The newest bank acquired by Conway’s Home BancShares Inc. is headquartered in the high-growth market of Knoxville, Tennessee, which one relocation company projected will be the top city in the country for inbound moves this year.
Mountain Commerce Bancorp Inc., with two branches in Knoxville and another in a wealthy Nashville suburb, could take better advantage of the lending opportunities in its surrounding communities if it had the capital to do so.
That’s where John Allison, chairman and CEO of Home BancShares, the holding company for Centennial Bank, saw an opportunity for both banks, since his bank has the capital that Mountain Commerce needs.
“I don’t have as much capital as [JP Morgan Chase Chairman and CEO] Jamie Dimon, but almost,” Allison said. “We have a war chest of capital and we’ll be able to give them additional capital to support their growth.”
In December, Home BancShares said it would acquire the Tennessee bank in an all-stock transaction worth about $150 million. Mountain Commerce shareholders will receive .85 shares of Home BancShares stock for each common share they hold in Mountain Commerce.
Allison said he expects the deal to be completed in April and he’s confident his bank can provide what the small Tennessee bank is missing.
“They lack liquidity and we can provide the liquidity for them,” Allison said. “What they lack, we have on our balance sheet to help them with. We’ll fix them day one and our shareholders will start receiving benefits from that acquisition day one.”
Mountain Commerce has seven branches and all will be rebranded as Centennial Bank branches.
MoveBuddha, a website that tracks relocation trends, reported last year that Knoxville will be the top destination in 2026 based on inbound and outbound moves.
“It’s a great market. It’s a great little company,” Allison said.
Growing Bank
Bill Edwards formed Mountain Commerce Bancorp Inc. in 2006 after raising $40 million. The holding company purchased Erwin National Bank of Erwin, Tennessee, later that year for approximately $11.5 million. The company changed the name to Mountain Commerce Bank. In 2015, the bank moved its main office to Knoxville and went public in 2017.
As of June 30, the bank’s two Knoxville branches held 72% of the bank’s $1.59 billion in deposits, according to the FDIC. The bank ranks 19th in deposit market share in Tennessee and sixth in Knoxville.
Edwards is the founder, vice chairman, president and CEO of Mountain Commerce Bancorp Inc. and is the CEO of Mountain Commerce Bank. Edwards, who owns 6-7% of the company, will stay on to run the Tennessee portion of Centennial Bank, and Allison believes his knowledge of the market will help Home BancShares make further inroads in the state.
Allison said he likes working with bank founders and noted that the last several acquisitions he has made have been with founders rather than individuals hired to run a company. “There’s a lot of difference in making a deal with a hired gun and making a deal with a founder,” he said.
Mountain Commerce has more than tripled in size in the last 10 years, going from $495 million in assets at the end of 2015 to $1.77 billion at the end of last year.
The bank had $1.54 billion in deposits and a loan-to-deposit ratio of 95.7% at the end of last year, meaning the bank had extended about as much in loans as it could.
The acquisition might have happened sooner, but Allison wanted to be patient as he watched the failure of Silicon Valley Bank of California, with its $212 billion in assets, unfold in 2023. The Silicon Valley Bank failure was the second-largest bank failure in U.S. history.
Allison thought more bank failures could be on the way.
An investment banker told Allison about Mountain Commerce two years ago, but Allison passed on the deal at the time. Allison didn’t know Edwards continued to listen to Home BancShares’ earnings calls and wanted to do business with the company. But Allison didn’t come back to him to make a deal. Allison told Edwards he was “keeping my powder dry for what could happen.”
“I wasn’t sure how bad the crisis was going to be,” Allison said.
Between 2006 and 2011, Home BancShares had been one of the country’s largest acquirers of failed banks, and the Federal Reserve had the company on a list to notify when a bank was going to fail.
“We were prepared to do that again when those banks started failing, because I thought it was going to be a major collapse,” he said. “It didn’t turn out to be that bad.”
Acquisition Strategy
The Mountain Commerce deal will mark Home BancShares’ 27th acquisition since 2003, including five in Arkansas. The bank also acquired institutions in Florida, New York, Maryland, Virginia and Texas.
“Some do it for the sake of acquisition,” Allison said. “We don’t do it for the sake of doing it. We do it because it’s positive to our shareholders. We looked at Mountain Commerce over and over, and we decided this could be positive for our shareholders.”
Home BancShares’ last acquisition was Happy BancShares Inc. of Amarillo, Texas, in 2022. But that acquisition was marred by unhappiness among some former employees of Happy State Bank who were unsatisfied with the transaction.
“We had Happy Bank and it was a train wreck,” he said. “It had nothing to do with us, zero to do with us.”
Some executives of the west Texas bank joined another bank in Texas and took some of Home BancShares’ customers, according to a lawsuit filed by Home BancShares. Allison said the employees gained unauthorized access to the bank’s data and that he spent more in legal fees than he received in a settlement that ended the lawsuit last year.
“That doesn’t matter,” he said. “I have a fiduciary responsibility to stand up and do what’s right for my shareholders and I did that.”
Allison also said it was important to “fix yourself first before you move forward.”
More in Tennessee
Matt Olney, an analyst at Stephens Inc., said the Mountain Commerce deal is small but might mark the start of the Arkansas bank’s growth in Tennessee where Centennial does not have any branches.
Olney described the deal as a lower-risk transaction and said that while it’s “not a big bite,” the transaction is triple accretive, since it will increase earnings per share as well as two metrics that measure the bank’s value.
“I think it’s very rare to have a transaction check all three of those boxes,” he said. “Financially, that’s how we look at that and that’s what gets us excited.”
Olney said Home BancShares has benefited from its decision around 2020 to not place its capital in long-term securities. Some banks, including Mountain Commerce, placed their capital in long-term securities that became less valuable when interest rates increased. Olney said Home BancShares can sell those securities when it acquires the bank.
Allison said some questioned his decision to hold onto his capital at the time.
“People thought I had lost my mind,” he said. “People said, ‘Did Johnny bump his head?’”
Allison said that decision allowed him to hold onto his money while other banks were hurt by changing interest rates. “It was the single best business decision of my business career to not do that,” he said.
Olney said that decision allowed Home BancShares to play offense and he is watching to see if Allison moves farther into Tennessee.
Allison said he would consider additional expansion in the state. Whether that means expanding his branches there or acquiring another bank would be a business decision he would make at the time, he said.
“Absolsutely. I certainly would,” he said of another Tennessee acquisition. “We’ve already had contact from someone out of Tennessee, so we will be looking in the Tennessee pond.”
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