15 Aug, 2022
Departure of Happy State employees has Home BancShares preparing to compete
By Lauren Seay
The departure of Happy Bancshares Inc. employees in the wake of the company's sale agreement with Home BancShares Inc. is forcing the buyer to deal with merger fallout as it enters a new state.
Since the Home BancShares-Happy Bancshares deal was announced in September 2021, entire teams of
Home BancShares, based in Conway, Ark., declined to comment for this story on the advice of legal counsel, but the earnings call wasn't the only time Allison has spoken publicly about the situation. During a webinar, he said the departures had more to do with the former management team at Canyon, Texas-based Happy BancShares and not the fact that Home was the buyer. This reasoning was supported by a former Happy State Bank employee who currently works at American State Bank.
"It really has nothing to do with Johnny Allison," said the employee who asked not to be identified. "Home has very little to do with this story, frankly."
Surprising sale
However, the former employee added that the deal caught many at the company off guard. Others in the Texas-banking world agreed.
"The fact that they were even in a position where they were selling the organization did catch me by surprise," said Jacob Thompson, a managing director at Austin, Texas-based SAMCO Capital Markets Inc.
Part of the reason the sale was unexpected is because Happy Bancshares had been pursuing strategic acquisitions. In 2021, the company completed deals for First National Bank of Tahoka and for Muleshoe Bancshares Inc., but just months later, Happy Bancshares and Home BancShares announced their deal.
A little more than a year before Happy switched to a seller from a buyer, the company underwent another significant change.
Change in management
In April 2020, Happy Bancshares announced that Mikel Williamson would take the helm as CEO, while predecessor Pat Hickman remained chairman. The change of role for Hickman — who led a group of investors in forming Happy State Bank in 1990 — meant the company had a new a CEO for the first time in its 30-year history.
Even to outside observers, this marked a significant shift for the company.
"A lot of the identity of Happy State Bank was with its Founder and Chairman Pat Hickman," said one Texas investment banker who advises banks in the state. "Pat's pretty irreplaceable."
Williamson, who was slated to become an executive at Home BancShares' banking subsidiary Centennial Bank, did not reply to a request for comment. But after the change in leadership, some issues at the company developed, according to the former Happy State employee and Allison.
"There was a little divide there between Pat [Hickman] and some of the new management that came in, not us," Allison said during a June webinar with Brian Love, head of banking and financial technology at Travillian, a community bank executive recruitment firm, and Joe Fenech, chief investment officer at GenOpp Capital Management.
He added that the employees who left thought Allison and Tracy French, chairman, president and CEO of Centennial Bank, "are great people," but selling was a last straw.
"They said … 'I'm not going to work for the other guys,'" Allison said on the webinar.
Allison added that about 15 people from Happy State's Lubbock, Texas market had left. According to the former Happy State Bank employee and multiple Texas-based investment bankers who advise banks in the state, entire Happy State Bank loan production teams have departed.
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The departures have mainly impacted the Lubbock, Plainview, and Amarillo, Texas markets. According to American State Bank's website, the company recently opened loan production offices in those areas.
American State Bank did not reply to multiple requests for comment.
Other beneficiaries
While American State Bank may be the largest beneficiary, others are sizing up opportunities as well.
One Texas-based investment banker source has spoken with two different investor groups targeting bank M&A in the west Texas region in hopes of capitalizing on the fallout from the deal.
The disruption from the departures can lead to customers feeling disenfranchised and seeking new banking relationships. Also, Home BancShares is more than 3x the size of Happy Bancshares, and larger banks often have less interest in the smaller lending relationships coveted by community banks.
"[Home's] not looking at the $500,000 to $1 million, $2 million loan, you need $10 million loans and up," said the i-banker who is talking with the investor groups. "So they know that there's a gap there that's going to need to be filled. These investor groups are looking to buy smaller banks and move into that Amarillo, Lubbock, Midland type area to backfill what was once at Happy State Bank."
American State Bank is considerably smaller than Home BancShares and Happy Bancshares. American State Bank had $758.3 million in total assets at June 30, compared to Home BancShares' $24.25 billion as of the same date, while Happy Bancshares had $6.76 billion as of March 31, according to S&P Global Market Intelligence data.
Ramping up competition
Home BancShares is now set for intense competition in the state. On the company's second-quarter earnings call, Allison acknowledged that Home BancShares will have to compete in order to retain good customer relationships as employees leave.
"This will cost a little money over the next couple of years as we use the strength of Home's powerful balance sheet to compete very competitively in that market," he said. "It's a long haul road that doesn't turn. This should be a lot of fun, everybody stay tuned."
Equity analysts are bullish on Home BancShares' ability to retain customer relationships.
"Home still is by far the much larger company that can handle a greater lending need for those customers," Brady Gailey, an analyst with Keefe Bruyette & Woods, said in an interview. "So when you look at it, it is unfortunate, but I don't think it's that big of a deal. This is not going to derail Home's strategy in Texas. I still think they're going to be a very successful Texas bank over time."
Stephen Scouten, an analyst with Piper Sandler, labeled the departures as just a "hiccup" for Home BancShares, though the company will have to work harder on the hiring front to replace those teams and compete on loan pricing in order to maintain good customer relationships. However, Scouten said he is not concerned about Home BancShares' ability to compete.
"They're grinders," he said. "They're going to outwork people."
Still, the departures can provide a learning lesson for Home BancShares when looking for an acquisition partner. "I think they've learned another incremental kind of facet or downside when doing deals — making sure they understand the inner workings of the teams that they're buying, the culture and the cultural issues there because I think they just weren't aware that was an issue," Scouten said.
While Home BancShares is set for increased competition in order to maintain the market share it just acquired in Texas, the company will maintain its conservative underwriting culture, Gailey said.
"They'll be competitive when it makes sense," he said. "If they do get aggressive and compete, it will be done appropriately."