Despite Challenges, Home BancShares Still Happy with Foray Into Texas

Johnny Allison, chairman, president and CEO of Home BancShare.

The challenges of Home BancShares Inc.’s biggest acquisition and its first step into the Lone Star State haven’t dampened the Conway bank company’s enthusiasm for adding Happy Bancshares Inc. to the fold.

Happy bore an estimated cost of $919 million when the deal was announced in September 2021. 

That ranked as the seventh-largest Arkansas-related transaction among the biggest deals of the year. The final cost tallied nearly $962 million when the deal closed on April 1, 2022.

But the exodus of some Happy staffers and customers to competing banks bruised Home BancShares’ second-quarter results last year and spoiled the possibility of beating 2021’s record net income of $319 million.

After a second-quarter earnings tumble to less than $16 million, Home BancShares rebounded to report net income of $305.3 million in 2022 thanks to record profits in the third and fourth quarters.

Powering those corporate profits is its subsidiary, Centennial Bank of Conway, the fourth-largest bank in Arkansas with $22.8 billion in assets. Home BancShares re-branded Happy as “a division of Centennial Bank.”

Tracy French

“We’ve had a good year, and we’re off to a good start,” said Tracy French, Centennial Bank’s chairman, president and CEO.

A veteran of helping assimilate about two dozen bank acquisitions during his time with Centennial, French said some personnel drama always follows a sale. Happy State Bank was no exception.

“Some buy into it, and others don’t,” French said of the transition to new ownership. “It created a challenge, not my first one. But we have the right people in the right place now. There’s a good shareholder base that has bought in and is helping grow the business.”

The $6.8 billion-asset Happy State Bank operated across a 35-county footprint that is heavy on northwest Texas markets both small and large in and around Amarillo and Lubbock. Happy’s branch network extended southeast to Austin, New Braunfels and Fredericksburg in central Texas and eastward to the Dallas-Fort Worth area.

“There are lots of good people in our company and lots of good people in their company,” French said. “I couldn’t be prouder of the group we have today. It’s been a good acquisition for us.

Matt Olney, managing director at Little Rock’s Stephens Inc., believes more acquisitions to expand Happy’s market base are coming.

“I’d be surprised if in the next two or three years from now they weren’t doing more deals in Texas,” Olney said of Home BancShares growing its Centennial Bank franchise. 

“They’re one of the best banks in the region and the country. They wanted to go into Texas with a quality bank, and that’s what they got in Happy.”

Pending Lawsuit?

During Home BancShares’ fourth-quarter earnings call Jan. 19, talk of potential legal action against some former Happy staffers grew louder.

“We’re keeping a tally of the un-professional damage done to our franchise, and we’ll talk more about that in coming months,” said Johnny Allison, chairman, president and CEO of Home BancShares.

During the call, an investment analyst asked Allison to elaborate on the headline of the company’s year-end earnings release, which cited “Continued West Texas Headwinds.”  

Those headwinds allude to several dozen Happy staffers who left to join the competition. So far, Home BancShares has spent about $5 million on a forensic team to determine what else disaffected Texas staffers did besides woo customers away.

“They went after — that bunch went after — a bunch of our customers, took a bunch of our deposits and did what they could do to damage the company, I guess, is what it certainly appears like,” Allison said. 

“And had we not had that, we would have had a much better quarter, and we’re keeping up to how much that is. So I think it’s important to know, and we’ll keep a run tally of how much they got from us or stole from us or took unprofessionally from us.”

Those allegations echo Centennial Bank’s long-running federal lawsuit in Florida against four former staffers at Bay Cities Bank in Tampa Bay. Home BancShares acquired Bay Cities Bank for a combination of stock and cash valued at $104.5 million when the deal closed on Oct. 1, 2015.

In its 2016 lawsuit, Centennial sued for damages linked to ex-staffers taking confidential information on their way out the door. The material included loan and deposit information for all of its customers in the Tampa Bay region as well as the books of business of all its lenders, originators and sourcing officers.

“Home BancShares didn’t let up and didn’t let that go,” Olney said. “There’s a right way to do things and a wrong way to do things. It sounds like the Texas stuff is similar to the way those guys left in Florida.”

Centennial Bank sued four individual defendants and their new employer, ServisFirst Bank of Birmingham, Alabama. After six years, Centennial recovered $15 million in a settlement.

Allison described the lawsuit against the former Bay Cities Bank staffers as a first in the corporate history of Centennial Bank.

“In all the years that Centennial has been operating, we had never initiated a lawsuit apart from routine loan enforcement actions,” Allison said when the settlement was announced on Oct. 20. “However, we are committed to protecting the interests of our business and our shareholders where those interests are undermined.”

Mention of the ServisFirst litigation and a potential case against former Happy staffers was sprinkled in the Jan. 19 earnings call.

“And I’m not saying we’re going to do that here either, but I don’t like people trying to hurt our shareholders,” Allison said during the call.

Even before Home Bancshares entered the picture, a changing of the guard in April 2020 produced ripples at Happy State Bank.

Pat Hickman, founding CEO of Happy Bancshares, stepped down after leading the 30-year transformation of the $10 million-asset First State Bank in Happy, Texas, into Happy State Bank, the state’s 19th-largest bank. He remained chairman of the board.

Mikel Williamson, president of the bank since 2018 and member of the board of directors since 2019, became CEO. Williamson, the bank’s chief operating officer from 2015 to 2019, joined Happy in 2013.

After the Happy sale, Williamson became regional president for Centennial Bank, and Hickman joined the Home BancShares board of directors.

Among the banks benefiting from the market disruption caused by the sale of Happy is an east Texas bank that jumped into Happy’s backyard with three new branches last year.

American State Bank in Arp opened full-service offices in Plainview and Lubbock on May 26 followed by Amarillo on June 9.

During the first three quarters of 2022, deposits at the bank grew from $536 million to $645 million to $874 million. In that same quarterly time frame, the American State staff expanded from 128 to 170 to 217.

Centennial Bank execs look forward to the first full year of operations in the Lone Star State combined with their historical markets.

“We have a good customer base in Texas,” French said. “People are still moving there, and they’re moving to Florida and moving to Arkansas.”