Home BancShares, Inc. (HOMB)

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Home BancShares, Inc. (HOMB)

Q3 2008 Earnings Call

October 16, 2008 2:00 pm ET


John W. Allison - Chairman of the Board, Chief Executive Officer

Ron W. Strother - President, Chief Operating Officer, Director

Randy E. Mayor - Chief Financial Officer, Treasurer

Brian S. Davis - Investor Relations Officer


Jon Arfstrom - RBC Capital Markets

Matt Olney - Stephens, Inc.

Analyst for [Steve Covington] - Stephens Capital

[Brian Martin - Howie Burns]

Brian Hagler - Kennedy Capital

[Bob Whitehouse] - Private Investor



Welcome to the Home BancShares, Inc. third 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’s participants will begin with prepared remarks and then entertain questions. (Operator Instructions)

The company’s participants in this call are John Allison, Chief Executive Officer, Ron Strother, Chief Operating Officer, Randy Mayor, Chief Financial Officer, and 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 3 of their Form 10K filed with the SEC in March 2008.

At this time all participants are in a listen-only mode and this conference is being recorded.

It is now my pleasure to turn the call over to our first participant Mr. Allison.

John W. Allison

Welcome to Home BancShares third quarter earnings report.

In the second quarter we talked about the stressful financial times that we’re experiencing. Little did we know that the worst was in front of us and not behind us. History has been made. Our children and grandchildren will read about this crisis in their history books. We live at a time in history that will report the worst financial crisis since the great Depression. Credit markets remain dysfunctional and are leading to the demise of major financial players in the US and abroad.

I said on earlier calls that we need to keep our defense on the field, protect our strong capital base, be proactive on asset quality, and build reserves when appropriate and needed. People ask me, “What keeps you up at night?” My answer is, “Circumstances beyond our control.” We run good conservative well-capitalized banks. I tell our people, “Keep your chin strap buckled, keep your head down and run your banks the way you know how.” There’s no reason to worry about circumstances you can’t control and that is exactly what they’ve come to do. We call it stay the course.

Congratulations to the team for what was a good solid quarter in spite of extremely uncertain times. Third quarter was probably best described as flat to up in several areas; however we have some new high water marks that we’re pretty proud of.

On the revenue side both net interest income and noninterest income while up only slightly would be described by Randy Sims, the star CEO of our First State Bank in Conway, as the world record. They were the best in the company’s history. By the way, Sims ran a 184 last month with his Conway bank.

On the expense side, both interest expense and noninterest expense were both down slightly which resulted in the best efficiency ratio in the company’s history. We broke 60 on a GAAP basis for the first time ever. If you remember on a core basis last quarter, we broke 60 but the performance wasn’t quite as good as it was this quarter.

Couple that performance with the implementation phase of the efficiency study that will be completed in the third quarter of ’09 and we’re optimistic that we can reach our goal of mid-50s. Heads up. The fourth quarter of ’08 and the first quarter of ’09 will be a little noisy as we’ll spend $2 million to $3 million on the implementation phase. The best way to look at this is the fourth quarter of ’09 should be the strong indication of our ongoing run rate.

October of this year represents 10 years for our company since the formation of Home BancShares. My wife will tell you the 10th year without a paycheck, and that’s probably long enough. Ron told me that the government was buying banks, going to nationalize them and freeze the CEO��s salary at the present rate. Mine’ll be frozen at zero forever.

All jokes aside, if the compensation committee approves the nominal salary for me this week, you’ll probably see an 8K later this week or next week. I can assure you that the salary will not be excessive or in any way near the peer group. My only source of income over the past 10 years has been my Board fees, which I’ll continue to draw plus a salary.

Let’s go to the numbers. Year-over-year from Q3 ‘07 to Q3 ‘08 we increased income $1.3 million or 25.6% and EPS increased $0.04 to $0.32 or 14.3%. Cash earnings were up $1.4 million or 24.6% and EPS was up $0.05 on the cash side or 17.2%.

On a link quarter basis, which sometimes is more meaningful to see how we’re doing, net income was up $910,000 to $6.6 million from $5.7 million on Q2 of ’08. That’s up an annualized rate of 64%. Likewise EPS was up from the second quarter this year to third quarter from $0.28 to $0.32, up $0.04 or 56.8%. Cash earnings also up likewise $911,000 on an annualized rate of 61% to $6.8 million and cash diluted EPS was up $0.05 or 68.6%.

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