UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2007

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from                      to                     

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Arkansas		71-0682831
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
719 Harkrider, Suite 100, Conway, Arkansas		72032
(Address of principal executive offices)		(Zip Code)

(501) 328-4770

Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer o      Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Common Stock Issued and Outstanding: 17,235,063 shares as of April 27, 2007.

 

 

HOME BANCSHARES, INC.
FORM 10-Q
March 31, 2007

INDEX

		Page No.
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets — March 31, 2007 (Unaudited) and December 31, 2006			4
Consolidated Statements of Income (Unaudited) — Three months ended March 31, 2007 and 2006			5
Consolidated Statements of Stockholders’ Equity (Unaudited) — Three months ended March 31, 2007 and 2006			6-7
Consolidated Statements of Cash Flows (Unaudited) — Three months ended March 31, 2007 and 2006			8
Condensed Notes to Consolidated Financial Statements (Unaudited)			9-21
Report of Independent Registered Public Accounting Firm			22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-47
Item 3. Quantitative and Qualitative Disclosure About Market Risk			48-51
Item 4. Controls and Procedures			52
Part II: Other Information
Item 1. Legal Proceedings			53
Item1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3. Defaults Upon Senior Securities			53
Item 4. Submission of Matters to a Vote of Security Holders			53
Item 5. Other Information			53
Item 6. Exhibits			53
Signatures			54
Chairman's Retirement Plan
Awareness of Independent Registered Public Accounting Firm
CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)
CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)
CEO Certification Pursuant 18 U.S.C. Section 1350
CFO Certification Pursuant 18 U.S.C. Section 1350

Exhibit List

10.1		Home BancShares Inc. Chairman’s Retirement Plan
15		Awareness of Independent Registered Public Accounting Firm
31.1		CEO Certification Pursuant to 13a-14(a)/15d-14(a)
31.2		CFO Certification Pursuant to 13a-14(a)/15d-14(a)
32.1		CEO Certification Pursuant to 18 U.S.C. Section 1350
32.2		CFO Certification Pursuant to 18 U.S.C. Section 1350

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of our statements contained in this document, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

	•		the effects of future economic conditions, including inflation or a decrease in residential housing values;
	•		governmental monetary and fiscal policies, as well as legislative and regulatory changes;
	•		the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;
	•		the effects of terrorism and efforts to combat it;
	•		credit risks;
	•		the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;
	•		the effect of any mergers, acquisitions or other transactions to which we or our subsidiaries may from time to time be a party, including our ability to successfully integrate any businesses that we acquire; and
	•		the failure of assumptions underlying the establishment of our allowance for loan losses.

     All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission on March 20, 2007.

PART I: FINANCIAL INFORMATION

Home BancShares, Inc.

Consolidated Balance Sheets

(In thousands, except share data)		March 31, 2007				December 31, 2006
		(Unaudited)
Assets
Cash and due from banks		$	57,998			$	53,004
Interest-bearing deposits with other banks			2,962				6,696
Cash and cash equivalents			60,960				59,700
Federal funds sold			10,685				9,003
Investment securities — available for sale			476,534				531,891
Loans receivable			1,475,376				1,416,295
Allowance for loan losses			(26,934	)			(26,111	)
Loans receivable, net			1,448,442				1,390,184
Bank premises and equipment, net			60,751				57,339
Foreclosed assets held for sale			327				435
Cash value of life insurance			42,746				42,149
Investments in unconsolidated affiliates			12,336				12,449
Accrued interest receivable			14,331				13,736
Deferred tax asset, net			8,455				8,361
Goodwill			37,527				37,527
Core deposit and other intangibles			9,019				9,458
Other assets			21,463				18,416
Total assets		$	2,203,576			$	2,190,648
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing		$	228,716			$	215,142
Savings and interest-bearing transaction accounts			606,593				582,425
Time deposits			792,951				809,627
Total deposits			1,628,260				1,607,194
Federal funds purchased			25,450				25,270
Securities sold under agreements to repurchase			128,335				118,825
FHLB and other borrowed funds			127,842				151,768
Accrued interest payable and other liabilities			12,192				11,509
Subordinated debentures			44,640				44,663
Total liabilities			1,966,719				1,959,229
Stockholders’ equity:
Common stock, par value $0.01 in 2007 and 2006; 25,000,000 shares authorized in 2007 and 2006; shares issued and outstanding 17,221,938 in 2007 and 17,205,649 in 2006			172				172
Capital surplus			194,930				194,595
Retained earnings			45,875				41,544
Accumulated other comprehensive loss			(4,120	)			(4,892	)
Total stockholders’ equity			236,857				231,419
Total liabilities and stockholders’ equity		$	2,203,576			$	2,190,648

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Income

		Three Months Ended
		March 31,
(In thousands, except per share data)		2007				2006
		(Unaudited)
Interest income:
Loans		$	28,288			$	21,842
Investment securities
Taxable			4,586				4,725
Tax-exempt			1,026				967
Deposits — other banks			49				41
Federal funds sold			235				159
Total interest income			34,184				27,734
Interest expense:
Interest on deposits			14,133				9,529
Federal funds purchased			205				304
FHLB and other borrowed funds			1,811				1,476
Securities sold under agreements to repurchase			1,224				870
Subordinated debentures			749				749
Total interest expense			18,122				12,928
Net interest income			16,062				14,806
Provision for loan losses			820				484
Net interest income after provision for loan losses			15,242				14,322
Non-interest income:
Service charges on deposit accounts			2,588				2,052
Other services charges and fees			1,500				611
Trust fees			24				152
Data processing fees			218				193
Mortgage banking income			348				411
Insurance commissions			289				284
Income from title services			156				237
Increase in cash value of life insurance			598				51
Dividends from FHLB, FRB & bankers’ bank			227				106
Equity in loss of unconsolidated affiliates			(114	)			(116	)
Gain on sale of SBA loans			—				34
Gain on sale of premises and equipment, net			14				2
Other income			357				384
Total non-interest income			6,205				4,401
Non-interest expense:
Salaries and employee benefits			7,440				7,348
Occupancy and equipment			2,210				2,005
Data processing expense			644				567
Other operating expenses			4,447				3,699
Total non-interest expense			14,741				13,619
Income before income taxes			6,706				5,104
Income tax expense			1,945				1,588
Net income available to all shareholders			4,761				3,516
Less: Preferred stock dividends			—				155
Income available to common shareholders		$	4,761			$	3,361
Basic earnings per share		$	0.28			$	0.28
Diluted earnings per share		$	0.27			$	0.24

     See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2007 and 2006

																						Accumulated
																						Other
		Preferred				Preferred				Common				Capital				Retained				Comprehensive
(In thousands, except share data)		Stock A				Stock B				Stock				Surplus				Earnings				Income (Loss)				Total
Balance at January 1, 2006		$	21			$	2			$	121			$	146,285			$	27,331			$	(7,903	)		$	165,857
Comprehensive income (loss):
Net income			—				—				—				—				3,516				—				3,516
Other comprehensive income (loss):
Unrealized loss on investment securities available for sale, net of tax effect of $179			—				—				—				—				—				(282	)			(282	)
Unconsolidated affiliates unrecognized loss on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate			—				—				—				—				—				(6	)			(6	)
Comprehensive income																											3,228
Issuance of 14,617 shares of preferred stock A from exercise of stock options			—				—				—				2				—				—				2
Net issuance of 681 shares of preferred stock B from exercise of stock options			—				—				—				8				—				—				8
Net issuance of 15,490 shares of common stock from exercise of stock options			—				—				—				143				—				—				143
Tax benefit from stock options exercised			—				—				—				84				—				—				84
Share-based compensation			—				—				—				116				—				—				116
Cash dividends — Preferred Stock A, $0.0625 per share			—				—				—				—				(131	)			—				(131	)
Cash dividends — Preferred Stock B, $0.1425 per share			—				—				—				—				(24	)			—				(24	)
Cash dividends — Common Stock, $0.02 per share			—				—				—				—				(243	)			—				(243	)
Balances at March 31, 2006 (unaudited)			21				2				121				146,638				30,449				(8,191	)			169,040
Comprehensive income (loss):
Net income			—				—				—				—				12,402				—				12,402
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $2,105			—				—				—				—				—				3,276				3,276
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate			—				—				—				—				—				23				23
Comprehensive income																											15,701
Conversion of 2,090,812 shares of preferred stock A to 1,650,489 shares of common stock			(21	)			—				17				2				—				—				(2	)
Conversion of 169,760 shares of preferred stock B to 509,280 shares of common stock			—				(2	)			5				(3	)			—				—				—
Issuance of 2,875,000 shares of common stock from Initial Public Offering, net of offering costs of $4,545			—				—				29				47,176				—				—				47,205
Issuance of 41,526 shares of common stock from exercise of stock options			—				—				—				391				—				—				391
Tax benefit from stock options exercised			—				—				—				127				—				—				127
Share-based compensation			—				—				—				264				—				—				264
Cash dividends — Preferred Stock A,$0.0833 per share			—				—				—				—				(172	)			—				(172	)
Cash dividends — Preferred Stock B, $0.19 per share			—				—				—				—				(32	)			—				(32	)
Cash dividends — Common Stock, $0.07 per share			—				—				—				—				(1,103	)			—				(1,103	)
Balances at December 31, 2006			—				—				172				194,595				41,544				(4,892	)			231,419

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity – Continued
Three Months Ended March 31, 2007 and 2006

																						Accumulated
																						Other
		Preferred				Preferred				Common				Capital				Retained				Comprehensive
(In thousands, except share data)		Stock A				Stock B				Stock				Surplus				Earnings				Income (Loss)				Total
Comprehensive income (loss):
Net income			—				—				—				—				4,761				—				4,761
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $497			—				—				—				—				—				771				771
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate			—				—				—				—				—				1				1
Comprehensive income																											5,533
Issuance of 16,289 shares of common stock from exercise of stock options			—				—				—				123				—				—				123
Tax benefit from stock options exercised			—				—				—				103				—				—				103
Share-based compensation			—				—				—				109				—				—				109
Cash dividends — Common Stock, $0.025 per share			—				—				—				—				(430	)			—				(430	)
Balances at March 31, 2007 (unaudited)		$	—			$	—			$	172			$	194,930			$	45,875			$	(4,120	)		$	236,857

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Cash Flows

		Period Ended March 31,
(In thousands)		2007				2006
		(Unaudited)
Operating Activities
Net income		$	4,761			$	3,516
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation			1,065				1,090
Amortization/Accretion			305				665
Share-based compensation			109				116
Tax benefits from stock options exercised			(103	)			(84	)
Loss (gain) on sale of assets			12				(89	)
Provision for loan losses			820				484
Deferred income tax benefit			(597	)			(420	)
Equity in loss of unconsolidated affiliates			114				116
Increase in cash value of life insurance			(598	)			(51	)
Originations of mortgage loans held for sale			(17,609	)			(22,115	)
Proceeds from sales of mortgage loans held for sale			15,619				23,384
Changes in assets and liabilities:
Accrued interest receivable			(595	)			(382	)
Other assets			(3,046	)			(3,305	)
Accrued interest payable and other liabilities			786				3,426
Net cash provided by operating activities			1,043				6,351
Investing Activities
Net (increase) decrease in federal funds sold			(1,682	)			(12,503	)
Net (increase) decrease in loans			(57,088	)			(44,207	)
Purchases of investment securities available for sale			(84,664	)			(38,823	)
Proceeds from maturities of investment securities available for sale			141,406				43,132
Proceeds from sale of loans			—				540
Proceeds from foreclosed assets held for sale			110				801
Purchases of premises and equipment, net			(4,491	)			(1,704	)
Investments in unconsolidated affiliates			—				(3,000	)
Net cash used in investing activities			(6,409	)			(55,764	)
Financing Activities
Net increase (decrease) in deposits			21,066				80,335
Net increase (decrease) in securities sold under agreements to repurchase			9,510				(5,173	)
Net increase (decrease) in federal funds purchased			180				(44,495	)
Net increase (decrease) in FHLB and other borrowed funds			(23,926	)			22,251
Proceeds from exercise of stock options			123				153
Tax benefits from stock options exercised			103				84
Dividends paid			(430	)			(398	)
Net cash provided by financing activities			6,626				52,757
Net change in cash and cash equivalents			1,260				3,344
Cash and cash equivalents — beginning of year			59,700				44,679
Cash and cash equivalents — end of period		$	60,960			$	48,023

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements
(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

  Nature of Operations

     Home BancShares, Inc. (the Company or HBI) is a financial holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its five wholly owned community bank subsidiaries. Three of our bank subsidiaries are located in the central Arkansas market area, a fourth serves Stone County in north central Arkansas, and a fifth serves the Florida Keys and southwestern Florida. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

     A summary of the significant accounting policies of the Company follows:

  Operating Segments

     The Company is organized on a subsidiary bank-by-bank basis upon which management makes decisions regarding how to allocate resources and assess performance. Each of the subsidiary banks provides a group of similar community banking services, including such products and services as loans, time deposits and checking and savings accounts. The individual bank segments have similar operating and economic characteristics and have been reported as one aggregated operating segment.

  Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of foreclosed assets. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

  Principles of Consolidation

     The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

  Investments in Unconsolidated Affiliates

     The Company has a 20.1% investment in White River Bancshares, Inc. (WRBI), which at March 31, 2007 and December 31, 2006 totaled $11.0 million and $11.1 million, respectively. The investment in WRBI is accounted for on the equity method. The Company’s share of WRBI operating loss included in non-interest income in the three months ended March 31, 2007 and 2006 totaled $114,000 and $116,000, respectively. The Company’s share of WRBI unrealized loss on investment securities available for sale at March 31, 2007 and 2006 amounted to $1,000 and $25,000, respectively. See the “Acquisitions” footnote related to the Company’s acquisition of WRBI.

     The Company has invested funds representing 100% ownership in four statutory trusts which issue trust preferred securities. The Company’s investment in these trusts was $1.3 million at March 31, 2007 and December 31, 2006, respectively. Under generally accepted accounting principles, these trusts are not consolidated.

     The summarized financial information below represents an aggregation of the Company’s unconsolidated affiliates as of March 31, 2007 and 2006, and for the three-month periods then ended:

		March 31,
		2007				2006
		(In thousands)
Assets		$	402,142			$	261,779
Liabilities			345,695				203,825
Equity			56,447				57,954
Net income (loss)			(415	)			(512	)

  Interim financial information

     The accompanying unaudited consolidated financial statements as of March 31, 2007 and 2006 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

     The information furnished in these interim statements reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2006 Form 10-K, filed with the Securities and Exchange Commission.

  Earnings per Share

     Basic earnings per share are computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (EPS) for the three-month periods ended March 31:

		2007				2006
		(In thousands)
Net income available to all shareholders		$	4,761			$	3,516
Less: Preferred stock dividends			—				(155	)
Income available to common shareholders		$	4,761			$	3,361
Average shares outstanding			17,219				12,123
Effect of common stock options			282				79
Effect of preferred stock options			—				28
Effect of preferred stock conversions			—				2,162
Diluted shares outstanding			17,501				14,392
Basic earnings per share		$	0.28			$	0.28
Diluted earnings per share		$	0.27			$	0.24

2. Acquisitions

     On January 3, 2005, HBI purchased 20% of the common stock of White River Bancshares, Inc. of Fayetteville, Arkansas for $9.1 million. White River Bancshares is a newly formed corporation, which owns all of the stock of Signature Bank of Arkansas, with branch locations in the northwest Arkansas area. In January 2006, White River Bancshares issued an additional $15.0 million of their common stock. To maintain a 20% ownership, the Company made an additional investment in White River Bancshares of $3.0 million in January 2006. At March 31, 2007, White River Bancshares had approximately $357.8 million in total assets, $316.3 million in total loans and $279.4 million in total deposits.

     During April 2007, White River Bancshares acquired 100% of the stock of Brinkley Bancshares, Inc. As a result, we anticipate making a $2.6 million additional investment in White River Bancshares to maintain our 20% ownership. This additional investment is subject to regulatory approval.

3. Investment Securities

     The amortized cost and estimated market value of investment securities were as follows:

		March 31, 2007
		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				(Losses)				Fair Value
		(In thousands)
U.S. government-sponsored enterprises		$	155,656			$	71			$	(2,638	)		$	153,089
Mortgage-backed securities			214,256				71				(5,133	)			209,194
State and political subdivisions			101,251				1,402				(449	)			102,204
Other securities			12,196				—				(149	)			12,047
Total		$	483,359			$	1,544			$	(8,369	)		$	476,534

		December 31, 2006
		Available for Sale
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				(Losses)				Fair Value
		(In thousands)
U.S. government-sponsored enterprises		$	199,085			$	79			$	(2,927	)		$	196,237
Mortgage-backed securities			225,747				41				(5,988	)			219,800
State and political subdivisions			102,536				1,360				(496	)			103,400
Other securities			12,631				—				(177	)			12,454
Total		$	539,999			$	1,480			$	(9,588	)		$	531,891

     Assets, principally investment securities, having a carrying value of approximately $221.6 million and $287.2 million at March 31, 2007 and December 31, 2006, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase agreements totaled approximately $128.3 million and $118.8 million at March 31, 2007 and December 31, 2006, respectively.

     During the three month periods ended March 31, 2007 and 2006, no available for sale securities were sold.

     The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. In completing these evaluations the Company follows the requirements of paragraph

16 of SFAS No. 115, EITF 03-1, Staff Accounting Bulletin 59 and FASB Staff Position No. 115-1. Certain investment securities are valued less than their historical cost. These declines primarily resulted from recent increases in market interest rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. It is management’s intent to hold these securities to recovery. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other than temporary, impairment is identified.

4: Loans Receivable and Allowance for Loan Losses

     The various categories of loans are summarized as follows:

		March 31,				December 31,
		2007				2006
		(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential		$	519,680			$	465,306
Construction/land development			369,022				393,410
Agricultural			33,245				11,659
Residential real estate loans
Residential 1-4 family			231,788				229,588
Multifamily residential			39,329				37,440
Total real estate			1,193,064				1,137,403
Consumer			42,345				45,056
Commercial and industrial			205,531				206,559
Agricultural			16,986				13,520
Other			17,450				13,757
Total loans receivable before allowance for loan losses			1,475,376				1,416,295
Allowance for loan losses			26,934				26,111
Total loans receivable, net		$	1,448,442			$	1,390,184

     The following is a summary of activity within the allowance for loan losses:

		2007				2006
		(In thousands)
Balance, beginning of year		$	26,111			$	24,175
Additions
Provision charged to expense			820				484
Net (recoveries) loans charged off Losses charged to allowance, net of recoveries of $103 and $262 for the first three months of 2007 and 2006, respectively			(3	)			224
Balance, March 31		$	26,934				24,435
Additions
Provision charged to expense							1,823
Net loans charged off
Losses charged to allowance, net of recoveries of $881 for the last nine months of 2006							147
Balance, end of year						$	26,111

     At March 31, 2007 and December 31, 2006, accruing loans delinquent 90 days or more totaled $1.1 million and $641,000, respectively. Non-accruing loans at March 31, 2007 and December 31, 2006 were $5.1 million and $3.9 million, respectively.

     During the three-month period ended March 31, 2007, the Company did not sell any of the guaranteed portion of SBA loans. During the three-month period ended March 31, 2006, the Company sold $506,000 of the guaranteed portion of certain SBA loans, which resulted in gains of $34,000.

     Mortgage loans held for resale of approximately $4.4 million and $2.4 million at March 31, 2007 and December 31, 2006, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis.

     At March 31, 2007 and December 31, 2006, impaired loans totaled $8.8 million and $11.2 million, respectively. As of March 31, 2007 and 2006, average impaired loans were $10.0 million and $5.7 million, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans were $1.6 million and $2.1 million at March 31, 2007 and December 31, 2006, respectively. Interest recognized on impaired loans during 2007 and 2006 was immaterial.

5: Goodwill and Core Deposits and Other Intangibles

     Changes in the carrying amount and accumulated amortization of the Company’s core deposits and other intangibles at March 31, 2007 and December 31, 2006, were as follows:

		March 31,				December 31,
		2007				2006
		(In thousands)
Gross carrying amount		$	13,457			$	13,457
Accumulated amortization			4,438				3,999
Net carrying amount		$	9,019			$	9,458

     Core deposit and other intangible amortization for the three months ended March 31, 2007 and 2006 was approximately $439,000 and $425,000, respectively. Including all of the mergers completed, HBI’s estimated amortization expense of core deposits and other intangibles for each of the years 2007 through 2011 is: 2007 — $1.7 million; 2008 — $1.7 million; 2009 — $1.7 million; 2010 - $1.6 million; and 2011 — $981,000.

     The carrying amount of the Company’s goodwill was $37.5 million at March 31, 2007 and December 31, 2006. Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

6: Deposits

     The aggregate amount of time deposits with a minimum denomination of $100,000 was $458.6 million and $486.3 million at March 31, 2007 and December 31, 2006, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $5.8 million and $3.9 million for the three months ended March 31, 2007 and 2006, respectively.

     Deposits totaling approximately $206.9 million and $203.0 million at March 31, 2007 and December 31, 2006, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

7: FHLB and Other Borrowed Funds

     The Company’s FHLB and other borrowed funds were $127.8 million and $151.8 million at March 31, 2007 and December 31, 2006, respectively. The outstanding balance for March 31, 2007 includes $127.8 million of long-term advances. The outstanding balance for December 31, 2006 includes $5.0 million of short-term advances and $146.8 million of long-term advances. Short-term borrowings consist of short-term FHLB borrowings. Long-term borrowings consist of long-term FHLB borrowings. The long-term FHLB advances mature from 2007 to 2020 with interest rates ranging from 2.019% to 5.42% and are secured by residential real estate loans.

8: Subordinated Debentures

     Subordinated Debentures at March 31, 2007 and December 31, 2006 consisted of guaranteed payments on trust preferred securities with the following components:

		March 31,				December 31,
		2007				2006
		(In thousands)
Subordinated debentures, issued in 2003, due 2033, fixed at 6.40%, during the first five years and at a floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2008 without penalty		$	20,619			$	20,619
Subordinated debentures, isssued in 2000, due 2030, fixed at 10.60%, callable in 2010 with a penalty ranging from 5.30% to 0.53% depending on the year of prepayment, callable in 2020 without penalty			3,401				3,424
Subordinated debentures, issued in 2003, due 2033, floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, callable in 2008 without penalty			5,155				5,155
Subordinated debentures, issued in 2005, due 2035, fixed rate of 6.81% during the first ten years and at a floating rate of 1.38% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2010 without penalty			15,465				15,465
Total subordinated debt		$	44,640			$	44,663

     As a result of the acquisition of Marine Bancorp, Inc., the Company has an interest rate swap agreement that effectively converts the floating rate on the $5.2 million trust preferred security noted above into a fixed interest rate of 7.29%, thus reducing the impact of interest rate changes on future interest expense until the call date.

     The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.

9: Income Taxes

     The following is a summary of the components of the provision for income taxes for the three-month periods ended March 31:

		2007				2006
		(In thousands)
Current:
Federal		$	2,252			$	1,675
State			290				333
Total current			2,542				2,008
Deferred:
Federal			(501	)			(350	)
State			(96	)			(70	)
Total deferred			(597	)			(420	)
Provision for income taxes		$	1,945			$	1,588

     The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three-month periods ended March 31:

		2007				2006
Statutory federal income tax rate			35.00	%			35.00	%
Effect of nontaxable interest income			(4.94	)			(6.19	)
Cash value of life insurance			(3.12	)			(0.35	)
State income taxes, net of federal benefit			1.88				1.98
Other			0.18				0.69
Effective income tax rate			29.00	%			31.13	%

     The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

		March 31,				December 31,
		2007				2006
		(In thousands)
Deferred tax assets:
Allowance for loan losses		$	10,545			$	10,219
Deferred compensation			240				244
Defined benefit pension plan			111				107
Stock options			197				155
Non-accrual interest income			523				489
Investment in unconsolidated subsidiary			530				485
Unrealized loss on securities			2,676				3,179
Other			161				170
Gross deferred tax assets			14,983				15,048
Deferred tax liabilities:
Accelerated depreciation on premises and equipment			2,016				2,082
Core deposit intangibles			3,388				3,552
Market value of cash flow hedge			19				25
FHLB dividends			603				567
Other			502				461
Gross deferred tax liabilities			6,528				6,687
Net deferred tax assets		$	8,455			$	8,361

10: Common Stock and Stock Compensation Plans

     On August 1, 2006, the Company redeemed and converted the issued and outstanding shares of Home BancShares’s Class A Preferred Stock and Class B Preferred Stock into Home BancShares Common Stock. The conversion of the preferred stock increased the Company’s outstanding common stock by approximately 2.2 million shares.

     The holder’s of shares of Class A Preferred Stock, received 0.789474 of Home BancShares Common Stock for each share of Class A Preferred Stock owned, plus a check for the pro rata amount of the third quarter Class A Preferred Stock dividend accrued through July 31, 2006. The Class A Preferred shareholder’s did not receive fractional shares, instead they received cash at a rate of $12.67 times the fraction of a share they otherwise would have been entitled to.

     The holder’s of shares of Class B Preferred Stock, received three shares of Home BancShares Common Stock for each share of Class B Preferred Stock owned, plus a check for the pro rata amount of the third quarter Class B Preferred Stock dividend accrued through July 31, 2006.

     On June 22, 2006, the Company priced its initial public offering of 2.5 million shares of common stock at $18.00 per share. The total price to the public for the shares offered and sold by the Company was $45.0 million. The amount of expenses incurred for the Company’s account in connection with the offering includes approximately $3.1 million of underwriting discounts and commissions and offering expenses of approximately $1.0 million. The Company received net proceeds of approximately $40.9 million from its sale of shares after deducting sales commissions and expenses.

     On July 21, 2006, the underwriter’s of the Company’s initial public offering exercised and completed their option to purchase an additional 375,000 shares of common stock to cover over-allotments effective July 26, 2006. The Company received net proceeds of approximately $6.3 million from this sale of shares after deducting sales commissions.

     On March 13, 2006, the Company’s board of directors adopted the 2006 Stock Option and Performance Incentive Plan. The Plan was submitted to the shareholders for approval at the 2006 annual meeting of shareholders. The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve our business results.

     The Plan amends and restates various prior plans that were either adopted by the Company or companies that were acquired. Awards made under any of the prior plans will be subject to the terms and conditions of the Plan, which is designed not to impair the rights of award holders under the prior plans. The Plan goes beyond the prior plans by including new types of awards (such as unrestricted stock, performance shares, and performance and annual incentive awards) in addition to the stock options (incentive and non-qualified), stock appreciation rights, and restricted stock that could have been awarded under one or more of the prior plans. In addition, the Company’s outstanding preferred stock options are also subject to the Plan.

     As of March 13, 2006, options for a total of 613,604 shares of common stock outstanding under the prior plans became subject to the Plan. Also, on that date, the Company’s board of directors replaced 341,000 outstanding stock appreciation rights with 354,640 options, each with an exercise price of $13.18. During 2005, the Company had issued 341,000 stock appreciation rights at $12.67 for certain executive employees throughout the Company. The appreciation rights were on a five-year cliff-vesting schedule with all appreciation rights vesting on December 31, 2009. The vesting was also subject to various financial performance goals of the Company and the subsidiary banks over the five-year period ending January 1, 2010. The options issued in replacement of the stock appreciation rights are subject to achievement of the same financial goals by the Company and the bank subsidiaries over the five-year period ending January 1, 2010.

     On January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123 (R), “Share-Based Payment” (“SFAS123(R)”), using the modified-prospective-transition method. Under that transition method, compensation cost is recognized beginning in 2006 includes: (a) the compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FASB Statement No. 123, and (b) the compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123 (R). Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method. Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards, which are expected to be recognized over the vesting periods, was $744,000 as of March 31, 2007.

     As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the three months ended March 31, 2007, are $109,000 and $66,000 lower, respectively, than if the Company had continued to account for share-based compensation under the intrinsic method. The Company’s income before income taxes and net income for the three months ended March 31, 2006, are $116,000 and $70,000 lower, respectively, than if the Company had continued to account for share-based compensation under the intrinsic method. Basic and diluted earnings per share for the three months ended March 31, 2007, would have been $0.28, if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $0.28 and $0.27, respectively. Basic and diluted earnings per share for the three months ended March 31, 2006, would have been $0.28 and $0.25, if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $0.28 and $0.24, respectively. For purposes of pro forma disclosures as required by SFAS No. 123(R), the estimated fair value of stock options is amortized over the options’ vesting period. The intrinsic value of the stock options outstanding and vested at March 31, 2007 was $10.6 million and $6.9 million, respectively. The intrinsic value of the stock options exercised during the three-month period ended March 31, 2007 was $263,000.

     The Company has a nonqualified stock option plan for employees, officers, and directors of the Company. This plan provides for the granting of incentive nonqualified options to purchase up to 1.2 million shares of common stock in the Company.

     The table below summarized the transactions under the Company’s stock option plans at March 31, 2007 and December 31, 2006 and changes during the three-month period and year then ended, respectively:

		For Three Months Ended								For the Year Ended
		March 31, 2007								December 31, 2006
						Weighted								Weighted
						Average								Average
						Exercisable								Exercisable
		Shares (000)				Price				Shares (000)				Price
Outstanding, beginning of year			1,032			$	11.39				630			$	10.07
Granted			33				23.29				410				14.22
Converted options of preferred stock A			—				—				9				8.66
Converted options of preferred stock B			—				—				71				6.36
Forfeited			(7	)			11.76				(31	)			12.90
Exercised			(16	)			7.56				(57	)			9.40
Outstanding, end of period			1,042				11.85				1,032				11.39
Exercisable, end of period			542			$	9.33				560			$	9.27

     For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. The weighted-average fair value of options granted during the three months ended March 31, 2007 and year-ended December 31, 2006, was $5.47 and $3.39, respectively. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

		For Three Months Ended				For the Year Ended
		March 31, 2007				December 31, 2006
Expected dividend yield			0.43	%			0.59	%
Expected stock price volatility			9.91	%			9.23	%
Risk-free interest rate			4.69	%			4.80	%
Expected life of options		6.0 years				6.3 years

     The following is a summary of currently outstanding and exercisable options at March 31, 2007:

		Options Outstanding												Options Exercisable
						Weighted-
						Average				Weighted-								Weighted-
		Options				Remaining				Average				Options				Average
		Outstanding				Contractual Life				Exercise				Exercisable				Exercise
Exercise Prices		Shares (000)				(in years)				Price				Shares (000)				Price
$6.14 to $6.68			59				5.0			$	6.37				59			$	6.37
$7.33 to $8.66			211				5.1				7.44				211				7.44
$9.33 to $10.31			108				6.5				10.16				102				10.17
$11.34 to $11.67			69				8.1				11.41				63				11.38
$12.67 to $12.67			184				9.7				12.67				104				12.67
$13.18 to $13.18			324				9.0				13.18				3				13.18
$21.17 to $24.15			87				9.6				22.02				—				—
			1,042												542

11. Non-Interest Expense

     The table below shows the components of non-interest expense for three months ended March 31, 2007 and 2006:

		2007				2006
		(In thousands)
Salaries and employee benefits		$	7,440			$	7,348
Occupancy and equipment			2,210				2,005
Data processing expense			644				567
Other operating expenses:
Advertising			629				558
Amortization of intangibles			439				425
Electronic banking expense			530				118
Directors’ fees			174				204
Due from bank service charges			56				70
FDIC and state assessment			260				125
Insurance			244				223
Legal and accounting			319				282
Other professional fees			170				134
Operating supplies			226				229
Postage			164				163
Telephone			228				220
Other expense			1,008				948
Total other operating expenses			4,447				3,699
Total non-interest expense		$	14,741			$	13,619

12: Concentration of Credit Risks

     The Company’s primary market area is in central Arkansas, north central Arkansas, northwest Arkansas, southwest Florida and the Florida Keys (Monroe County). The Company primarily grants loans to customers located within these geographical areas unless the borrower has an established relationship with the Company.

     The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.

13: Significant Estimates and Concentrations

     Accounting principles generally accepted in the United Sates of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses and certain concentrations of credit risk are reflected in Note 4, while deposit concentrations are reflected in Note 6.

14: Commitments and Contingencies

     In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of their customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.

     At March 31, 2007 and December 31, 2006, commitments to extend credit of $256.7 million and $227.5 million, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

     Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee, some of which are long-term, is dependent upon the credit worthiness of the borrower. The maximum amount of future payments the Company could be required to make under these guarantees at March 31, 2007 and December 31, 2006, is $10.5 million and $16.1 million, respectively.

     The Company and/or its subsidiary banks have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries.

15: Regulatory Matters

     The Company’s subsidiaries are subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since, the Company’s Arkansas bank subsidiaries are also under supervision of the Federal Reserve, they are further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. Under Florida state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. As the result of special dividends paid by the Company’s subsidiary banks during 2005 to help provide cash for the Marine Bancorp, Inc. and Mountain View Bancshares, Inc. acquisitions, the Company’s subsidiary banks did not have any significant undivided profits available for payment of dividends to the Company, without prior approval of the regulatory agencies at March 31, 2007.

     The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) and undercapitalized institution. The criteria for a well-capitalized institution are: a 5% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ratio. As of March 31, 2007, each of the five subsidiary banks met the capital standards for a well-capitalized institution. The Company’s “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio was 11.18%, 14.32%, and 15.58%, respectively, as of March 31, 2007.

16: Additional Cash Flow Information

     The Company paid interest and taxes during the three months ended as follows:

		Three Months Ended March 31,
		2007				2006
		(In thousands)
Interest paid		$	18,739			$	12,903
Income taxes paid			350				—

17: Recent Accounting Pronouncements

     In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” to provide companies with an option to report selected financial assets and liabilities at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement shall be effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of the adoption of this standard, but does not expect it to have a material effect on the Company’s financial position or results of operations.

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard, but does not expect it to have a material effect on the Company’s financial position or results of operations.

     In September 2006, the FASB Emerging Issue Task Force (EITF) issued EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The EITF determined that for an endorsement split-dollar life insurance arrangement within the scope of the Issue, the employer should recognize a liability for future benefits in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion 12, Omnibus Opinion-1967, based on the substantive agreement with the employee. In March 2007, the FASB Emerging Issue Task Force (EITF) issued EITF 06-10, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements. The EITF determined that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either Statement 106 (if, in substance, a postretirement benefit plan exists) or Opinion 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. These Issues are effective for fiscal years beginning after December 15, 2007, with earlier application permitted. Entities should recognize the effects of applying EITF 06-4 through either (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. As of March 31, 2007, the Company has split-dollar life insurance arrangements with two executives of the Company that have death benefits. The Company is currently evaluating the impact that the adoption of EITF 06-4 and EITF 06-10 will have on the financial position and results of operation of the Company.

     Presently, the Company is not aware of any other changes from the Financial Accounting Standards Board that will have a material impact on the Company’s present or future financial statements.

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders
Home BancShares, Inc.
Conway, Arkansas

We have reviewed the accompanying condensed consolidated balance sheet of Home BancShares, Inc. as of March 31, 2007 and the related condensed consolidated statements of income, statements of changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2007 and 2006. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2006 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 15, 2007, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Little Rock, Arkansas
May 7, 2007

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on March 20, 2007, which includes the audited financial statements for the year ended December 31, 2006. Unless the context requires otherwise, the terms “Company”, “us”, “we”, and “our” refer to Home BancShares, Inc. on a consolidated basis.

General

     We are a financial holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our five wholly owned bank subsidiaries. As of March 31, 2007, we had, on a consolidated basis, total assets of $2.20 billion, loans receivable of $1.48 billion, total deposits of $1.63 billion, and shareholders’ equity of $236.9 million.

     We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits are our primary source of funding. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance by calculating our return on average equity, return on average assets, and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income.

Key Financial Measures

		As of and for the Three Months
		Ended March 31,
		2007				2006
		(Dollars in thousands, except per share data)
Total assets		$	2,203,576			$	1,970,910
Loans receivable			1,475,376				1,246,146
Total deposits			1,628,260				1,507,443
Net income			4,761				3,516
Basic earnings per share			0.28				0.28
Diluted earnings per share			0.27				0.24
Diluted cash earnings per share (1)			0.29				0.26
Annualized net interest margin — FTE			3.42	%			3.53	%
Efficiency ratio			62.52				66.68
Annualized return on average assets			0.88				0.74
Annualized return on average equity			8.30				8.51

Overview

     Our net income increased $1.3 million, or 35.4%, to $4.8 million for the three-month period ended March 31, 2007, from $3.5 million for the same period in 2006. On a diluted earnings per share basis, our net earnings increased 12.5% to $0.27 for the three-month period ended March 31, 2007, as compared to $0.24 for the same period in 2006. The increase in earnings for the three months ended March 31, 2007 is primarily associated with organic growth of our bank subsidiaries.

     Our annualized return on average equity was 8.30% and 8.51% for the three months ended March 31, 2007 and 2006, respectively. While net income for the three months ended March 31, 2007 increased, return on average equity decreased as a result of the $65.2 million increase in average stockholders’ equity from the net proceeds of our initial public offering and retained earnings for the twelve months.

     Our annualized return on average assets was 0.88% and 0.74% for the three months ended March 31, 2007 and 2006, respectively. The increase was primarily due to the $1.3 million increase in net income for the three months ended March 31, 2007, compared to the same period in 2006.

     Our annualized net interest margin, on a fully taxable equivalent basis, was 3.42% and 3.53% for the three months ended March 31, 2007 and 2006, respectively. However, our net interest margin for the three months ended March 31, 2007 was unchanged from the previous quarter. Competitive pressures and a slightly inverted yield curve put pressure on our net interest margin causing the decline from March 31, 2006 to March 31, 2007.

     Our efficiency ratio (calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income) was 62.52% and 66.68% for three months ended March 31, 2007 and 2006, respectively. The improvement in our efficiency ratio is primarily due to an increase in net interest income from the net proceeds of our initial public offering and continued improvement of our efficiencies.

     Our total assets increased $12.9 million, an annualized growth of 2.4%, to $2.20 billion as of March 31, 2007, from $2.19 billion as of December 31, 2006. Our loan portfolio increased $59.1 million, an annualized growth of 16.9%, to $1.48 billion as of March 31, 2007, from $1.42 billion as of December 31, 2006. Shareholders’ equity increased $5.4 million, an annualized growth of 9.5%, to $236.9 million as of March 31, 2007, compared to $231.4 million as of December 31, 2006. Asset and loan increases are primarily associated with organic growth of our bank subsidiaries. The increase in stockholders’ equity was primarily the result of the retained earnings for the three months.

     As of March 31, 2007, our non-performing loans increased to $6.2 million, or 0.42%, of total loans from $4.5 million, or 0.32%, of total loans as of December 31, 2006. The allowance for loan losses as a percent of non-performing loans decreased to 436.2% as of March 31, 2007, compared to 574.4% from December 31, 2006. While these ratios reflect a slight decrease in asset quality, we still consider our asset quality to be sound.

Critical Accounting Policies

     Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements in Note 1 of the audited consolidated financial statements included in our Form 10-K, filed with the Securities and Exchange Commission.

     We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the accounting for the allowance for loan losses, investments, intangible assets, income taxes and stock options.

     Investments. Securities available for sale are reported at fair value with unrealized holding gains and losses reported as a separate component of shareholders’ equity and other comprehensive income (loss). Securities that are held as available for sale are used as a part of our asset/liability management strategy.

Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available for sale.

     Loans Receivable and Allowance for Loan Losses. Substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for resale. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding.

     The allowance for loan losses is established through a provision for loan losses charged against income. The allowance represents an amount that, in management’s judgment, will be adequate to absorb probable credit losses on identifiable loans that may become uncollectible and probable credit losses inherent in the remainder of the loan portfolio. The amounts of provisions for loan losses are based on management’s analysis and evaluation of the loan portfolio for identification of problem credits, internal and external factors that may affect collectibility, relevant credit exposure, particular risks inherent in different kinds of lending, current collateral values and other relevant factors.

     We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms thereof. We apply this policy even if delays or shortfalls in payments are expected to be insignificant. All non-accrual loans and all loans that have been restructured from their original contractual terms are considered impaired loans. The aggregate amount of impaired loans is used in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When accrual of interest is discontinued, all unpaid accrued interest is reversed.

     Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for loan losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

     Intangible Assets. Intangible assets consist of goodwill and core deposit and other intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 84 to 114 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill as required by SFAS No. 142, Goodwill and Other Intangible Assets, in the fourth quarter.

     Income Taxes. We use the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Any estimated tax exposure items identified would be considered in a tax contingency reserve. Changes in any tax contingency reserve would be based on specific development, events, or transactions.

     We and our subsidiaries file consolidated tax returns. Our subsidiaries provide for income taxes on a separate return basis, and remit to us amounts determined to be currently payable.

     Stock Options. Prior to 2006, we elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for employee stock options using the fair value method. Under APB 25, because the exercise price of the options equals the estimated market price of the stock on the issuance date, no compensation expense is recorded. On January 1, 2006, we adopted SFAS No. 123, Share-Based Payment (Revised 2004) which establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods and services, or (ii) incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant.

Acquisitions and Equity Investments

     On January 3, 2005, we purchased 20% of the common stock of White River Bancshares, Inc. of Fayetteville, Arkansas for $9.1 million. White River Bancshares is a newly formed corporation, which owns all of the stock of Signature Bank of Arkansas, with branch locations in northwest Arkansas. In January 2006, White River Bancshares issued an additional $15.0 million of common stock. To maintain our 20% ownership, we invested an additional $3.0 million in White River Bancshares at that time. As of March 31, 2007, White River Bancshares had total assets of $357.8 million, loans of $316.3 million, and total deposits of $279.4 million.

     During April 2007, White River Bancshares acquired 100% of the stock of Brinkley Bancshares, Inc. As a result, we anticipate making a $2.6 million additional investment in White River Bancshares to maintain our 20% ownership. This additional investment is subject to regulatory approval.

     In our continuing evaluation of our growth plans for the Company, we believe our best prospects include bank acquisitions and de novo branching. Bank acquisitions provide us the greatest opportunity for immediate earnings per share improvement. However, the current market multiples for bank acquisitions make it difficult to accomplish an acquisition without dilution to tangible book value. In comparison, de novo branching usually creates dilution to earnings per share in the short term but does not create the burden of tangible book value dilution. We will continue to evaluate what is in the best interest of our Company. Our goal in making these decisions is to maximize the return to our investors.

De Novo Branching

     We intend to continue to open new (commonly referred to de novo) branches in our current markets and in other attractive market areas if opportunities arise. During 2007, the Company opened its second branch location in the Florida community of Key West. Presently, the Company has one Florida de novo branch location in Key Largo scheduled to open in the second quarter of 2007 and four pending de novo branch locations in the Arkansas communities of Searcy (2), Bryant, and Quitman.

     During the second quarter of 2007, the Company will consolidate two of its Cabot branch locations into one new financial center.

Results of Operations

     Our net income increased $1.3 million, or 35.4%, to $4.8 million for the three-month period ended March 31, 2007, from $3.5 million for the same period in 2006. On a diluted earnings per share basis, our net earnings increased 12.5% to $0.27 for the three-month period ended March 31, 2007, as compared to $0.24 for the same period in 2006. The increase in earnings is primarily associated with organic growth of our bank subsidiaries.

     Net Interest Income. Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate.

     Net interest income on a fully taxable equivalent basis increased $1.3 million, or 8.3%, to $16.7 million for the three-month period ended March 31, 2007, from $15.4 million for the same period in 2006. This increase in net interest income was the result of a $6.5 million increase in interest income offset by $5.2 million increase in interest expense. The $6.5 million increase in interest income was primarily the result of organic growth of our bank subsidiaries combined with the repricing of our earning assets in the higher interest rate environment. The higher level of earning assets resulted in an improvement in interest income of $4.2 million, and our earning assets repricing in the higher interest rate environment resulted in a $2.3 million increase in interest income for the three-month period ended March 31, 2007. The $5.2 million increase in interest expense for the three-month period ended March 31, 2007, is primarily the result of organic growth of our bank subsidiaries and of our interest bearing liabilities repricing in the higher interest rate environment. The higher level of interest-bearing liabilities resulted in additional interest expense of $1.6 million. The repricing of our interest bearing liabilities in the higher interest rate environment resulted in a $3.6 million increase in interest expense for the three-month period ended March 31, 2007.

     Net interest margin, on a fully taxable equivalent basis, was 3.42% in the first quarter of 2007 compared to 3.53% in the first quarter of 2006, a decrease of eleven basis points. The Company’s first quarter 2007 net interest margin of 3.42% was unchanged from the fourth quarter of 2006. During 2006, competitive pressures and a slightly inverted yield curve put pressure on the Company’s net interest margin. While the current competitive pressures have eased somewhat during 2007, the Company’s net interest margin on a linked quarter basis was still projected to decline as a result of the $35 million purchase of bank owned life insurance late in the fourth quarter of 2006. Yet, the Company was able to rise above this expectation by achieving strong loan growth that was funded by both the run off in the investment portfolio and sensibly priced interest-bearing liabilities.

     Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month periods ended March 31, 2007 and 2006, as well as changes in fully taxable equivalent net interest margin for the three-month periods ended March 31, 2007, compared to the same period in 2006.

Table 1: Analysis of Net Interest Income

		Three Months Ended
		March 31,
		2007				2006
		(Dollars in thousands)
Interest income		$	34,184			$	27,734
Fully taxable equivalent adjustment			610				583
Interest income — fully taxable equivalent			34,794				28,317
Interest expense			18,122				12,928
Net interest income — fully taxable equivalent		$	16,672			$	15,389
Yield on earning assets — fully taxable equivalent			7.13	%			6.50	%
Cost of interest-bearing liabilities			4.23				3.39
Net interest spread — fully taxable equivalent			2.90				3.11
Net interest margin — fully taxable equivalent			3.42				3.53