Home BancShares, Inc. (HOMB)

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Home BancShares, Inc. (HOMB)

Q2 2008 Earnings Call Transcript

July 17, 2008 2:00 pm ET


John Allison -- Chairman and CEO

Ron Strother -- President and COO

Randy Mayor -- CFO and Treasurer

Brian Davis -- Director of Financial Reporting & IR Officer


Jon Arfstrom – RBC Capital Markets

Bryan Martin [ph] – Hal Barnes

Matt Oney -- Stephens Inc

Bob Whitehouse [ph]

David Scharf -- FTN Midwest Securities

Joe Stephan -- Stephan Capital

John Thompson [ph]



Greetings ladies and gentlemen and welcome to the Home BancShares Incorporated second quarter 2008 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 participants will begin with prepared remarks and then entertain questions.

(Operator instructions)

The company participants in this call are John Allison, Chief Executive Officer; Ron Strother, Chief Operating Officer; Randy Mayor, Chief Financial Officer; Brian Davis, Investor Relations Officer. The company has asked me to remind everyone to refer to their cautionary notes regarding forward-looking statements. You will find this note on page three of their Form 10-K filed with the SEC in March, 2008.

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 participant, Mr. Allison.

John Allison

Thank you. Greetings, ladies and gentlemen and good afternoon. Welcome to our second quarter conference call. Last quarter, I talked about some of the most stressful financial times in many decades. Well, foreclosures continue at record levels, oil last time we talked was about $110 a barrel and now it’s over $140 a barrel, with gasoline hitting $4 a gallon. Even though the price of oil has moved up strongly, the price of natural gas which is a plus for the Fayetteville Shale play where we sit has also moved up. We’ve seen a continuation of the dysfunctional credit market and the demise now of IndyMac. Thanks for the low capital ratio, we continue to raise new capital. I thought the financial system had survived the wreck and has moved from intensive care to stable. But I now believe we may have moved back to intensive care.

I’ve said in the first quarter report, we need to keep our defense on the field by being proactive on asset quality, building reserves when appropriate and protecting our strong capital base. What was the best core operation in the company’s history was marred by a one-time charge of $2,067,000 or $0.07 a share resulting from a wrap down of an investment held by the holding companies.

We purchased an investment pool of subordinated debentures in various other bank holding companies. When we purchased these investments, the risk profile was more of a prepayment risk in long-term liquidity rather than a default risk. Default risk was viewed as minimal based on historical stats. Now that a few bank companies are experiencing problems, the default risk is rising. While no other bank – while no banks have defaulted, a few have begun to defer. These deferrals obviously changed the risk profile and the dysfunctional credit market with a lack of liquidity. That was our reason for writing down these securities. We believe this dysfunctional market will eventually recover and these securities may recover in part or in whole. But the conservative nature of this management team decided to wrap them down from $5.9 million to $3.9 million and place the balance on non-accrual.

From a core operation, the second quarter was the best in the company’s history, setting several records. We had record loan growth, record net interest income, and record efficiency core. The core ratio – core efficiency ratio was a record and broke 60 for the first time in the company’s history. We had expanded net interest margin and reduction in non-interest expense; couple that with the organization portion of the Metavante study that has just been completed is now ready for the implementation phase. Because of one-time gains and expenses in the first quarter and in the one-time write-off in the second quarter, I think the numbers will be far more meaningful on a core basis without all the noise in the two quarters. We will be comparing apples to apples.

After I complete my remarks, we will move to Ron for an update on loans and over to Randy to see what magic he keeps riding on the margin side. Let’s go to the numbers.

Q2 of ‘07, the company are in $5.1 million net income core versus June 30, 2008 $6.9 million, an increase of $1.8 million or 36.5%. Diluted EPS was $0.29 a year ago – June a year ago versus $0.37 this quarter, a $0.08 increase or 27.6%. Cash earnings core was $7.2 million for the second quarter of this year versus $5.3 million for the second quarter of last year, an increase $1.9 million or 35%. I like those 30s. Cash diluted EPS was $0.39 a share versus $0.30 up 9%, another 30% increase.

On a linked quarter basis, it was also strong on core basis. Last -- first quarter of this year, we are in $6.3 million. Second quarter of this year is $6.9 million, an increase of $565,000; 35.8%. During the first quarter, we are in $0.34 on a core basis and $0.37 on the second quarter on a core basis, up $0.03; another 35.5%.

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