Community Banker of the Year: Home BancShares' Johnny Allison

The bookcase in John W. Allison's office is overflowing with tchotchkes. There is a watch from the failed Wakulla Bank he bought in 2010; a beer koozie from Vision Bank, which he agreed to buy in 2011 from its Midwest parent; and a piggy bank from Premier Bank, which he bought in a bankruptcy last year.

"I've never given away a watch," says the chairman of Home BancShares in Conway, Ark., as he looks over the memorabilia from his buying spree in Florida. "This bank must have really been doing great, right? No wonder no one made money down there."

Though many banks have capitalized on the financial crisis, Home is a leader among that group. It scooped up seven failed banks in Florida and bought two more open, but deeply distressed, ones, a tally few can top.

Analysts say it is in an elite class of community banks with a stock price that gives it the power to keep buying and potentially build itself into one of the large regionals of the next generation.

This year Allison got closer to that goal when he paired his company with Liberty Bancshares, which he'd been pursuing for more than a decade, and nearly doubled Home's size to $7.2 billion of assets. The market loved it. Home's stock, already trading at a 270 percent premium to its tangible book value, jumped to 411 percent of tangible book.

Allison says the bookcase—with its camouflage hat, coffee mugs and champagne flutes—is a way for him to track Home's progress at a glance.

"When I look at it, it tells a story," he says. "We aren't any different from anyone else; we just took advantage of the opportunities."

. . .

That is not meant to suggest Home skated through the recent financial crisis.

The company's Florida operations lost roughly $30 million on bad loans during the downturn. But you might say Allison ended up gaining more than he lost.

The experience helped Home make smarter bids on failed Florida banks than competitors could, he argues. While others had to guess at the value of real estate in the distressed market—particularly "blind pools that raised money to parachute in," he says dismissively—Allison knew from his own loan trouble how to price the assets. And best of all in Allison's view is that a properly priced deal paid the buyer (through bargain purchase gains).

For many who bought failed banks, the play was purely financial—get cheap assets and work them out. But Allison took a more strategic approach, targeting banks mainly in the Florida Panhandle and cobbling together a real market presence.

"Out of this amalgamation of transactions, he crafted a franchise," says Joseph Fenech, an analyst at Sandler O'Neill. "He saw the forest for the trees. He married the financial with the strategic."

. . .

This was not the first time Allison capitalized on a banking crisis.

He was a director of First Commercial Corp. in Little Rock in the 1980s and '90s, and led a team doing assisted transactions in Texas following the energy bust.

First Commercial did well in its pursuit of deposits. Allison says the deals created $600 million of shareholder value for the company. (First Commercial sold itself to Regions in 1998 for four times tangible book value.)

Separately, Allison did well, too. He discovered that the Resolution Trust Corp.—which back then sold the deposits and assets of failed banks separately—had thousands of foreclosed mobile homes in Texas that no one knew what to do with.

Allison had spent his life in the mobile home business and understood underwriting. He bought 8,000 of them.

He also bought his first jet, a 1977 Cessna Citation 1, which he used to commute to Texas to monitor the business. "My daughter asked, 'Does Daddy live in Texas, Momma?'" he says. "Those repos were all over."

Allison says the pressure was on, as he had gone into debt to do the deal. But in the end, like many of the risks Allison takes, this one turned out to be more profitable than he anticipated. "That amazing trade changed my life forever," he says.

. . .

Allison drives a black Ford Excursion—in fact, he owns three of them—partly because it is a practical choice for an avid duck hunter.

The nearly decade-old vehicle matches his personality perfectly: attention-getting, but not showy. When Allison talks, his voice booms, not unlike the rumble of the behemoth SUV. He gesticulates and clicks his pen incessantly.

As he pulls up to Home's headquarters for our interview, he sees me in the parking lot and yells out the window, "Ya Robert?" Before I can reply, he is out of the cab, coming toward me with a huge smile and such congeniality that I was half expecting a hug instead of just a handshake.

That's Johnny, says Arkansas Gov. Mike Beebe.

"Johnny is one of the very few people who has—this term is overused by people—charisma. It is a trite word, but he has a real magnetism," Beebe says. "You can't define it, but the person draws you in and you actually enjoy talking to them."

Allison and Beebe were fraternity brothers in Sigma Pi at Arkansas State University. As the story goes, one night while studying, they got to talking about their goals. Beebe wanted to be governor someday. Allison wanted to be rich.

Beebe says Allison reminded him of those college aspirations over the years, until Beebe finally fulfilled his side in 2006.

It is typical of Allison to recall such things.

His memory is especially sharp when it comes to numbers, and the stories he tells about his life are peppered with them. The $8 monthly payments he had on his first loan. The 23 percent ownership stake he bought in a mobile home manufacturer when he was 22. The $183.70 a share that a buyer offered for his first bank in 1982. The 32 failed banks he considered pursuing and the 30 he bid on.

The 15 years and 11 days he was "in" First Commercial. The 15 years and two months he has been "in" Home BancShares.

But talking with Allison over lunch at a small diner, I learn just as much about him from what he does as what he says. I realize the waitress mixed up our orders and gave me his sandwich ... right after I take a bite out of it. I sheepishly suggest sending it back. "Just pass it here," Allison says. "I'm not worried."

. . .

Allison is not worried about much these days. Home's stock is up sharply to about $33 a share, following the game-changing acquisition it closed in October for similarly sized Liberty in Allison's hometown of Jonesboro, Ark.

Allison's dad ran a mobile home park there. At age 13, Allison sold a young couple a mobile home at $1,000 over invoice and discovered sales as his true calling.

He had spent the previous summer digging a ditch with his brother, for which they earned $250 combined, and could not get over the difference in the pay scale.

"You can see what that did to me," Allison says. "I went to my brother and said, 'I don't know what you're doing, but I'm getting in the trailer business.'"

After college, Allison moved to Conway and eventually ended up with his own mobile home business. He got into banking in the early 1980s, after being invited to join the board of the First National Bank of Conway.

Only two months later, a prospective buyer made an offer, which gave Allison an idea of his own. He got a group of shareholders to join him in buying out the majority owners, and he became chairman.

Shortly thereafter, the Federal Deposit Insurance Corp. slapped the bank with a memorandum of understanding for poor policies and procedures and marginal credit issues.

"As it turned out, it was the best thing that could have happened to me," Allison says. "That's where I learned banking. I rolled my sleeves up and went to work."

The Conway bank recovered, and he sold it to First Commercial in 1985, joining the board as part of the deal.

. . .

The 66-year-old Allison—who says, "I'm a good salesman because I came up sellin'"—is still sore about a professor who gave him a "D" on a college paper he wrote about how to sell mobile homes. The professor, he says, "couldn't sell sex on a troop train. "But that class wasn't the only one dragging down his grade-point average. He jokes that he graduated with a "two point oh-oh-oh-oh-oh one."

He thrives on learning from experience, though. It's a quality that stands out to observers like Fenech.

"He has this incredible willingness to learn, which is rare. People at his level are often not open to new ideas," Fenech says. "At one of the first roadshows I did with him—it was during the crisis—an investor brought up tangible common equity and why it was important. Johnny didn't have a good sense of it. The next time I saw him, he was an expert."

A pivotal experience Allison had at college came in his junior year, when he heard Kemmons Wilson, founder of the Holiday Inn chain, speak. Wilson had made it big just like Allison hoped to, and the fact that the executive drove down to Jonesboro to talk to "a bunch of redneck college students" affected Allison.

Allison still quotes Wilson, as investors and analysts who follow Home know. One of his favorite lines—"Good judgment comes from experience and experience comes from bad judgment"—often punctuates talk about how Home took its losses in Florida and used that know-how to bid on bank failures.

Now Allison sponsors an entrepreneur speaking series at Central Arkansas University in Conway, hoping to recreate his inspiring experience for other college students. While Home BancShares and its Centennial Bank unit fund activities across all their communities, this is the only sponsorship that carries Allison's name.

. . .

Banking is just like any other business, when you come down to it, and Allison says that even after 30 years, he doesn't think of himself as a banker. "I'm a businessman that runs a bank, and I look at it, in my eyes, different than bankers look at it," he says. "No disrespect to bankers, but most of them have never had any business experience. They will tell you how to run your business and what you need to do, but they have never been in the foxhole."

Allison and his team started Home in 1998, after selling First Commercial to Regions. The plan was to build it to sell it.

A buyer made an offer near the beginning of the downturn, with a plan to collapse Home's handful of charters and strip out the costs. The idea that his company was inefficient didn't sit well with Allison. If someone was going to unlock value in his company, it was going to be him.

Allison hired consulting firm Metavante to come up with an efficiency plan, and six years later the results continue to show. At the end of 2007, the company had an efficiency ratio of 62.1 percent and a return on equity of 11.06 percent. As of the end of the third quarter this year, the efficiency ratio had improved to 45.67 percent and the ROE to 13.63 percent.

Around the time the efficiency plan was being implemented, Allison was dealing with a slew of borrowers who were demanding lower rates. He was fed up, so he introduced what he called "Johnny Prime." In effect, loans would be made at 6 percent—borrowers could take it or leave it.

It worked. The company's margin climbed through the downturn, hitting 5.41 percent at Sept. 30. (Loss-share agreements for the failed banks account for about a dozen basis points in the margin.)

Allison says customers stick with Home because of strong relationships—which is something a lot of community bankers say, but is particularly believable in his case. No doubt his personality is as key to his success as his shrewd business moves. He is aware of his effect on people.

"I've always been kinda blessed. I was the captain of my high school football team. I was Mr. Jonesboro," he says. "I don't know where that comes from. There is nothing magic about me. There's nothing I do different than anybody else. I just love people."

. . .

Though Allison passed Home's CEO title to Randall Sims back in 2009, he continues to fulfill a vow he made then that, as the largest shareholder, he was not going to become a spectator. As chairman, he leads the quarterly earnings calls and presents at investor conferences. He is also the one haggling with banks looking to sell.

The night before we met, he was out with his team and his customers after the signing of a $55 million loan for a lawn equipment manufacturer, the second-largest loan Home has ever made. "We were up in Batesville having cold beer, steaks and chicken, just celebrating the deal," he says.

Still leery of Florida, Allison personally vets every customer there who borrows more than $1 million. "I fly down, meet the customer, have dinner, we talk," he says. "Not that I'm any genius, I just want to know who I'm doing business with. Look them in the eye."

Allison is clearly enjoying himself and far from ready to consider selling Home, which he describes as "my last hurrah." He says you sell things when they are as good as they are going to get. He thinks Home has a ways to go.

"This will be the last time I do anything like this," he says. "I don't know how long I'll hang around, but it will be a while before I leave."