Home BancShares in Conway, Ark., could soon end a four-year hiatus from bank acquisitions.
The $17.2 billion-asset company is working on three potential acquisitions that could happen at any time, Johnny Allison, its chairman, president and CEO, said Thursday.
"We're working on one as we speak, and we'll see that will resolve itself in the next two or three weeks,” Allison said during an earnings conference call. “And then we'll move to the next one and the next one."
Home, a serial acquirer after the 2008 financial crisis, hasn’t completed a bank acquisition since it bought the $2.9 billion-asset
While Home is largely interested in deals for banks the size of Stonegate, Allison said it could pursue something bigger. The company is open to in-market deals in Arkansas and Florida or banks that would expand its footprint into Texas or the Carolinas.
"We're primarily sticking with the smaller, $2 billion … to $4 billion at this point," Allison said, though Home is “not afraid to do a $10 billion deal if we understand their asset classes."
Despite pressures from the pandemic, Home still finds some banks holding firm on pricing expectations.
"We've taken a couple off the table because they weren't realistic and the bankers were really — I don't know if they bumped their head or what they did," Allison said. "They were somewhat unrealistic."
Acquisitions “would be the best use of capital near term,” Stephen Scouten, an analyst at Piper Sandler, wrote in a Thursday client note.
Florida — home to half of the company’s branches — makes sense, given the state’s “favorable demographics and economic backdrop and cost-saves potential,” Will Curtiss, an analyst at Hovde Group, wrote in a Friday research note.
A big push for deals comes as Home’s loan portfolio is shrinking.
Total loans decreased by 3.6% in the first quarter from the end of last year, to $10.8 billion. Most of the decline was tied to multifamily loans, which shrank by 30%, and commercial loans, where balances fell by 5%.
Home also reported about $800 million of paydowns in the first quarter.
Home is holding nearly $2.4 billion of cash on its balance sheet, and Allison said he is in no hurry to invest the funding until he has a better sense of where the economy is headed.
“Our bet is to sit on this [cash] as tight as we can sit on it,” Allison said, adding that longer-term, fixed-rate loans and securities are “absolutely too dangerous for us.”
A big concern for Allison is inflation, which he warned “may already be out of control” due to the liquidity created by aggressive stimulus programs designed to soften the blows from the coronavirus pandemic.
“Have you bought any gasoline lately,” Allison said. “It’s up 80 cents a gallon. Food is straight up. Lumber went from $300 per 1,000 board feet to $1,050. That’s a 350% increase in the cost of lumber.”
Home’s profit still increased by 12% from a quarter earlier to $91.6 million. The first quarter of 2020 was skewed by a $95 million loan-loss provision after the company adopted the Current Expected Credit Loss standard and set aside funds to cover potential losses from the pandemic.
Revenue rose by 6% from the fourth quarter and 19% from a year earlier to $193.4 million.
Allison also said the company is starting to see a pickup in loan demand.
“Last quarter, I said I thought loan growth would come in the second half of the year,” he said. “It may be coming a bit sooner than I expected.”
The company could generate 2% loan growth over the second half of 2021, Curtiss said.
“The ability to deliver organic growth in the coming quarters —even if only a modest amount —represents the biggest catalyst for shares in the near term,” Curtiss added.
