Happy Home: Inside John Allison's $919M Texas Bank Buy


If you own banks and are buying more, the last thing you want is a result that’s dilutive, John W. Allison says.

“Do you understand dilutive?” the energetic Home BancShares CEO asked a few weeks after announcing a $919 million deal for a Texas bank chain, perhaps the largest single transaction ever by an Arkansas banking company.

“If you pour a shot of whiskey into a shot glass and sip it, you’ll definitely taste the whiskey,” said Allison, whose company revealed the purchase of 64-branch Happy Bancshares of Texas on Sept. 15. “But if you pour a shot of whiskey into a bucket of water, what are you going to taste? That’s dilutive.”

Allison, whose company is parent to Centennial Bank of Conway, has plenty of experience buying banks; he’s guided about 20 acquisitions since he and Robert “Bunny” Adcock started Home BancShares in Conway in 1998 (see chart), building Centennial into Arkansas’ fourth largest bank by assets.

“If the Happy deal had been dilutive, why would I do it?” Allison said. “I’m the biggest individual shareholder in Home BancShares, so why would I dilute my share value? That happens in 90% of these deals, and that’s why they don’t work. The buyer dilutes all his shareholders. We look at a lot of transactions, but we don’t buy in those situations.”

The deal for Happy State Bank of Amarillo topped HOMB’s $820 million deal for Stonegate Bank of Pompano Beach, Florida, in 2017 and Simmons First National Corp.’s 2016 acquisition of Southwest Bancorp of Stillwater, Oklahoma, which totaled $567.5 million.

The Texas deal was anything but dilutive, Allison said.

“I coined the term ‘triple-accretive.’ This deal is accretive to book value per share at 5.1%, accretive to earnings per share, 5.5% in 2022 and 9.2% in 2023, and accretive to tangible book value per share. It was a hugely rare opportunity for a number of reasons.”

The idea is to grow without waiting for returns. “If you read about a three-year earn-back to tangible book, or four-year, that means it’s three or four years before a buyer gets back to even,” Allson said. “Most people will just sell the stock and move on.”

M&A Momentum

The Texas deal came as bank mergers and acquisitions have gained momentum nationwide. According to an analysis by American Banker, banks announced $48 billion in deals in the first nine months of 2021, surging past the totals from 2018 ($29.6 billion) and 2020 ($27.8 billion). At 2021’s pace, M&A activity could surpass 2019’s total, $54.8 billion, which was unusually boosted by the major merger of BB&T and SunTrust.

Texas and Florida offer strong opportunities in community banking, Allison told Arkansas Business in a telephone interview this month, making it clear he relishes a chance to plant HOMB’s banner in the Lone Star State.

“Texas and Florida are two of the best states in the nation now. We’re all over Florida and will continue to acquire in that market when opportunities arise. But we haven’t been in Texas since 1998. We had entered east Texas and bought about $2 billion worth of liabilities. We sold that to Regions and haven’t been back in the market since, though we’ve talked about going back to Texas for years. It’s a growing state with a great business climate.”

The $6.2 billion asset purchase of Happy Bancshares is almost certainly the largest ever by an Arkansas company.

“I did not realize it was the largest deal done by an Arkansas bank,” Allison said. “We didn’t do it for that reason, but it’s always nice to hold the record.”

After a predicted closing in the first quarter of next year, the combined company will have assets of $23 billion, up from HOMB’s $17.6 billion before the merger. Conway will remain the corporate headquarters, and bank locations will operate as Centennial in current markets. Texas locations will be rebranded as Happy State Bank, a division of Centennial Bank.

“Opportunities don’t often come along to acquire a $6.2 billion privately owned company with 1,300 individual shareholders. You just don’t find banks that size privately owned, and it’s a really good bank that opens up the state’s best markets: Amarillo, Lubbock, Austin, San Antonio, Dallas and Fort Worth.”

Happy Bancshares CEO Mikel Williamson will join the Centennial Bank executive team, and other Happy State Bank executives will keep leadership roles in Texas. Home BancShares will add Happy Bancshares Chairman J. Pat Hickman to its board of directors.

Strong Loan Yield

“We are thrilled to have found such a quality bank to partner with to make this expansion a reality,” Allison said in September. “As strong as HOMB’s loan yield is, Happy’s is even stronger.” Boards of the two holding companies unanimously approved the deal, under which investors will receive 2.17 shares of Home BancShares stock for each share of Happy Bancshares.

A per-share consideration value of $47.24 made the aggregate transaction value about $919 million.

Happy State Bank, founded in 1908, had been on a Texas acquisition spree of its own, growing its assets from $3.8 billion at the end of 2019 to $6.26 billion by June 30. Acquisitions included First State Bank of Mobeetie and, coincidentally, Centennial Bank of Lubbock in 2020. Deals for First Bank of Muleshoe and First National Bank of Tahoka followed earlier this year. Happy State had earnings of $47.6 million in 2019 and $60.1 million in 2020, and it earned $53.6 million in the first six months of 2021.

Centennial has 81 offices in Arkansas, 88 in Florida, six in Alabama and one in New York City. HOMB reported third-quarter profits of about $75 million in an earnings statement Thursday, with Allison predicting the company would top $300 million in income for a fourth straight year. He also noted that the markets reacted positively to the Texas deal.

Allison said he had learned about Happy from Stephens Inc. of Little Rock, which served as financial adviser for the Texas holding company. Piper Sandler Cos. of Minneapolis advised Home BancShares financially, and the Little Rock law firm Mitchell Williams Selig Gates & Woodyard did the legal work.

“J. Pat Hickman, founder and chairman of Happy Bancshares, wanted his bank in the hands of what he called one of the best bank operators in the country,” Allison said. “He didn’t want to sell or merge it with just anybody.”

In a statement, Hickman indeed called Centennial “one of the top-performing banks in the country” and “one of the few that have grown even faster and stronger than Happy.”

Centennial Benefits

Allison was just as praising of Happy State. “This is a bank that has great asset quality, no regulatory problems, a good compliance department and enterprise risk management team,” he said. “Their loan yield is higher than ours, and we have one of the highest in the country. And they have a management team that can keep growing in the state of Texas.”

Allison said Happy’s expenses are too high, but he plans to address that. “This is an outstanding bank. This will be our corporate base to play from in Texas, and it’s a bonus that we keep the Happy Bank name. We’ll get more streamlined and grow the franchise,” he said.

“This was our first deal in about four years, and we had to be disciplined on price and asset quality,” Allison continued. “We wanted a bank that moves the needle for us, meaning improving our earnings per share. A $6 billion-plus bank does that; a $500 million bank wouldn’t have moved the needle.”


HOMB Timeline

1998: Home BancShares Inc. is formed in Conway by an investor group led by John W. Allison and Robert H. “Bunny” Adcock

1999: Home Bancshares establishes First State Bank in Conway

Acquisitions

Date

Institution

Location

2003

Community Bank

Cabot

2005

Bank of Mountain View

 

2005

Twin City Bank

North Little Rock

2005

Marine Bank

Marathon Key, Florida

2008

Centennial Bank

Little Rock

2010

Old Southern Bank

Orlando, Fla.

2010

Key West Bank

Florida

2010

Coastal Community Bank

Panama City, Fla.

2010

Bayside Savings Bank

Port St. Joe, Fla.

2010

Wakulla Bank

Crawfordsville, Fla.

2010

Gulf State Community Bank

Carrabelle, Fla.

2012

Vision Bank

Panama City, Fla.

2012

Heritage Bank of Florida

Lutz, Fla.

2012

Premier Bank

Tallahassee, Fla.

2013

Liberty Bank of Arkansas

Jonesboro

2014

Florida Traditions Bank

Dade City, Fla.

2014

Broward Bank of Commerce

Fort Lauderdale, Fla.

2015

Doral Bank Florida

Panhandle branches only

2015

Bay Cities Bank

Tampa, Fla.

2017

Stonegate Bank

Pompano Beach, Fla.

2021

Happy Bancshares Inc. (Announced)

Happy, Texas