnny Allison, chairman of Home Bancshares, with leading the charge to expand the Centennial Bank franchise during these unusual times.

Allison, who passed the mantle of CEO to Sims last year, is thriving in the deal-making environment that has seen the Federal Deposit Insurance Corp. assist in the almost weekly sale of insolvent banks since Jan. 8. The roster of bank failures in 2010 stands at 57 and climbing.

"This is really fun for me," said Allison, who was tooling around somewhere in Florida last week. "This is my game. I don't run the banks. The bankers run the bank. I never ran the bank anyway.

"My job is the big-picture look, raising capital, finding new deals and putting the deals together. It's challenging and interesting, and I'm meeting a lot of good people."

Allison couldn't say where in Florida he was exactly, a nod to a confidentiality agreement with the FDIC. Under the agency's rules of engagement, it's OK to talk about done deals, but it's not OK to talk about unsuccessful bids or possible deals.

Judging by the background noise of the GPS system of his vehicle, Allison was in the field scouting locations of a would-be acquisition target. It's no secret that troubled Florida banks are a priority target for Centennial Bank, which already had a Florida presence.

"This is a generational opportunity to jump out there and find some things that makes our franchise more valuable," Sims said back in the home office in Conway. "Hopefully, there will be more Florida opportunities to jump into."

Ready for Action

Home BancShares began gearing up in August for the FDIC selloff. That activity produced a $107 million stock offering to build a war chest for recapitalizing insolvent acquisitions.

Week-to-week, it's uncertain what banks the FDIC will make a decision on.

"It's really pretty crazy," Sims said "You don't know when the banks are coming out, and you don't have any time to do much due diligence. Within a couple of days, you have to be ready to go. You just don't know."

In the case of Old Southern, Centennial Bank was notified it had posted the winning bid on a Monday afternoon. By the end of the week, its transition team was in the field prepared for the bank closing Friday evening.

The pre-closing assembly takes place at a location of the FDIC's choosing, which resembled a paramilitary raid in the case of Old Southern or a party-crashing crew in the case of Key West.

Centennial's two assisted transactions were launched physically from the rendezvous points of a seedy garage in Orlando and an undisclosed bar in Key West. Allison was on the ground for both operations.

"At least you could order a drink at the Key West location," he quipped.

Centennial Bank personnel joined a mixed force of cops, state bank regulators and FDIC staffers before going mobile to arrive at the banks in time for the close of business on Friday.

Here's how these things are handled in Florida:

Accompanied by a contingency of state troopers, the Florida Office of Financial Regulation opens the show by pronouncing the institution insolvent and now under FDIC receivership.

The mission baton is passed to the FDIC team, which informs bank employees they will be working for the agency over the weekend to help close the financial books. And yes, the bank employees receive a check from the FDIC for their two-day stint as government workers.

The federal regulators also announce that the bank has been sold and introduce the "acquiring institute," which will reopen the business under a new name and new management come Monday morning.

"I didn't know what an AI was when all this started," Allison said. "But I'm glad to be one."

After the FDIC briefing, the Centennial Bank staff is ushered into the building for introductions and an overview of the ownership transition. The short meet-and-greet includes a teleconferenced appearance by CEO Sims.

"Shock, tears, joy, it's every emotion in the world," Allison said. "Then, it's our job to make those people comfortable because we're going to keep most of them."

About 100 FDIC staffers and 40 Centennial employees were part of the Old Southern closing/purchase. That compares to the much smaller Key West Bank that drew 40 from the FDIC and 15 from Centennial.

The company began training a pool of staffers in the fall to be ready for deployment in the event of a winning bid.

"We have prepared ourselves for whatever," Sims said. "It's a pretty big deal for people around here to get to do."

Tracy French, Centennial's Cabot regional president, led the transition team in the Old Southern deal. French, who has a background in turnaround work, remains there as the assimilation process continues.

After several unsuccessful bids, French finally got the call to head to Orlando. "Uh-oh, here we go," he thought to himself.

"The people here know what they're doing," French said. "The staff is relieved to be out from under the regulators so they can quit sitting on problems and get back to business."

According to Sims, the main cause for Old Southern's demise can be traced to its portfolio of real estate loans, a familiar source of problems for bankers across the land. And as with other financial institutions, the downfall came in not pulling back from real estate lending as fast as needed.

"It's northwest Arkansas times two," Sims said of the Orlando real estate market. "They got into such a hole they couldn't get out."

Despite the market setbacks, Centennial executives are bullish on the Orlando area, a banking market almost as big as the entire Arkansas market.

"That's going to be a really, really good market for us," Sims said. "If we can get some more fill-in acquisitions, we will have a nice footprint in south Florida. At least, that's our goal."

FDIC Sales Present Twice-in-a-Lifetime Opportunity

Johnny Allison, chairman of Conway's Home BancShares Inc., did a double-take when he learned the federal government was intervening in the ownership of financial institutions across the nation.

"This is the second time in my lifetime I've seen an opportunity like this come along," Allison said of the FDIC sale. "You can't stand around and look at it. You have to move. When we saw the opportunity, we moved."

Similar opportunities presented themselves during the S&L crisis. But thrifts weren't the only lenders up for grabs during the late 1980s and early 1990s.

Allison, then a director and leading shareholder in Little Rock's First Commercial Corp., was actively pursuing deals to expand the company's holdings in east Texas.

In 1993, First Commercial bought banks in Tyler and Lufkin with combined total assets of $366.8 million from the failed First City Bancorp of Texas Inc. in Houston. Nearly $283 million in total assets were added later that year with the purchase of banks in Longview and Nacogdoches from Houston's Texas Commerce Bank.

How long will the window of opportunity stay open for this second deal of a lifetime?

"I think we have a run of 18 to 24 months," Allison said. "I would have hoped we have secured the assets we intend to secure in the next nine months. I'm talking about the assisted transactions. Then you'll start seeing the market transactions start coming around."