Home BancShares, Inc. (HOMB)

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Home BancShares, Inc. (HOMB)

Q3 2009 Earnings Call

October 15, 2009; 2:00 pm ET


Randall Sims - Chief Executive Officer

John Allison - Chairman of the Board

Ron Strother - President, Chief Operating Officer & Director

Randy Mayor - Chief Financial Officer & Treasurer

Brian Davis - Director of Financial Reporting


John Arfstrom - RBC Capital Market

Andy Stapp - B. Riley

Joe Finnick - Sandler O’Neil

Matt Olney - Stephens Inc.

Dave Bishop - Stiefel Nichols

Mark Muth - Howe Barnes Hoefer & Arnett

Chris Owens - [Kaft]

Joe Steven - Steven Capital



Greetings ladies and gentlemen, welcome to the Home BancShare Incorporated third quarter 2009 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 and then entertain questions. (Operator Instructions)

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 three of their Form 10-K filed with the SEC in March of 2009. At this time all participants are in 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, please go ahead sir.

John Allison

Good afternoon and welcome to Home BancShares third quarter earnings release and conference call. Participating with me today in the call will be Randall Sims, Chief Executive Officer; Ron Strother, Chief Operating Officer; Randy Mayor, Chief Financial Officer; and Brian Davis, Director of Financial Reporting.

First we’d like to start off by thanking the investment community for favoring us with more than $100 million in new capital. In mid September, our management team hit the road and was able to tell our story in face-to-face meetings to a world class group of institutional investors.

After two days of meetings, the group subscribed for almost $450, an over subscription of five times for our offer. We’re truly humbled and appreciative. We have been good stewards of our recent appeal proceeds and expect to continue to do the same with our new capital as we search for the best opportunities to deploy that capital.

For the first time in the several quarters, we finally have one without a lot of noise. No one-time gains, no consolidation expenses, no special assessments, no bond sales, just a good solid clean quarter. The consolidation on our charter along with the 250 initiatives for all practical purposes have been completed.

We announced in the second quarter strong income improvements from the first quarter to the second quarter about 1.6 million, and I’m telling you today that that has continued and Randy will talk more about that in the future. We are doing exactly what we told you we would do.

We’re enjoying good asset quality, and improving efficiency ratio and increasing net interest margins, healthy reserves and a fortress capital position. Such a capital position as to run Home BancShares, number one of publicly traded companies over $500 million with the tangible capital common equity ratio of over 13%.

Now I’d like to turn the presentation over to our new CEO, Randall Sims and the rest of the management team for their thoughts. Randy.

Randall Sims

Thank you. This is a special time for Home BancShares, and we are excited about some very good results for the third quarter. We reported at the end of the second quarter record results in our margin, net interest income as well as our efficiency ratio.

I’m pleased to announce the momentum has continued, and once again we have experience record results for the third quarter. I will get started and then we will hear more from Randy Mayor, our CFO on margin and from Ron Strother our Chief Operating Officer Home Loans.

From a quarter-over-quarter perspective, our net income increased $675,000 to $7.2 million. Diluted EPS remained unchanged at $0.32. Cash earnings were also up about the same to $7.5 million with cash diluted EPS of $0.33, down a penny but really due to rounding.

Net income on a lean quarter basis had marked improvement up $1.8 million from $5.4 million to $7.2 million that is a 134% improvement on an annualized change. Diluted EPS reflected that same improvement, moving up $0.08 from $0.24 to $0.32. Cash earnings were also at $1.8 million on a lean quarter basis to $7.5 million, again resulting in $0.08 improvement to $0.33.

We were very pleased with these results, especially on a lean quarter basis. This improvement in net income was the direct result of our ability to increase margin while controlling expenses.

From a quarter-to-quarter standpoint, our margin was up 44 basis points from 3.82% to 4.26%. On a lean quarter basis, margin was up 18 basis points from 4.08%. Due to this margin improvement we were able to realize an increase of $1.8 million in net interest income on a quarter-over-quarter period and $955,000 on a lean quarter basis.

If you remember, our goal was to break 4% with our margin, and we have surpassed that goal. 4.26% is an all time record for Home BancShares. Will this continue to improve? We anticipate some weakening for the next quarter due to our recent stock issuance. However, we continue to see opportunity on both sides of the balance sheet.

Non interest income did not improve this quarter, but was still strong. Looking at a quarter-to-quarter basis it was down $183,000 from $7.8 million to $7.6 million. On a lean quarter, it was down from $8 million. Season service charges were still strong, but the corporation did experience a slower quarter in mortgage origination.

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