Home BancShares Chairman John Allison: Q&A

NEW YORK ( TheStreet) -- John Allison, the founder and chairman of Home BancShares ( HOMB) of Conway, Ark., says "there will be more deals coming in Florida" for the company.

Home BancShares is one of only seven publicly traded bank or thrift holding companies currently assigned an A-plus (Excellent) rating by TheStreet Ratings, based on a very conservative emphasis on long-term total returns as well as revenue trends and capital strength and dividends. The ratings also consider short-term performance, financial stability and volatility.
Home BancShares Founder and Chairman, John W. Allison

Home BancShares had $4.1 billion in total assets as of March 31, with 84 branches in Arkansas, Alabama and Florida, having expanded beyond its original Arkansas market footprint with the purchase of six failed Florida banks from the Federal Deposit Insurance Corp. in 2010.

In February, the company's main subsidiary Centennial Bank purchased Vision Bank of Panama City, Fla., from Park National Corp. ( PRK) of Newark, Ohio.

Centennial Bank paid $27.9 million for Vision Bank, picking up 10 branches in Florida and seven branches in Alabama, along with $520 million in deposits and $354 million in performing loans, while not taking on any of Vision Bank's nonperforming loans or repossessed real estate.

Home BancShares has posted consistently strong earnings, with operating returns on average assets ranging from 1.38% to 1.58% over the past five quarters, according to Thomson Reuters Bank Insight. The company focuses on commercial real estate lending, and its 's first-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was a very strong tax-adjusted 4.65%, declining slightly from 4.73% the previous quarter, but increasing from 4.61% a year earlier. The margin has "been boosted minimally" by the better-than-expected performance of loan pools acquired from failed institutions, according to Allison.

In an interview with TheStreet on Thursday, Allison said "there's more opportunity" in Florida for failed or whole-bank acquisitions, because "a lot of these guys aren't recognizing their problems."

TheStreet: What is your approach to community banking?

John Allison: We focus on the touch and the feel of the customers. We bank to win in our markets. In our markets in Arkansas, we give to the community, bank with cities, counties, hospitals and schools. We bank with these people because we give to these communities. We run an efficient shop, but we give away lots of money too.

TheStreet: How is the integration of Vision Bank going? Can you say anything about the integration of the six failed Florida banks acquired in 2010?

Allison: We are very pleased thus far. It takes a while to adapt cultures but overall, but we have found that these people are just looking for leadership and they are ready to go to work. We have picked up lots of talent in the Florida market, and we are looking for more.

These banks didn't get in trouble overnight and they are not going to come out of it overnight. It is going to take four or five years to get these acquired Florida branches up to our performance standards.

I personally visit every market that we enter and I get up and talk. We tell them who we are, what we are, what we do, and we are known for doing what we say we will do. We tell it like it is.

During this credit cycle it is different because we are managing the loans as opposed to the wave of bank failures in the late 80's and early 90's, when the Resolution Trust Corp. liquidated failed banks' loans.

TheStreet: Do you expect the company to remain focused on commercial real estate lending?

Allison: Yes. We have found when liquidating acquired loans in Florida, that if the collateral property is a condominium it will sell, if it is oceanfront, it will sell, if it is income producing it will sell. But if it is seven miles off of the ocean, they might as well put the cows back on it, because it was a cow pasture before, and it is going to be a cow pasture for a long time.

All the failed banks that we have had in Florida have had thousands upon thousands of lot loans. There will be a day of reckoning in Florida on these lots, and they will go for nickels and pennies on the dollar before they are sold.

TheStreet: During the earnings conference call, you said that Home BancShares had "14 deals on the board." How do you pick them?

Allison: There will be more deals coming in Florida. We have a list that we're watching at all times, and we have narrowed it down to four. We are looking at market transactions.

You just have to figure out which ones make the most sense, which are the best geographical fit, and which have the greatest chance of closing. Does it accrete to income on day one? How much goodwill are we putting on the books? How long does it take to earn it back?

When you buy a bank, and you are paid to buy it, through FDIC loss-sharing in a market that makes sense, that has potential, you have to be creating shareholder value.

Home BancShares has seen its stock return 9% year-to-date, through Thursday's close at $28.13, following an 18% return during 2011.

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Based on a quarterly payout of 10 cents the shares have a dividend yield of 1.43%. The company repurchased 205,600 shares during the first quarter, and an average price of $25.29.

The shares trade for twice their reported March 31 tangible book value of $13.96, and for 12 times the consensus 2013 earnings estimate of $2.26 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.17.

Interested in more on Home BancShares? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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