HOMB

Home BancShares, Inc. (HOMB)

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Home BancShares, Inc. (HOMB)

Q3 2013 Earnings Conference Call

October 17, 2013 2 PM E.T

Executives

John Allison – Chairman

Randy Sims – CEO

Donna Townsell – VP, Corporate Efficiency

Randy Mayor – CFO and Treasurer

Brian Davis – CAO and IR Officer

Kevin Hester – Chief Lending Officer

Stephen Tipton – SVP and Credit Risk Management Director

Analysts

Jon Arfstrom – RBC Capital Markets

Michael Rose – Raymond James & Associates

Brian Zabora – Keefe, Bruyette & Woods

Matt Olney – Stephens Inc.

Kevin Reynolds – Wunderlich Securities

Brian Martin – FIG Partners

Presentation

Operator

Greetings, ladies and gentlemen. Welcome to the Home BancShares, Inc. third-quarter 2013 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning.

The Company presenters will begin with prepared remarks, then entertain questions. (Operator Instructions).

The Company participants in this call are John Allison, Chairman; Randy Sims, Chief Executive Officer; Randy Mayor, Chief Financial Officer; Brian Davis, Chief Accounting Officer; Kevin Hester, Chief Lending Officer; and Donna Townsell, Vice President of Corporate Efficiencies. The Company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page 3 of their Form 10-K filed with the SEC in March 2013.

At this time, all participants are in a listen-only mode, and this conference is being recorded. (Operator Instructions). It is now my pleasure to turn the call over to our first presenter, Mr. Allison.

John Allison

Thank you, Laura. Welcome to Home Bancshares third-quarter conference call and earnings release. Lauren has told you who is with me today. It's the regular team you are familiar with.

I guess by now you've seen the numbers. This quarter is one of several records, including – one of our largest goals has been Home $2.50 or split-adjusted to Home $1.25. If you remember that goal, it strings together four quarters in a row that met or exceeded $1.25, or – before it was $2.50, as you know. Congratulations to the Home $1.25 team or Home $2.50 team. They have accomplished another great goal. They accomplished the $2 or split-adjusted $1 goal sometime back. After the Liberty closing, with some restructuring of membership, we'll probably set new goals for the future.

I'm glad we hit it to fourth quarter of this year, because with all the merger acquisitions and one-time expenses, the impact of – one-time expenses to earnings – the earnings will be so convoluted the fourth quarter, I don't know if I can even figure them out.

But we're here to talk about this quarter. Let's talk about some of the highlights. Record income of $18.4 million, $0.33 a share. I think that's a little more than what the Street – I think the Street was looking for $0.31 or $0.32. Net interest income up 20% year over year to $46.4 million.

You can see the margin expansion, and I think Randy Mayor is going to talk more about that today. Core efficiency ratio of 44.76%. And if you actually look at the noninterest expense on a linked-quarter basis and you pull out the merger expenses, we improved by about $310,000. Great job.

Positive legacy loan growth of about $30 million. Asset quality stable – and Kevin Hester will be talking more about that today. Improving cost of funds, we had higher noninterest deposits and lower time deposits as we continued to push and push. And as Randy says, that is an objective we work on every month. Return on assets of 1.80% and a core ROA of 3.09%. Great numbers.

Return on tangible common equity of 17.40%. And as I talk about train riding money, tangible common equity of 11.1%, and the 10th consecutive record quarter in a row.

Liberty closing is scheduled for October 23. Everything is moving as well or better than to be expected there, and the integration has been surprisingly smooth. Conversion will happen December 6, as scheduled, and we're very optimistic that the first quarter 2014 will show good progress on our initial goals. If you remember our initial goals – Liberty is about a 0.86% ROA. Our initial goal is to get Liberty to a 1.50%, and that's the starting point. We think we can do better than that, but that's where we start.

As our team focuses on Liberty, I've been looking for other opportunities, and there are many in the market – some better than others. But we will continue to stay in our lane and shop in Arkansas and Florida. Once Liberty is under wraps, I hope to have another one in our pocket or one to announce.

We've opened 2 new branches during the quarter. We didn't buy back any stock, because we've saved our money. We want to streamline the balance sheet of Liberty as we streamline Home. And we're paying off the small business lending, as you recall, as soon – simultaneous with the closing? I think Randy Mayor is shaking his head yes. Simultaneous with the closing. Then we'll start working – they got some Federal home loan borrowings, along with some trucks that we will start whacking on.

Our dividends have fallen a little bit behind. We really don't have a stated goal of 1.5%; that just kind of evolved over a period of time. But we're spending our money right now. We'll come back to the dividend at sometime later.

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