UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended ~~September 30, 2007~~March 31, 2008


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

For the Transition period from to

Commission File Number: 000-51904

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Arkansas		71-0682831

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

719 Harkrider, Suite 100, Conway, Arkansas		72032

(Address of principal executive offices)		(Zip Code)

(501) 328-4770

(Registrant’s telephone number, including area code)

Not Applicable

Former name, former address and former fiscal year, if changed since last report

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.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See ~~definition~~the definitions of “large accelerated filer”, “accelerated ~~filer~~filer” and ~~large accelerated filer~~“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

~~Large accelerated filer~~o ~~Accelerated filer~~o ~~Non-accelerated filer~~


Large accelerated filer:o	Accelerated filer:þ	Non-accelerated filer:o	Smaller reporting company:o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

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: ~~17,244,848~~18,342,886 shares as of ~~October 31, 2007.~~April 25, 2008.

HOME BANCSHARES, INC.
FORM 10-Q
~~September 30, 2007~~March 31, 2008

INDEX


					Page No.
Part I:	Financial Information

Item 1.	Financial Statements

		Consolidated Balance Sheets — ~~September 30, 2007~~March 31, 2008 (Unaudited) and December 31, ~~2006~~2007		4

		Consolidated Statements of Income (Unaudited) — Three months ended March 31, 2008 and ~~nine months ended September 30,~~ 2007 ~~and 2006~~		5

		Consolidated Statements of Stockholders’ Equity (Unaudited) — ~~Nine~~Three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~		6-7

		Consolidated Statements of Cash Flows (Unaudited) — ~~Nine~~Three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~		8

		Condensed Notes to Consolidated Financial Statements (Unaudited)		~~9-23~~9-24

		Report of Independent Registered Public Accounting Firm		2425

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~25-54~~26-53

Item 3.	Quantitative and Qualitative Disclosure About Market Risk		~~55-57~~54-56

Item 4. Controls and Procedures		57

~~Item 4.~~Part II: Other Information

~~Controls and Procedures~~Item 1. Legal Proceedings		58

~~Part II:~~Item 1A. Risk Factors		~~Other Information~~58

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 1.3. Defaults Upon Senior Securities		58

~~Legal Proceedings~~Item 4. Submission of Matters to a Vote of Security Holders		58

Item 5. Other Information		58

Item 6. Exhibits		58

Signatures		59

~~Item1A.~~	~~Risk Factors~~Exhibit List		59

~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~		59

~~Item 3.~~		~~Defaults Upon Senior Securities~~		59

~~Item 4.~~		~~Submission of Matters to a Vote of Security Holders~~		59

~~Item 5.~~		~~Other Information~~		59

~~Item 6.~~		~~Exhibits~~		59

~~Signatures~~				60
Awareness of Independent Registered Public Accounting Firm
CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a)
CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a)
CEO Certification Pursuant ~~18 U.S.C.~~to Section ~~1350~~906
CFO Certification Pursuant ~~18 U.S.C.~~to Section ~~1350~~906

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.~~5, 2008.

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets


(In thousands, except share data)		September 30, 2007			December 31, 2006			March 31, 2008			December 31, 2007
		(Unaudited)						(Unaudited)
Assets
Cash and due from banks		$	46,471		$	53,004		$	53,862		$	51,468
Interest-bearing deposits with other banks			2,573			6,696			5,828			3,553

Cash and cash equivalents			49,044			59,700			59,690			55,021
Federal funds sold			11,145			9,003			37,331			76
Investment securities — available for sale			447,826			531,891			403,755			430,399
Loans receivable			1,560,374			1,416,295			1,866,969			1,606,994
Allowance for loan losses			(28,636	)		(26,111	)		(37,075	)		(29,406	)

Loans receivable, net			1,531,738			1,390,184			1,829,894			1,577,588
Bank premises and equipment, net			66,770			57,339			71,155			67,702
Foreclosed assets held for sale			4,915			435			5,097			5,083
Cash value of life insurance			47,468			42,149			48,678			48,093
Investments in unconsolidated affiliates			14,982			12,449			1,424			15,084
Accrued interest receivable			15,186			13,736			14,649			14,321
Deferred tax asset, net			9,499			8,361			10,583			9,163
Goodwill			37,527			37,527			49,849			37,527
Core deposit and other intangibles			8,141			9,458			7,934			7,702
Mortgage servicing rights									2,333			—
Other assets			23,431			18,416			28,773			23,871

Total assets		$	2,267,672		$	2,190,648		$	2,571,145		$	2,291,630


Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing		$	217,666		$	215,142		$	255,532		$	211,993
Savings and interest-bearing transaction accounts			569,797			582,425			687,252			582,477
Time deposits			811,108			809,627			911,954			797,736

Total deposits			1,598,571			1,607,194			1,854,738			1,592,206
Federal funds purchased			8,690			25,270			—			16,407
Securities sold under agreements to repurchase			131,007			118,825			114,589			120,572
FHLB borrowed funds			226,028			151,768			249,848			251,750
Accrued interest payable and other liabilities			12,204			11,509			17,936			13,067
Subordinated debentures			44,595			44,663			47,643			44,572

Total liabilities			2,021,095			1,959,229			2,284,754			2,038,574
Stockholders’ equity:
Common stock, par value $0.01 in 2007 and 2006; shares authorized 50,000,000 in 2007 and 25,000,000 in 2006; shares issued and outstanding 17,243,036 in 2007 and 17,205,649 in 2006			172			172
Common stock, par value $0.01 in 2008 and 2007; shares authorized 50,000,000 in 2008 and 2007; shares issued and outstanding 18,337,222 in 2008 and 17,250,036 in 2007									183			173
Capital surplus			195,429			194,595			220,052			195,649
Retained earnings			54,871			41,544			65,575			59,489
Accumulated other comprehensive loss			(3,895	)		(4,892	)
Accumulated other comprehensive income (loss)									581			(2,255	)

Total stockholders’ equity			246,577			231,419			286,391			253,056

Total liabilities and stockholders’ equity		$	2,267,672		$	2,190,648		$	2,571,145		$	2,291,630

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Income


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
(In thousands, except per share data)	2007			2006			2007			2006			2008			2007
				(Unaudited)									(Unaudited)
Interest income:
Loans	$	31,116		$	26,748		$	89,180		$	72,593		$	33,245		$	28,288
Investment securities
Taxable		4,133			4,738			12,992			14,174			3,762			4,586
Tax-exempt		1,043			883			3,094			2,815			1,168			1,026
Deposits — other banks		53			38			132			103			55			49
Federal funds sold		36			51			311			393			166			235

Total interest income		36,381			32,458			105,709			90,078			38,396			34,184


Interest expense:
Interest on deposits		14,416			12,010			42,640			32,683			13,522			14,133
Federal funds purchased		194			178			646			636			69			205
FHLB borrowed funds		2,426			1,825			6,270			4,787			2,575			1,811
Securities sold under agreements to repurchase		1,267			1,258			3,772			3,122			588			1,224
Subordinated debentures		758			751			2,254			2,245			811			749

Total interest expense		19,061			16,022			55,582			43,473			17,565			18,122


Net interest income		17,320			16,436			50,127			46,605			20,831			16,062
Provision for loan losses		547			649			2,047			1,723			4,809			820

Net interest income after provision for loan losses		16,773			15,787			48,080			44,882			16,022			15,242


Non-interest income:
Service charges on deposit accounts		2,816			2,354			8,073			6,669			3,097			2,588
Other services charges and fees		1,342			541			4,176			1,736
Trust fees		27			166			81			487
Other service charges and fees														1,763			1,500
Data processing fees		192			215			619			623			210			218
Mortgage banking income		451			435			1,277			1,285
Mortgage lending income														632			348
Mortgage servicing income														231			—
Insurance commissions		153			153			613			642			272			289
Income from title services		181			233			575			752			168			156
Increase in cash value of life insurance		607			55			1,822			161			585			598
Dividends from FHLB, FRB & bankers’ bank		218			180			652			440			281			227
Equity in earnings of unconsolidated affiliates		47			(65	)		(123	)		(213	)
Equity in earnings (loss) of unconsolidated affiliates														102			(114	)
Gain on sale of equity investment														6,102			—
Gain on sale of SBA loans		—			—			170			34			101			—
Gain (loss) on sale of premises and equipment, net		(31	)		129			150			157
Gain on securities, net		—			—			—			1
Gain (loss) on sale of premises and equipment														(2	)		14
Gain (loss) on OREO														(380	)		37
Gain (loss) on securities														—			—
Other income		309			302			1,015			924			372			344

Total non-interest income		6,312			4,698			19,100			13,698			13,534			6,205


Non-interest expense:
Salaries and employee benefits		7,739			7,376			22,936			22,123			9,278			7,440
Occupancy and equipment		2,446			2,223			6,998			6,351			2,702			2,210
Data processing expense		644			651			1,958			1,888			786			644
Other operating expenses		4,770			3,987			13,965			11,637			5,917			4,447

Total non-interest expense		15,599			14,237			45,857			41,999			18,683			14,741

Income before income taxes		7,486			6,248			21,323			16,581			10,873			6,706
Income tax expense		2,258			1,960			6,273			5,141			3,595			1,945

Net income available to all shareholders		5,228			4,288			15,050			11,440
Less: Preferred stock dividends		—			49			—			359

Income available to common shareholders	$	5,228		$	4,239		$	15,050		$	11,081
Net income													$	7,278		$	4,761

Basic earnings per share	$	0.30		$	0.26		$	0.87		$	0.82		$	0.40		$	0.28

Diluted earnings per share	$	0.30		$	0.25		$	0.86		$	0.74		$	0.39		$	0.27

See Condensed Notes to Consolidated Financial ~~Statement.~~Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

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 — — — — 11,440 — 11,440
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $903 — — — — — 1,409 1,409
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate — — — — — 10 10

Comprehensive income 12,859
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 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 47,597 shares of common stock from exercise of stock options — — — 446 — — 446
Tax benefit from stock options exercised — — — 187 — — 187
Share-based compensation — — — 303 — — 303
Cash dividends — Preferred Stock A, $0.1458 per share — — — — (303 ) — (303 )
Cash dividends — Preferred Stock B, $0.3325 per share — — — — (56 ) — (56 )
Cash dividends — Common Stock, $0.065 per share — — — — (916 ) — (916 )

Balances at September 30, 2006 (unaudited)
— — 172 194,406 37,496 (6,484 ) 225,590
Comprehensive income (loss):
Net income — — — — 4,478 — 4,478
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $1,023 — — — — — 1,585 1,585
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate — — — — — 7 7

Comprehensive income 6,070
Issuance of 9,419 shares of common stock from exercise of stock options — — — 88 — — 88
Tax benefit from stock options exercised — — — 24 — — 24
Share-based compensation — — — 77 — — 77
Cash dividends — Common Stock, $0.025 per share — — — — (430 ) — (430 )

Balances at December 31, 2006
— — 172 194,595 41,544 (4,892 ) 231,419
Three Months Ended March 31, 2008 and 2007


								Accumulated
								Other
	Common		Capital		Retained			Comprehensive
(In thousands, except share data)	Stock		Surplus		Earnings			Income (Loss)			Total

Balance at January 1, 2007	$	172	$	194,595	$	41,544		$	(4,892	)	$	231,419
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
Net 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
Comprehensive income (loss):
Net income		—		—		15,684			—			15,684
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $1,142		—		—		—			1,770			1,770
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate		—		—		—			95			95

Comprehensive income												17,549
Net issuance of 28,098 shares of common stock from exercise of stock options		1		231		—			—			232
Tax benefit from stock options exercised		—		141		—			—			141
Share-based compensation		—		347		—			—			347
Cash dividends — Common Stock, $0.12 per share		—		—		(2,070	)		—			(2,070	)

Balances at December 31, 2007		173		195,649		59,489			(2,255	)		253,056

See Condensed Notes to Consolidated Financial ~~Statement.~~Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity — Continued

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 — — — — 15,050 — 15,050
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $623 — — — — — 966 966
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate — — — — — 31 31

Comprehensive income 16,047
Net issuance of 37,387 shares of common stock from exercise of stock options — — — 276 — — 276
Tax benefit from stock options exercised — — — 218 — — 218
Share-based compensation — — — 340 — — 340
Cash dividends — Common Stock, $0.10 per share — — — — (1,723 ) — (1,723 )
��
Balances at September 30, 2007
$ — $ — $ 172 $ 95,429 $ 54,871 $ (3,895 ) $ 246,577

Three Months Ended March 31, 2008 and 2007


								Accumulated
								Other
	Common		Capital		Retained			Comprehensive
(In thousands, except share data)	Stock		Surplus		Earnings			Income (Loss)		Total

Cumulative effect of adoption of EITF 06-4		—		—		(276	)		—		(276	)
Comprehensive income (loss):
Net income		—		—		7,278			—		7,278
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $1,888		—		—		—			2,744		2,744
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate		—		—		—			92		92

Comprehensive income											10,114
Issuance of 1,083,802 common shares pursuant to acquisition of Centennial Bancshares, Inc.		10		24,245		—			—		24,255
Net issuance of 3,384 shares of common stock from exercise of stock options		—		23		—			—		23
Tax benefit from stock options exercised		—		18		—			—		18
Share-based compensation		—		117		—			—		117
Cash dividends — Common Stock, $0.05 per share		—		—		(916	)		—		(916	)

Balances at March 31, 2008 (unaudited)	$	183	$	220,052	$	65,575		$	581	$	286,391

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Cash Flows


	Period Ended September 30,						Period Ended March 31,
(In thousands)	2007			2006			2008			2007
	(Unaudited)						(Unaudited)
Operating Activities
Net income	$	15,050		$	11,440		$	7,278		$	4,761
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		3,342			3,416			1,388			1,065
Amortization/Accretion		1,378			1,861			667			305
Share-based compensation		340			303			117			109
Tax benefits from stock options exercised		(218	)		(187	)		(18	)		(103	)
Gain on sale of assets		(232	)		(443	)
Provision for loan losses		2,047			1,723
Loss (gain) on assets								281			12
Gain on sale of equity investment								(6,102	)		—
Provision for loan loss								4,809			820
Deferred income tax benefit		(1,788	)		(1,121	)		(1,475	)		(597	)
Equity in earnings of unconsolidated affiliates		123			213
Equity in loss of unconsolidated affiliates								(102	)		114
Increase in cash value of life insurance		(1,822	)		(161	)		(585	)		(598	)
Originations of mortgage loans held for sale		(74,654	)		(67,353	)		(34,959	)		(17,609	)
Proceeds from sales of mortgage loans held for sale		72,516			67,965			34,062			15,619
Changes in assets and liabilities:
Accrued interest receivable		(1,450	)		(2,736	)		837			(595	)
Other assets		(5,015	)		(9,568	)		(2,958	)		(3,046	)
Accrued interest payable and other liabilities		918			3,916			3,474			786

Net cash provided by operating activities		10,535			9,268			6,714			1,043

Investing Activities
Net (increase) decrease in federal funds sold		(2,142	)		(24,026	)		(34,465	)		(1,682	)
Net (increase) decrease in loans		(149,066	)		(185,106	)		(68,912	)		(57,088	)
Purchases of investment securities available for sale		(133,446	)		(88,944	)		(9,275	)		(84,664	)
Proceeds from maturities of investment securities available for sale		218,993			110,725			65,862			141,406
Proceeds from sales of investment securities available for sale		—			1,000
Proceeds from sale of loans		2,957			540			1,904			—
Proceeds from foreclosed assets held for sale		548			1,626			62			110
Purchases of premises and equipment, net		(12,923	)		(5,900	)		(1,429	)		(4,491	)
Purchase of bank owned life insurance		(3,497	)		—
Investments in unconsolidated affiliates		(2,625	)		(3,000	)
Acquisition of Centennial Bancshares, Inc., net funds received								1,663			—
Proceeds from sale of investment in unconsolidated affiliate								19,862			—

Net cash used in investing activities		(81,201	)		(193,085	)		(24,728	)		(6,409	)

Financing Activities
Net increase (decrease) in deposits		(8,623	)		130,425			83,395			21,066
Net increase (decrease) in securities sold under agreements to repurchase		12,182			12,621			(5,983	)		9,510
Net increase (decrease) in federal funds purchased		(16,580	)		(44,495	)		(16,407	)		180
Net increase (decrease) in FHLB and other borrowed funds		74,260			54,063			(37,447	)		(23,926	)
Repayment of line of credit		—			(14,000	)
Proceeds from initial public offering, net		—			47,205
Proceeds from exercise of stock options		276			456			23			123
Tax benefits from stock options exercised		218			187			18			103
Conversion of preferred stock A fractional shares		—			(2	)
Dividends paid		(1,723	)		(1,275	)		(916	)		(430	)

Net cash provided by financing activities		60,010			185,185			22,683			6,626

Net change in cash and cash equivalents		(10,656	)		1,368			4,669			1,260
Cash and cash equivalents — beginning of year		59,700			44,679			55,021			59,700

Cash and cash equivalents — end of period	$	49,044		$	46,047		$	59,690		$	60,960

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~~six wholly owned community bank subsidiaries. Three of our bank subsidiaries are located in the central Arkansas market area, a fourth serves central and southern Arkansas, a fifth serves Stone County in north central Arkansas, and a ~~fifth~~sixth 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, 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 had a 20.4% ~~and 20.1%~~ investment in White River Bancshares, Inc. (WRBI) at ~~September 30, 2007 and~~ December 31, ~~2006, respectively.~~2007. The Company’s investment in WRBI at ~~September 30, 2007 and~~ December 31, ~~2006~~2007 totaled ~~$13.7 million and $11.1 million, respectively. The~~$13.8 million. On March 3, 2008, WRBI repurchased the Company’s interest in WRBI which resulted in a one-time gain of $6.1 million. Prior to this date, the investment in WRBI iswas accounted for on the equity method. The Company’s share of WRBI operating income included in non-interest income ~~in the three months ended September 30, 2007~~during 2008 totaled $47,000. The Company’s share of WRBI operating loss included in non-interest income in the nine months ended September 30, 2007 totaled $123,000. The Company’s share of WRBI operating loss included in non-interest income in the three and nine months ended September 30, 2006 totaled $65,000 and $213,000, respectively. The Company’s share of WRBI unrealized gain on investment securities available for sale at September 30, 2007 amounted to $31,000. The Company’s share of WRBI unrealized loss on investment securities available for sale at September 30, 2006 amounted to $7,000.$102,000. See the “Acquisitions” footnote related to the Company’s acquisition and disposal of WRBI.

The Company has invested funds representing 100% ownership in ~~four~~five statutory trusts which issue trust preferred securities. The Company’s investment in these trusts was $1.4 million at March 31, 2008 and $1.3 million at ~~September 30, 2007 and~~ December 31, ~~2006,~~2007, 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 ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ and for the three-month ~~and nine-month~~ periods then ended:


	Three Months Ended September 30,					Nine Months Ended September 30,						March 31,
	2007		2006			2007			2006			2008		2007
			(In thousands)									(In thousands)
Assets	$	552,126	$	373,534		$	552,126		$	373,534		$	47,425	$	402,142
Liabilities		485,220		315,975			485,220			315,975			46,000		345,695
Equity		66,906		57,559			66,906			57,559			1,424		56,447
Net income (loss)		233		(319	)		(462	)		(992	)		163		(415	)

Interim financial information

The accompanying unaudited consolidated financial statements as of ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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~~2007 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 ~~and nine-month~~ periods ended ~~September 30:~~March 31:


	Three Months Ended					Nine Months Ended					2008		2007
	September 30,					September 30,					(In thousands)
	2007		2006			2007		2006
	(In thousands)
Net income available to all shareholders	$	5,228	$	4,288		$	15,050	$	11,440
Less: Preferred stock dividends		—		(49	)		—		(359	)

Income available to common shareholders	$	5,228	$	4,239		$	15,050	$	11,081

Net income											$	7,278	$	4,761

Average shares outstanding		17,239		16,361			17,231		13,585			18,335		17,219
Effect of potential share issuance for acquisition earn out												181		—
Effect of common stock options		298		192			290		134			276		282
Effect of preferred stock options		—		10			—		22
Effect of preferred stock conversions		—		728			—		1,674

Diluted shares outstanding		17,537		17,291			17,521		15,415			18,792		17,501


Basic earnings per share	$	0.30	$	0.26		$	0.87	$	0.82		$	0.40	$	0.28
Diluted earnings per share	$	0.30	$	0.25		$	0.86	$	0.74		$	0.39	$	0.27

2. Acquisitions

On ~~August 24, 2007,~~January 1, 2008, HBI ~~and~~acquired Centennial Bancshares, Inc. ~~(“CBI”) announced~~, an Arkansas bank holding company. Centennial Bancshares, Inc. owned Centennial Bank, located in Little Rock, Arkansas which had total assets of $234.1 million, loans of $192.8 million and total deposits of $178.8 million on the ~~signing~~date of ~~definitive agreement (the “Merger Agreement”)~~acquisition. The consideration for the ~~acquisition of CBI by HBI~~merger was $25.4 million, which was paid approximately 4.6%, or $1.2 million in ~~exchange for stock of HBI~~cash and cash (the “Merger”). Immediately after the Merger, Centennial Bank, a wholly owned subsidiary of CBI, will be operated as a subsidiary bank of HBI. The CBI shareholders that are accredited investors will receive whole95.4%, or $24.3 million, in shares of ~~HBI equal to~~ the ~~product~~Company’s common stock. In connection with the acquisition, $3.0 million of ~~16.8153~~the purchase price, consisting of $139,000 in cash and ~~the number of~~130,052 shares of ~~CBI surrendered.~~the Company’s common stock, was placed in escrow related to possible losses from identified loans and an IRS examination. In the first quarter of 2008, the IRS examination was completed which resulted in $1.0 million of the escrow proceeds being released. The ~~unaccredited investors, which are projected to represent a 2% ownership of CBI, will receive in the aggregate approximately $500,000 in cash. The Merger Agreement~~merger further provides for an earn out based upon 2008 earnings of up to a maximum of $4,000,000 which can be paid in cash or the Company’s stock ~~of HBI~~ at the election of the accredited shareholders. ~~Based upon~~As a result of this transaction, the ~~closing price~~Company recorded goodwill of ~~HBI stock on September 30, 2007~~$12.3 million and a core deposit intangible of ~~$21.79 per share the total purchase price excluding the earn out is approximately $24.8 million. The Merger is conditioned upon regulatory approval and other customary conditions.~~$694,000.

In January 2005, HBI purchased 20% of the common stock during the formation of White River Bancshares, Inc. of Fayetteville, Arkansas for $9.1 million. White River Bancshares 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. During April 2007, White River Bancshares acquired 100% of the stock of Brinkley Bancshares, Inc. in Brinkley, Arkansas. As a result, HBI made a $2.6 million additional investment in White River Bancshares on June 29, 2007 to maintain its 20% ownership. ~~At September 30, 2007,~~On March 3, 2008, White River BancShares repurchased HBI’s 20% investment in White River Bancshares ~~had approximately $507.8 million~~resulting in ~~total assets, $411.8 million in total loans and $424.6 million in total deposits.~~a one-time gain for HBI of $6.1 million.

3. Investment Securities

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


	September 30, 2007									March 31, 2008
	Available for Sale									Available for Sale
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
	(In thousands)									(In thousands)
U.S. government-sponsored enterprises	$	148,815	$	98	$	(2,313	)	$	146,600	$	85,367	$	1,042	$	(8	)	$	86,401
Mortgage-backed securities		191,777		50		(4,501	)		187,326		194,077		1,555		(1,517	)		194,115
State and political subdivisions		101,803		1,117		(754	)		102,166		111,915		1,520		(1,106	)		112,329
Other securities		11,893		—		(159	)		11,734		11,266		—		(356	)		10,910


Total	$	454,288	$	1,265	$	(7,727	)	$	447,826	$	402,625	$	4,117	$	(2,987	)	$	403,755


	December 31, 2006									December 31, 2007
	Available for Sale									Available for Sale
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
	(In thousands)									(In thousands)
U.S. government-sponsored enterprises	$	199,085	$	79	$	(2,927	)	$	196,237	$	126,898	$	268	$	(872	)	$	126,294
Mortgage-backed securities		225,747		41		(5,988	)		219,800		184,949		179		(3,554	)		181,574
State and political subdivisions		102,536		1,360		(496	)		103,400		111,014		1,105		(812	)		111,307
Other securities		12,631		—		(177	)		12,454		11,411		—		(187	)		11,224


Total	$	539,999	$	1,480	$	(9,588	)	$	531,891	$	434,272	$	1,552	$	(5,425	)	$	430,399

Assets, principally investment securities, having a carrying value of approximately ~~$208.8~~$169.3 million and ~~$287.2~~$210.6 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, 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 ~~$131.0~~$114.6 million and ~~$118.8~~$120.6 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively.

During ~~2007,~~ the ~~Company did not sell any available for sale securities. During the three months~~three-month periods ended ~~September 30, 2006,~~March 31, 2008 and 2007, no available for sale securities were sold. During the nine months ended September 30, 2006, $1.0 million in available for sale securities were sold. The gross realized gains on such sales totaled $1,000. The income tax expense/benefit related to net security gains and losses was 39.23% of the gross amounts for the periods.

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.~~rates during 2005 and 2006. 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.~~maturity. 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~~other-than-temporary, impairment is identified.

4: Loans Receivable and Allowance for Loan Losses

The various categories of loans are summarized as follows:


	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007
	(In thousands)				(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	590,083	$	465,306	$	765,881	$	607,638
Construction/land development		365,236		393,410		341,442		367,422
Agricultural		22,432		11,659		24,739		22,605
Residential real estate loans
Residential 1-4 family		251,057		229,588		343,475		259,975
Multifamily residential		38,528		37,440		73,220		45,428

Total real estate		1,267,336		1,137,403		1,548,757		1,303,068
Consumer		45,212		45,056		55,251		46,275
Commercial and industrial		206,744		206,559		224,756		219,062
Agricultural		25,506		13,520		17,559		20,429
Other		15,576		13,757		20,646		18,160

Total loans receivable before allowance for loan losses		1,560,374		1,416,295		1,866,969		1,606,994
Allowance for loan losses		28,636		26,111		37,075		29,406

Total loans receivable, net	$	1,531,738	$	1,390,184	$	1,829,894	$	1,577,588

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


	2007			2006			2008		2007
	(In thousands)						(In thousands)
Balance, beginning of year	$	26,111		$	24,175		$	29,406	$	26,111
Additions
Provision charged to expense		2,047			1,723			4,809		820
Allowance for loan loss of Centennial Bancshares, Inc.								3,382		—

Net (recoveries) loans charged off
Losses charged to allowance, net of recoveries of $818 and $1,039 for the first nine months of 2007 and 2006, respectively		(478	)		(54	)
Losses charged to allowance, net of recoveries of $101 and $103 for the first three months of 2008 and 2007, respectively								522		(3	)


Balance, September 30	$	28,636			25,952
Balance, March 31							$	37,075		26,934


Additions
Provision charged to expense					584					2,422

Net loans charged off
Losses charged to allowance, net of recoveries of $104 for the last three months of 2006					425
Net (recoveries) loans charged off
Losses charged to allowance, net of recoveries of $776 for the last nine months of 2007										(50	)


Balance, end of year				$	26,111				$	29,406

At ~~September 30, 2007 and~~March 31, 2008, there were no accruing loans delinquent 90 days or more. At December 31, ~~2006,~~2007, accruing loans delinquent 90 days or more totaled ~~$150,000 and $641,000, respectively.~~$301,000. Non-accruing loans at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006~~2007 were ~~$2.6~~$12.0 million and ~~$3.9~~$3.0 million, respectively.

During the three-month ~~periods~~period ended ~~September 30,~~March 31, 2008, the Company sold $1.8 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $101,000. During the three-month period ended March 31, 2007, ~~and 2006,~~ the Company did not sell any of the guaranteed portion of SBA loans. During the nine-month periods ended September 30, 2007 and 2006, the Company sold $2.8 million and $506,000, respectively, of the guaranteed portion of certain SBA loans, which resulted in gains of $170,000 and $34,000, respectively.

Mortgage loans held for sale of approximately ~~$4.5~~$5.7 million and ~~$2.4~~$4.8 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, 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 ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, impaired loans totaled ~~$7.9~~$33.2 million and ~~$11.2~~$11.9 million, respectively. As of ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ average impaired loans were ~~$11.8~~$22.5 million and ~~$6.2~~$10.0 million, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans were ~~$1.5~~$6.8 million and ~~$2.1~~$2.6 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. Interest recognized on impaired loans during ~~2007~~2008 and ~~2006~~2007 was immaterial.

5: Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount of the Company’s goodwill and core deposits and other intangibles for the three-month period ended March 31, 2008 and for the year ended December 31, 2007, were as follows:


	March 31,		December 31,
	2008		2007
	(In thousands)
Goodwill
Balance, beginning of period	$	37,527	$	37,527
Acquisition of Centennial Bancshares, Inc.		12,322		—

Balance, end of period	$	49,849	$	37,527


	2008			2007
	(In thousands)
Core Deposit and Other Intangibles
Balance, beginning of period	$	7,702		$	9,458
Acquisition of Centennial Bancshares, Inc.		694			—
Amortization expense		(462	)		(439	)

Balance, March 31	$	7,934			9,019

Amortization expense					(1,317	)

Balance, end of year				$	7,702

The carrying basis and accumulated amortization of ~~the Company’s~~ core deposits and other intangibles at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006, were as follows:~~2007 were:


	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007
	(In thousands)				(In thousands)
Gross carrying amount	$	13,457	$	13,457	$	14,151	$	13,457
Accumulated amortization		5,316		3,999		6,217		5,755


Net carrying amount	$	8,141	$	9,458	$	7,934	$	7,702

Core deposit and other intangible amortization for the three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ was approximately ~~$439,000. Core deposit intangible amortization for the nine months ended September 30, 2007~~$462,000 and ~~2006 was approximately $1.3 million.~~$439,000, respectively. Including all of the mergers completed, HBI’s estimated amortization expense of core deposits and other intangibles for each of the years ~~2007~~2008 through ~~2011~~2012 is: ~~2007 — $1.7 million;~~ 2008 — ~~$1.7~~$1.8 million; 2009 — ~~$1.7~~$1.8 million; 2010 — ~~$1.6~~$1.8 million; 2011 - - $1.1 million; and ~~2011~~2012 — ~~$981,000.~~$619,000.

~~The carrying amount of the Company’s goodwill was $37.5 million at September 30, 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 ~~$432.6~~$532.2 million and ~~$486.3~~$435.5 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. Interest expense applicable to certificates in excess of $100,000 totaled ~~$5.9~~$5.7 million and ~~$5.0~~$5.8 million for the three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $17.2 million and $13.6 million for the nine months ended September 30, 2007 and 2006,~~ respectively.

Deposits totaling approximately ~~$188.7~~$228.5 million and ~~$203.0~~$185.6 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

7: FHLB Borrowed Funds

The Company’s FHLB borrowed funds were ~~$226.0~~$249.8 million and ~~$151.8~~$251.8 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. The outstanding balance for ~~September 30, 2007~~March 31, 2008 includes ~~$87.0~~$10.0 million of short-term advances and ~~$139.0~~$239.8 million of long-term advances. The outstanding balance for December 31, ~~2006~~2007 includes ~~$5.0~~$116.0 million of short-term advances and ~~$146.8~~$135.8 million of long-term advances. The long-term FHLB advances mature from ~~2007~~the current year to ~~2020~~2025 with interest rates ranging from ~~2.019%~~1.955% to ~~5.575%~~5.416% and are secured by loans ~~in the Company’s loan portfolio.~~and investments securities.

8: Subordinated Debentures

Subordinated Debentures at ~~September 30,~~March 31, 2007 and December 31, ~~2006~~2007 consisted of guaranteed payments on trust preferred securities with the following components:


	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007
	(In thousands)				(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, 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, currently callable without penalty					$	20,619	$	20,619
Subordinated debentures, issued 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		3,356		3,424		3,311		3,333
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 2003, due 2033, floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, currently callable 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		15,465		15,465
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2011 without penalty						3,093		—

Total subordinated debt	$	44,595	$	44,663	$	47,643	$	44,572

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 ~~and nine-month~~ periods ended ~~September 30:~~March 31:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006			2008			2007
	(In thousands)												(In thousands)
Current:
Federal	$	2,568		$	1,859		$	7,086		$	5,224		$	4,345		$	2,252
State		363			369			970			1,038			725			290

Total current		2,931			2,228			8,056			6,262			5,070			2,542


Deferred:
Federal		(567	)		(224	)		(1,499	)		(935	)		(1,245	)		(501	)
State		(106	)		(44	)		(284	)		(186	)		(230	)		(96	)

Total deferred		(673	)		(268	)		(1,783	)		(1,121	)		(1,475	)		(597	)

Provision for income taxes	$	2,258		$	1,960		$	6,273		$	5,141		$	3,595		$	1,945

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three-month ~~and nine-month~~ periods ended ~~September 30:~~March 31:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006			2008			2007
Statutory federal income tax rate		35.00	%		35.00	%		35.00	%		35.00	%		35.00	%		35.00	%
Effect of nontaxable interest income		(4.60	)		(4.51	)		(4.75	)		(5.48	)		(4.62	)		(4.94	)
Cash value of life insurance		(2.83	)		(0.30	)		(2.99	)		(0.34	)		(1.89	)		(3.12	)
State income taxes, net of federal benefit		2.23			2.37			2.09			2.12			2.96			1.88
Other		0.36			(1.19	)		0.07			(0.29	)		1.61			0.18

Effective income tax rate		30.16	%		31.37	%		29.42	%		31.01	%		33.06	%		29.00	%

1617

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:


	September 30,		December 31,		March 31,			December 31,
	2007		2006		2008			2007
	(In thousands)				(In thousands)
Deferred tax assets:
Allowance for loan losses	$	11,212	$	10,219	$	14,421		$	11,512
Deferred compensation		341		244		449			397
Defined benefit pension plan		—		107
Stock options		283		155		374			328
Non-accrual interest income		513		489		603			562
Investment in unconsolidated subsidiary		552		485		104			519
Unrealized loss on securities		2,534		3,179
Unrealized (gain) loss on securities						(373	)		1,519
Net operating loss carryforward						491			—
Other		148		170		658			148

Gross deferred tax assets		15,583		15,048		16,727			14,985

Deferred tax liabilities:
Accelerated depreciation on premises and equipment		1,964		2,082		2,032			1,997
Core deposit intangibles		3,061		3,552		3,003			2,897
Market value of cash flow hedge		3		25		—			4
FHLB dividends		639		567		762			681
Other		417		461		347			243

Gross deferred tax liabilities		6,084		6,687		6,144			5,822

Net deferred tax assets	$	9,499	$	8,361	$	10,583		$	9,163

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 shareholders 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 holders 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~~has a stock option 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.performance incentive plan. The purpose of the ~~Plan~~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. This plan ~~which was amended at the 2007 shareholder meeting~~ provides for the granting of incentive nonqualified options to purchase up to 1.5 million shares of common stock in the Company.

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, is approximately ~~$650,000~~$582,000 as of ~~September 30, 2007.~~

As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the three months ended September 30, 2007, are $118,000 and $72,000 lower, respectively, than if the Company had continued to account for share-based compensation under the intrinsic method. As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the nine months ended September 30, 2007, are $340,000 and $207,000 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 September 30, 2007, would have been $0.31 and $0.30, respectively, if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $0.30. Basic and diluted earnings per share for the nine months ended September 30, 2007, would have been $0.88 and $0.87, respectively, if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $0.87 and $0.86, 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.March 31, 2008. The intrinsic value of the stock options outstanding and stock options vested at ~~September 30, 2007~~March 31, 2008 was ~~$10.1~~$9.1 million and ~~$6.7~~$6.1 million, respectively. The intrinsic value of the stock options exercised during the three-month ~~and nine-month periods~~period ended ~~September 30, 2007~~March 31, 2008 was ~~$62,000 and $579,000, respectively.~~$46,000.

As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the three months ended September 30, 2006, are $98,000 and $67,000 lower, respectively, than if the Company had continued to account for share-based compensation under the intrinsic method. As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the nine months ended September 30, 2006, are $303,000 and $209,000 lower, respectively, than if the Company had continued to account for share-based compensation under the intrinsic method. Basic and diluted earnings per share were not impacted by SFAS 123(R) for the three months ended September 30, 2006. Basic and diluted earnings per share for the nine months ended September 30, 2006, would have been $0.83 and $0.76, respectively, if the Company had not adopted Statement 123(R), compared to reported basic and diluted earnings per share of $0.82 and $0.74, respectively.

The table below summarized the transactions under the Company’s stock option plans at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006~~2007 and changes during the ~~nine-month~~three-month period and year then ended, respectively:


	For Nine Months Ended					For the Year Ended					For the Three Months Ended					For the Year Ended
	September 30, 2007					December 31, 2006					March 31, 2008					December 31, 2007
				Weighted					Weighted					Weighted					Weighted
				Average					Average					Average					Average
				Exercisable					Exercisable					Exercisable					Exercisable
	Shares (000)			Price		Shares (000)			Price		Shares (000)			Price		Shares (000)			Price
Outstanding, beginning of year		1,032		$	11.39		630		$	10.07		1,014		$	12.01		1,032		$	11.39
Granted		41			23.02		410			14.22		42			20.37		41			23.02
Converted options of preferred stock A		—			—		9			8.66
Converted options of preferred stock B		—			—		71			6.36
Forfeited		(12	)		12.29		(31	)		12.90		(1	)		13.18		(14	)		12.27
Exercised		(37	)		7.40		(57	)		9.40		(3	)		6.87		(45	)		7.99

Outstanding, end of period		1,024			12.01		1,032			11.39		1,052			12.36		1,014			12.01

Exercisable, end of period		557		$	9.78		560		$	9.27		567		$	10.11		558		$	9.80

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 ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 and year-ended December 31, ~~2006,~~2007, was ~~$5.34~~$2.69 and ~~$3.39,~~$5.34, 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 Nine Months Ended			For the Year Ended			For the Three Months Ended			For the Year Ended
	September 30, 2007			December 31, 2006			March 31, 2008			December 31, 2007
Expected dividend yield		0.46	%		0.59	%		0.98	%		0.46	%
Expected stock price Volatility		9.44	%		9.23	%
Expected stock price volatility								2.70	%		9.44	%
Risk-free interest rate		4.65	%		4.80	%		3.36	%		4.65	%
Expected life of options	6.1 years			6.3 years			6.4 years			6.1 years

The following is a summary of currently outstanding and exercisable options at ~~September 30, 2007:~~March 31, 2008:


Options Outstanding							Options Exercisable
											Options Outstanding						Options Exercisable
													Weighted-
			Weighted-										Average
			Average		Weighted-				Weighted-				Remaining		Weighted-				Weighted-
	Options		Remaining		Average		Options		Average		Options		Contractual		Average		Options		Average
	Outstanding		Contractual Life		Exercise		Exercisable		Exercise		Outstanding		Life (in		Exercise		Exercisable		Exercise
Exercise Prices	Shares (000)		(in years)		Price		Shares(000)		Price		Shares (000)		years)		Price		Shares (000)		Price
$6.14 to $6.68		48		4.6	$	6.38		48	$	6.38
$7.33 to $8.66		204		4.6		7.43		204		7.43
$9.33 to $10.31		105		5.9		10.17		101		10.18
$ 6.14 to $ 6.68												46		4.2	$	6.39		46	$	6.39
$ 7.33 to $ 8.66												203		4.1		7.43		203		7.43
$ 9.33 to $10.31												103		5.4		10.18		102		10.18
$11.34 to $11.67		69		7.6		11.41		63		11.38		63		7.2		11.41		60		11.40
$12.67 to $12.67		184		9.2		12.67		128		12.67		184		8.7		12.67		131		12.67
$13.18 to $13.18		320		8.5		13.18		3		13.18		317		8.0		13.18		3		13.18
$19.79 to $21.17		53		8.9		21.14		10		21.17		95		9.0		20.80		10		21.17
$21.89 to $22.12		20		9.6		22.05		—		—		20		9.1		22.05		2		22.01
$23.27 to $24.15		21		9.3		24.11		—		—		21		8.8		24.11		10		24.13

		1,024						557				1,052						567

11. Non-Interest Expense

The table below shows the components of non-interest expense for three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2006:~~2007:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006		2008		2007
	(In thousands)								(In thousands)
Salaries and employee benefits	$	7,739	$	7,376	$	22,936	$	22,123	$	9,278	$	7,440
Occupancy and equipment		2,446		2,223		6,998		6,351		2,702		2,210
Data processing expense		644		651		1,958		1,888		786		644
Other operating expenses:
Advertising		646		568		1,855		1,738		614		629
Amortization of intangibles		439		439		1,317		1,303		462		439
Amortization of mortgage servicing rights										147		—
Electronic banking expense		618		152		1,803		430		752		530
Directors’ fees		225		203		617		609		231		174
Due from bank service charges		55		91		162		245		62		56
FDIC and state assessment		266		142		757		394		315		260
Insurance		211		285		683		741		228		244
Legal and accounting		308		191		930		747		280		319
Mortgage servicing expense										87		—
Other professional fees		201		204		585		487		833		170
Operating supplies		241		202		694		684		244		226
Postage		163		171		498		500		180		164
Telephone		227		251		688		755		231		228
Other expense		1,170		1,088		3,376		3,004		1,251		1,008

Total other operating expenses		4,770		3,987		13,965		11,637		5,917		4,447

Total non-interest expense	$	15,599	$	14,237	$	45,857	$	41,999	$	18,683	$	14,741

At its April 20, 2007 meeting, our Board of Directors approved a Chairman’s Retirement Plan for John Allison, our Chairman and CEO. Beginning on Mr. Allison’s 65th birthday, he will receive a $250,000 annual benefit to be paid for 10 consecutive years or until his death, whichever shall occur later. This will result in an ~~increase~~expense of approximately $388,000 and $535,000 to non-interest expense for 2007 and 2008, respectively. An expense of $130,000 ~~and $258,000~~ was accrued for the three ~~and nine~~ months ended ~~September 30, 2007, respectively.~~March 31, 2008. This expense was accrued using an 8 percent discount factor.

12: Concentration of Credit Risks

The Company’s primary market area is in central Arkansas, north central Arkansas, northwest Arkansas, southern 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 ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, commitments to extend credit of ~~$292.0~~$307.7 million and ~~$227.5~~$315.4 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 is dependent upon the credit worthiness of the borrower some of which are long-term. The maximum amount of future payments the Company could be required to make under these guarantees at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, is $17.8 million and ~~$16.1~~$15.8 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. A financial holding company is required to maintain risk based capital ratios for its subsidiary banks at or above well capitalized. As the result of ~~historical special dividends paid and~~ leveraged capital positions, the Company’s subsidiary banks do not have any significant undivided profits available for payment of dividends to the Company ~~without prior approval~~as of ~~the regulatory agencies at September 30, 2007.~~March 31, 2008.

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 ~~September 30, 2007,~~March 31, 2008, each of the ~~five~~six 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 ~~11.40%~~11.09%, ~~13.44%~~13.05%, and ~~14.69%~~14.31%, respectively, as of ~~September 30, 2007.~~March 31, 2008.

16: Additional Cash Flow Information

In connection with the Centennial Bancshares, Inc. acquisition accounting for using the purchase method, the Company acquired approximately $241.5 million in assets, assumed $218.9 million in liabilities, issued $24.3 million of equity and received net funds of $1.7 million during the three months ended March 31, 2008. The Company paid interest and taxes during the three ~~and nine~~ months ended as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended March 31,
	2007		2006		2007		2006		2008		2007
			(In thousands)						(In thousands)
Interest paid	$	18,587	$	15,528	$	55,531	$	42,354	$	18,440	$	18,739
Income taxes paid		1,620		1,100		7,320		4,520		650		350

17: Adoption of Recent Accounting Pronouncements

~~In February 2007,~~FAS 157

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards ~~Board (FASB) issued~~No. 157,Fair Value Measurements(FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the period.

FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


		Level 1		Quoted prices in active markets for identical assets or liabilities

		Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

		Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Available-for-sale securities are the only material instruments valued on a recurring basis which are held by the Company at fair value. The Company does not have any Level 1 securities. Primarily all of the Company’s securities are considered to be Level 2 securities. These Level 2 securities consist of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. Level 3 securities were immaterial.

Impaired loans are the only material instruments valued on a non-recurring basis which are held by the Company at fair value. Impaired loans are considered a Level 3 valuation.

Compared to prior years, the adoption of SFAS 157 did not have any impact on our 2008 consolidated financial statements.

FAS 159

Statement of Financial Accounting Standards No. 159, ~~“The~~The Fair Value Option for Financial Assets and Financial ~~Liabilities” to provide~~Liabilities(FAS 159) became effective for the Company on January 1, 2008. FAS 159 allows companies ~~with~~ an option to report selected financial assets and liabilities at fair value. Because we did not elect the fair value measurement provision for any of our financial assets or liabilities, the adoption of SFAS 159 did not have any impact on our 2008 consolidated financial statements. Presently, we have not determined whether we will elect the fair value measurement provisions for future transactions.

EITF 06-4 and 06-10

Effective January 1, 2008, the Company adopted EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements and EITF 06-10, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements. As a result of the adoption of EITF 06-4, the Company recognized the effect of applying the EITF with a change in accounting principle through a cumulative-effect adjustment to retained earnings for $276,000. Additionally, this change will result in an increase of approximately $100,000 in annual non-interest expense as a result of the mortality cost for 2008 and beyond. The ~~objective~~adoption of EITF 06-10 did not have any impact on our 2008 consolidated financial statements.

18: Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), Business Combinations, (“SFAS 141(R)”). SFAS 141(R), which replaces SFAS 141, Business Combinations, establishes accounting standards for all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree) including mergers and combinations achieved without the transfer of consideration. SFAS 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. Goodwill is measured as the excess of consideration transferred plus the fair value of any noncontrolling interest in the acquiree over the fair value of the identifiable net assets acquired. In the event that the fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest (referred to ~~improve financial reporting by providing entities with~~as a “bargain purchase”), SFAS 141(R) requires the ~~opportunity~~acquirer to ~~mitigate volatility~~recognize that excess in ~~reported~~ earnings ~~caused by measuring related~~as a gain attributable to the acquirer. In addition, SFAS 141(R) requires costs incurred to effect an acquisition to be recognized separately from the acquisition and requires the recognition of assets ~~and~~or liabilities ~~differently without having to apply complex hedge accounting provisions. This statement shall be effective~~arising from noncontractual contingencies as of the acquisition date only if it is more likely than not that they meet the definition of an asset or liability in FASB Concepts Statement No. 6, Elements of Financial Statements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of ~~each~~the first annual reporting ~~entity’s first~~period beginning on or after December 15, 2008, which for us is the fiscal year ~~that begins after November 15, 2007.~~beginning January 1, 2009. 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.~~operation.

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 September 30, 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, but does not expect it to have a material effect on the Company’s financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which provides clarification for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Interpretation is effective for fiscal years beginning after December 31, 2006. The Company adopted the Interpretation during the first quarter of 2007 without material effect on the Company’s financial position or results of operations.

~~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.~~

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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 ~~September 30, 2007~~March 31, 2008 and the related condensed consolidated statements of income for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ and statements of stockholders’ equity and cash flows for the ~~nine-month~~three-month periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007. 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~~2007 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,~~4, 2008, 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~~2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



	~~/s/ BKD, LLP~~

/s/ BKD, LLP

Little Rock, Arkansas
~~November 7, 2007~~May 5, 2008

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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,~~5, 2008, which includes the audited financial statements for the year ended December 31, ~~2006.~~2007.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~~six wholly owned bank subsidiaries. As of ~~September 30, 2007,~~March 31, 2008, we had, on a consolidated basis, total assets of ~~$2.27~~$2.57 billion, loans receivable of ~~$1.56~~$1.87 billion, total deposits of ~~$1.60~~$1.85 billion, and shareholders’ equity of ~~$246.6~~$286.4 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 As of and for the Nine Months
Ended September 30, Ended September 30,
2007 2006 2007 2006
(Dollars in thousands, except per share data)
Total assets $ 2,267,672 $ 2,113,498 $ 2,267,672 $ 2,113,498
Loans receivable 1,560,374 1,387,279 1,560,374 1,387,279
Total deposits 1,598,571 1,557,533 1,598,571 1,557,533
Net income 5,228 4,288 15,050 11,440
Basic earnings per share 0.30 0.26 0.87 0.82
Diluted earnings per share 0.30 0.25 0.86 0.74
Diluted cash earnings per share (1) 0.31 0.26 0.90 0.79
Annualized net interest margin — FTE 3.55 % 3.57 % 3.49 % 3.54 %
Efficiency ratio 62.47 63.72 62.65 65.66
Annualized return on average assets 0.92 0.83 0.91 0.77
Annualized return on average equity 8.60 7.81 8.48 8.25
Key Financial Measures


	As of or for the Three Months
	Ended March 31,
	2008			2007
	(Dollars in thousands, except per share data)
Total assets	$	2,571,145		$	2,203,576
Loans receivable		1,866,969			1,475,376
Total deposits		1,854,738			1,628,260
Net income		7,278			4,761
Basic earnings per share		0.40			0.28
Diluted earnings per share		0.39			0.27
Diluted cash earnings per share (1)		0.40			0.29
Annualized net interest margin — FTE		3.78	%		3.42	%
Efficiency ratio		51.94			62.52
Annualized return on average assets		1.15			0.88
Annualized return on average equity		10.35			8.30


(1)		See Table 16 “Diluted Cash Earnings Per Share” for a reconciliation to GAAP for diluted cash earnings per share.

Overview

Our net income increased ~~21.9%~~52.9% to ~~$5.2~~$7.3 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$4.3~~$4.8 million for the same period in ~~2006. For the nine months ended September 30, 2007, net income increased 31.6% to $15.1 million compared to $11.4 million for the same period in 2006.~~2007. On a diluted earnings per share basis, our net earnings increased ~~20.0%~~44.4% to ~~$0.30~~$0.39 for the three-month period ended ~~September 30, 2007,~~March 31, 2008, as compared to ~~$0.25~~$0.27 for the same period in ~~2006. Diluted earnings per share increased 16.2% to $0.86 per share for the nine months ended September 30, 2007 compared to $0.74 for the same period in 2006.~~2007. The increase in earnings ~~per share for~~is associated with our acquisition of Centennial Bancshares, Inc., a $6.1 million gain on the ~~three~~sale of our investment in White River Bancshares, Inc. and ~~nine months ended September 30, 2007 is primarily associated with~~ organic growth of our bank ~~subsidiaries.~~subsidiaries offset by the additional provision for loan loss associated with the unfavorable economic conditions, particularly in the Florida market and a $380,000 loss on a foreclosed owner occupied strip center in Florida and $660,000 of costs associated with an efficiency study.

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Our annualized return on average assets was ~~0.92%~~1.15% and ~~0.91%~~0.88% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007, ~~compared to 0.83% and 0.77% for the same periods in 2006,~~ respectively. Our annualized return on average equity was ~~8.60%~~10.35% and ~~8.48%~~8.30% for the three and ~~nine~~ months ended ~~September 30,~~March 31, 2008 and 2007, ~~compared to 7.81% and 8.25% for the same periods in 2006,~~ respectively. The increases were primarily due to the ~~improvement~~previously discussed improvements in net income for the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008, compared to the same ~~periods~~period in ~~2006.~~2007.

Our annualized net interest margin, on a fully taxable equivalent basis, was ~~3.55%~~3.78% and ~~3.49%~~3.42% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007, ~~compared to 3.57% and 3.54% for the same periods in 2006,~~ respectively. Competitive pressures and a slightly inverted yield curve put pressure on our net interest margin causing the decline from September 30, 2006 to September 30, 2007. The current competitive pressures have eased somewhat during 2007 allowing for an improvement of our net interest margin on a linked quarter basis by achievingOur strong loan growth ~~that~~which was partially funded by ~~maturities~~run off in the investment ~~portfolio.~~portfolio combined with improved pricing on our deposit growth allowed the Company to improve net interest margin.

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 ~~62.47%~~51.94% and ~~62.65%~~62.52% for three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007, ~~compared to 63.72% and 65.66% for the same periods in 2006,~~ respectively. The improvement in our efficiency ratio ~~for the three months ended September 30, 2007 compared to the same period in 2006~~ is primarily due to the ~~continued improvement~~$6.1 million gain on the sale of our ~~operations. The improvement~~investment in ~~our efficiency ratio for~~White River Bancshares, Inc. combined with the ~~nine months ended September 30, 2007 compared to the same period in 2006 is primarily due to an increase in net interest income from the net proceeds of our initial public offering and~~ continued improvement of our operations.

Our total assets increased ~~$77.0~~$279.5 million, an annualized growth of ~~4.7%~~49.1%, to ~~$2.27~~$2.57 billion as of ~~September 30, 2007,~~March 31, 2008, from ~~$2.19~~$2.29 billion as of December 31, ~~2006.~~2007. Our loan portfolio increased ~~$144.1~~$260.0 million, an annualized growth of ~~13.6%~~65.1%, to ~~$1.56~~$1.87 billion as of ~~September 30, 2007,~~March 31, 2008, from ~~$1.42~~$1.61 billion as of December 31, ~~2006.~~2007. Shareholders’ equity increased ~~$15.2~~$33.3 million, an annualized growth of ~~8.8%~~53.0%, to ~~$246.6~~$286.4 million as of ~~September 30, 2007,~~March 31, 2008, compared to ~~$231.4~~$253.1 million as of December 31, ~~2006.~~2007. Asset and loan increases are primarily associated with our acquisition of Centennial Bancshares and organic growth of our bank subsidiaries. During the first quarter of 2008 we experienced $67.2 million of organic loan growth. The increase in stockholders’ equity was primarily the result of the $24.3 million in additional capital that was issued upon our acquisition of Centennial Bancshares, Inc. combined with the retained earnings for the ~~nine~~three months.

As of ~~September 30, 2007,~~March 31, 2008, our non-performing loans ~~decreased~~increased to ~~$2.7~~$12.0 million, or ~~0.17%~~0.64%, of total loans from ~~$4.5~~$3.3 million, or ~~0.32%~~0.20%, of total loans as of December 31, ~~2006.~~2007. The allowance for loan losses as a percent of non-performing loans ~~increased~~decreased to ~~1052.0%~~308.1% as of ~~September 30, 2007,~~March 31, 2008, compared to ~~574.4%~~904.0% from December 31, ~~2006. These ratios reflect~~2007. The increase in non-performing loans is associated with the ~~continuing commitment~~unfavorable economic conditions in the Florida market combined with our acquisition of ~~our management to improve and maintain sound asset quality.~~Centennial Bancshares, Inc.

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 sale. 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,~~collectability, 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~~collectability 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 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 and core deposit intangibles as required by SFAS No. 142,Goodwill and Other Intangible Assets, in the fourth quarter.

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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 ~~August 24, 2007,~~January 1, 2008, we ~~announced the signing of a definitive agreement for the acquisition of~~acquired Centennial Bancshares, Inc., an Arkansas bank holding company. Centennial Bancshares, Inc. ~~in exchange for our stock and cash. Immediately after the acquisition,~~owned Centennial Bank, ~~a wholly owned subsidiary~~located in Little Rock, Arkansas which had total assets of ~~Centennial Bancshares, Inc.~~$234.1 million, loans of $192.8 million and total deposits of $178.8 million on the date of acquisition. The consideration for the merger was $25.4 million, which was paid approximately 4.6%, ~~will be operated as our subsidiary bank. The Centennial Bancshares shareholders that are accredited investors will receive whole~~or $1.2 million in cash and 95.4%, or $24.3 million, in shares of our ~~stock equal to~~common stock. In connection with the ~~product~~acquisition, $3.0 million of ~~16.8153~~the purchase price, consisting of $139,000 in cash and ~~the number of~~130,052 shares of ~~Centennial Bancshares~~our common stock, ~~surrendered.~~was placed in escrow related to possible losses from identified loans and an IRS examination. In the first quarter of 2008, the IRS examination was completed which resulted in $1.0 million of the escrow proceeds being released. The ~~unaccredited investors, which are projected to represent a 2% ownership of Centennial Bancshares, will receive in the aggregate approximately $500,000 in cash. The definitive agreement~~merger further provides for an earn out based upon 2008 earnings of up to a maximum of $4,000,000 which can be paid in cash or our stock at the election of the accredited shareholders. ~~Based upon the closing price~~As a result of ~~our stock on September 30, 2007~~this transaction, we recorded goodwill of ~~$21.79 per share the total purchase price excluding the earn out is approximately $24.8 million. The acquisition is conditioned upon regulatory approval~~$12.3 million and ~~other customary conditions.~~a core deposit intangible of $694,000.

In January 2005, we purchased 20% of the common stock during the formation of White River Bancshares, Inc. of Fayetteville, Arkansas for $9.1 million. White River Bancshares 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 made an additional investment of $3.0 million in January 2006. During April 2007, White River Bancshares acquired 100% of the stock of Brinkley Bancshares, Inc. in Brinkley, Arkansas. As a result, we made a $2.6 million additional investment in White River Bancshares on June 29, 2007 to maintain our 20% ownership. ~~At September 30, 2007,~~On March 3, 2008, White River Bancshares ~~had approximately $507.8 million in total assets, $411.8 million in total loans and $424.6 million in total deposits.~~

~~We have offered White River Bancshares, Inc. an opportunity to repurchase~~repurchased our 20% investment in their company ~~at $150.00 per share. Presently, this transaction is under consideration by their Board of Directors. If the transaction moves forward, it will be on terms that result~~which resulted in a ~~modest accretion to the 2008 earnings and would include a~~ one-time ~~gain.~~gain of $6.1 million.

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In our continuing evaluation of our growth plans for the Company, we believe properly priced bank acquisitions can complement our organic growth and de novo branching growth strategies. The Company’s acquisition focus will be to expand in its primary market areas of Arkansas and Florida. However, management was familiar with the Texas market with a prior institution and, if opportunities arise, would look to expand through a banking acquisition in the Texas market. We are continually evaluating potential bank acquisitions to determine 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,~~2008, we opened branch locations in the Arkansas communities of ~~Quitman, Searcy (2 branches),~~Morrilton and ~~Bryant plus Key West and Key Largo, Florida. Also during 2007, we consolidated two of our Cabot branch locations into one new financial center.~~Cabot. Presently, we are evaluating additional opportunities ~~and~~but have ~~two pending~~no firm commitments for any additional de novo branch ~~locations in Morrilton and Cabot, Arkansas.~~locations.

Results of Operations

Our net income increased ~~21.9%~~52.9% to ~~$5.2~~$7.3 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$4.3~~$4.8 million for the same period in ~~2006. For the nine months ended September 30, 2007, net income increased 31.6% to $15.1 million compared to $11.4 million for the same period in 2006.~~2007. On a diluted earnings per share basis, our net earnings increased ~~20.0%~~44.4% to ~~$0.30~~$0.39 for the three-month period ended ~~September 30, 2007,~~March 31, 2008, as compared to ~~$0.25~~$0.27 for the same period in ~~2006. Diluted earnings per share increased 16.2% to $0.86 per share for the nine months ended September 30, 2007 compared to $0.74 for the same period in 2006.~~2007. The increase in earnings ~~per share~~ is ~~primarily~~ associated with our acquisition of Centennial Bancshares, Inc., a $6.1 million gain on the sale of our investment in White River Bancshares, Inc. and organic growth of our bank ~~subsidiaries.~~subsidiaries offset by the additional provision for loan loss associated with the unfavorable economic conditions, particularly in the Florida market and a $380,000 loss on a foreclosed owner occupied strip center in Florida and $660,000 of costs associated with an efficiency study.

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.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. ~~The Federal Funds~~During 2007, the federal funds rate which is the cost to banks of immediately available overnight funds, began in 2004 at 1%. During 2004, the Federal Funds rate increased 125 basis points to end the year at 2.25%. Over the next 6 quarters, the Federal Funds rate increased 50 basis points in each of the six quarters until June 29, 2006 when it reached 5.25%. The rate then remained constant until September 18, 2007, when the Federal Funds rate was lowered by 50 basis points to 4.75%. The Federal Funds rate decreased another 25 basis points on October 31, 2007 and December 11, 2007. Due to ~~this~~these reductions occurring late in ~~the third quarter of~~ 2007, the impact for the ~~quarter~~year was minimal. Average interest rates for 2007 reflect the higher interest rate environment that existed until September 18, 2007 when the Federal Funds rate was lowered. Going forward, we will begin to see more of an impact of the decrease in the Federal Funds rate as our earning assets and interest-bearing liabilities begin to reprice. ~~Average interest rates for~~During 2008, the ~~three~~rate decreased by 75 basis points on January 22, 2008, 50 basis points on January 30, 2008 and ~~nine months ended September 30, 2007 reflect the higher interest rate environment that existed until September~~75 basis points on March 18, ~~2007 when the Federal Funds rate was lowered.~~2008.

2930

Net interest income on a fully taxable equivalent basis increased ~~$1.0~~$4.9 million, or ~~5.9%~~29.2%, to ~~$18.0~~$21.5 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$17.0~~$16.7 million for the same period in ~~2006.~~2007. This increase in net interest income was the result of a ~~$4.0~~$4.3 million increase in interest income ~~offset by $3.0 million increase~~combined with a $557,000 decrease in interest expense. The ~~$4.0~~$4.3 million increase in interest income was primarily the result of our acquisition of Centennial Bancshares, Inc. and organic growth of our bank subsidiaries ~~combined with~~offset by the repricing of our earning assets in the ~~higher~~declining interest rate environment. The higher level of earning assets resulted in an improvement in interest income of ~~$3.0~~$6.3 million, and our earning assets repricing in the ~~higher~~declining interest rate environment resulted in a ~~$1.0~~$2.0 million ~~increase~~decrease in interest income for the three-month period ended ~~September 30, 2007.~~March 31, 2008. The ~~$3.0 million increase~~$557,000 decrease in interest expense for the three-month period ended ~~September 30, 2007,~~March 31, 2008, is primarily the result of organic growth of our bank subsidiaries ~~combined with~~offset by our interest bearing liabilities repricing in the ~~higher~~declining interest rate environment. The higher level of interest-bearing liabilities resulted in additional interest expense of ~~$1.6~~$2.7 million. The repricing of our interest bearing liabilities in the ~~higher~~declining interest rate environment resulted in a ~~$1.4~~$3.3 million ~~increase~~decrease in interest expense for the three-month period ended ~~September 30, 2007.~~

Net interest income on a fully taxable equivalent basis increased $3.7 million, or 7.7%, to $52.0 million for the nine-month period ended September 30, 2007, from $48.3 million for the same period in 2006. This increase in net interest income was the result of a $15.8 million increase in interest income offset by $12.1 million increase in interest expense. The $15.8 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 $11.0 million, and our earning assets repricing in the higher interest rate environment resulted in a $4.8 million increase in interest income for the nine-month period ended September 30, 2007. The $12.1 million increase in interest expense for the nine-month period ended September 30, 2007, is primarily the result of organic growth of our bank subsidiaries combined with our interest bearing liabilities repricing in the higher interest rate environment. The higher level of interest-bearing liabilities resulted in additional interest expense of $4.6 million. The repricing of our interest bearing liabilities in the higher interest rate environment resulted in a $7.5 million increase in interest expense for the nine-month period ended September 30, 2007.March 31, 2008.

Net interest margin, on a fully taxable equivalent basis, was ~~3.55% and 3.49%~~3.78% for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 compared to ~~3.57% and 3.54%~~3.42% for the same ~~periods~~period in ~~2006, respectively. During 2006, competitive pressures and a slightly inverted yield curve put pressure~~2007. Our strong loan growth which was partially funded by run off in the investment portfolio combined with improved pricing on ~~the Company’s net interest margin. The current competitive pressures have eased somewhat during 2007, allowing~~our deposit growth allowed the Company to improve net interest ~~margin on a linked quarter basis by achieving strong long growth that was partially funded by maturities in the investment portfolio.~~margin.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ as well as changes in fully taxable equivalent net interest margin for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007,~~March 31, 2008, compared to the same ~~periods~~period in ~~2006.~~2007.

Table 1: Analysis of Net Interest Income


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2007			2006			2007			2006			2008			2007
				(Dollars in thousands)									(Dollars in thousands)
Interest income	$	36,381		$	32,458		$	105,709		$	90,078		$	38,396		$	34,184
Fully taxable equivalent adjustment		634			521			1,867			1,676			716			610

Interest income — fully taxable equivalent		37,015			32,979			107,576			91,754			39,112			34,794
Interest expense		19,061			16,022			55,582			43,473			17,565			18,122

Net interest income — fully taxable equivalent	$	17,954		$	16,957		$	51,994		$	48,281		$	21,547		$	16,672


Yield on earning assets — fully taxable equivalent		7.31	%		6.95	%		7.23	%		6.73	%		6.86	%		7.13	%
Cost of interest-bearing liabilities		4.26			3.93			4.24			3.67			3.50			4.23
Net interest spread — fully taxable equivalent		3.05			3.02			2.99			3.06			3.36			2.90
Net interest margin — fully taxable equivalent		3.55			3.57			3.49			3.54			3.78			3.42

Table 2: Changes in Fully Taxable Equivalent Net Interest Margin


	Three Months		��	Nine Months
	Ended			Ended
	September 30,			September 30,		March 31,
	2007 vs. 2006			2007 vs. 2006		2008 vs. 2007
	(In thousands)					(In thousands)
Increase in interest income due to change in earning assets	$	3,029		$	10,996	$	6,326
Increase in interest income due to change in earning asset yields		1,007			4,826
Decrease in interest income due to change in earning asset yields							2,008
Increase in interest expense due to change in interest-bearing liabilities		1,569			4,599		2,728
Increase in interest expense due to change in interest rates paid on interest-bearing liabilities		1,470			7,510
Decrease in interest expense due to change in interest rates paid on interest-bearing liabilities							3,285

Increase in net interest income	$	997		$	3,713	$	4,875

Table 3 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three-month ~~and nine-month~~ periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Table 3: Average Balance Sheets and Net Interest Income Analysis


	Three Months Ended September 30,														Three Months Ended March 31,
	2007							2006							2008							2007
	Average		Income /		Yield /			Average		Income /		Yield /			Average		Income /		Yield /			Average		Income /		Yield
	Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		/ Rate
	(Dollars in thousands)														(Dollars in thousands)
ASSETS
Earning assets
Earnings assets
Interest-bearing balances due from banks	$	3,894	$	53		5.40	%	$	2,927	$	38		5.15	%	$	5,397	$	55		4.10	%	$	3,793	$	49		5.24	%
Federal funds sold		2,995		36		4.77			3,887		51		5.21			22,701		166		2.94			18,031		235		5.29
Investment securities — taxable		366,530		4,133		4.47			418,753		4,738		4.49			324,101		3,762		4.67			407,373		4,586		4.57
Investment securities — non-taxable		87,953		1,614		7.28			91,931		1,361		5.87			109,314		1,826		6.72			97,785		1,581		6.56
Loans receivable		1,547,858		31,179		7.99			1,364,587		26,791		7.79			1,831,338		33,303		7.31			1,450,789		28,343		7.92

Total interest-earning assets		2,009,230		37,015		7.31			1,882,085		32,979		6.95			2,292,851		39,112		6.86			1,977,771		34,794		7.13

Non-earning assets		234,003							177,846							257,680							219,924

Total assets	$	2,243,233						$	2,059,931						$	2,550,531						$	2,197,695


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	586,710	$	4,375		2.96	%	$	516,207	$	3,358		2.58	%	$	650,235	$	3,405		2.11	%	$	592,101	$	4,335		2.97	%
Time deposits		813,676		10,041		4.90			769,271		8,652		4.46			917,348		10,117		4.44			820,942		9,798		4.84

Total interest-bearing deposits		1,400,386		14,416		4.08			1,285,478		12,010		3.71			1,567,583		13,522		3.47			1,413,043		14,133		4.06
Federal funds purchased		14,446		194		5.33			13,232		178		5.34			6,578		69		4.22			15,397		205		5.40
Securities sold under agreement to repurchase		125,877		1,267		3.99			118,796		1,258		4.20			117,426		588		2.01			115,754		1,224		4.29
FHLB and other borrowed funds		191,887		2,426		5.02			153,921		1,825		4.70
FHLB borrowed funds																276,357		2,575		3.75			148,897		1,811		4.93
Subordinated debentures		44,609		758		6.74			44,699		751		6.67			47,656		811		6.84			44,654		749		6.80

Total interest-bearing liabilities		1,777,205		19,061		4.26			1,616,126		16,022		3.93			2,015,600		17,565		3.50			1,737,745		18,122		4.23

Non-interest bearing liabilities
Non-interest-bearing deposits		212,298							213,682							237,028							214,461
Other liabilities		12,577							12,179							15,155							12,718

Total liabilities		2,002,080							1,841,987							2,267,783							1,964,924
Shareholders’ equity		241,153							217,944							282,748							232,771

Total liabilities and shareholders’ equity	$	2,243,233						$	2,059,931						$	2,550,531						$	2,197,695

Net interest spread						3.05	%						3.02	%						3.36	%						2.90	%
Net interest income and margin			$	17,954		3.55				$	16,957		3.57				$	21,547		3.78	%			$	16,672		3.42	%

Nine Months Ended September 30,
2007 2006
Average Income / Yield / Average Income / Yield /
Balance Expense Rate Balance Expense Rate
(Dollars in thousands)
ASSETS

Earning assets
Interest-bearing balances due from banks $ 3,336 $ 132 5.29 % $ 2,916 $ 103 4.72 %
Federal funds sold 7,973 311 5.22 11,062 393 4.75
Investment securities — taxable 382,985 12,992 4.54 426,549 14,174 4.44
Investment securities — non-taxable 94,227 4,781 6.78 92,179 4,367 6.33
Loans receivable 1,501,983 89,360 7.95 1,289,594 72,717 7.54

Total interest-earning assets 1,990,504 107,576 7.23 1,822,300 91,754 6.73

Non-earning assets 227,419 173,821

Total assets $ 2,217,923 $ 1,996,121

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Interest-bearing liabilities
Interest-bearing transaction and savings deposits $ 598,070 $ 13,357 2.99 % $ 523,843 $ 9,323 2.38 %
Time deposits 805,125 29,283 4.86 747,782 23,360 4.18

Total interest-bearing deposits 1,403,195 42,640 4.06 1,271,625 32,683 3.44
Federal funds purchased 16,071 646 5.37 17,221 636 4.94
Securities sold under agreement to repurchase 120,451 3,772 4.19 107,798 3,122 3.87
FHLB and other borrowed funds 168,046 6,270 4.99 141,994 4,787 4.51
Subordinated debentures 44,631 2,254 6.75 44,722 2,245 6.71

Total interest-bearing liabilities 1,752,394 55,582 4.24 1,583,360 43,473 3.67

Non-interest bearing liabilities
Non-interest-bearing deposits 215,716 216,366
Other liabilities 12,422 10,903

Total liabilities 1,980,532 1,810,629
Shareholders’ equity 237,391 185,492

Total liabilities and shareholders’ equity $ 2,217,923 $ 1,996,121

Net interest spread 2.99 % 3.06 %
Net interest income and margin $ 51,994 3.49 $ 48,281 3.54

Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007~~March 31, 2008 compared to the same ~~periods~~period in ~~2006,~~2007, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 4: Volume/Rate Analysis


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
	2007 over 2006									2007 over 2006									2008 over 2007
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
							(In thousands)															(In thousands)
Increase (decrease) in:
Interest income:
Interest-bearing balances due from banks		13			2			15			16			13			29		$	18		$	(12	)	$	6
Federal funds sold		(11	)		(4	)		(15	)		(117	)		35			(82	)		51			(120	)		(69	)
Investment securities — taxable		(589	)		(16	)		(605	)		(1,473	)		291			(1,182	)		(963	)		139			(824	)
Investment securities — non-taxable		(61	)		314			253			99			315			414			192			53			245
Loans receivable		3,677			711			4,388			12,471			4,172			16,643			7,028			(2,068	)		4,960

Total interest income		3,029			1,007			4,036			10,996			4,826			15,822			6,326			(2,008	)		4,318


Interest expense:
Interest-bearing transaction and savings deposits		491			526			1,017			1,441			2,593			4,034			395			(1,325	)		(930	)
Time deposits		517			872			1,389			1,886			4,037			5,923			1,098			(779	)		319
Federal funds purchased		16			—			16			(44	)		54			10			(100	)		(36	)		(136	)
Securities sold under agreement to repurchase		73			(64	)		9			384			266			650			18			(654	)		(636	)
FHLB and other borrowed funds		474			127			601			937			546			1,483
FHLB borrowed funds																				1,266			(502	)		764
Subordinated debentures		(2	)		9			7			(5	)		14			9			51			11			62

Total interest expense		1,569			1,470			3,039			4,599			7,510			12,109			2,728			(3,285	)		(557	)


Increase (decrease) in net interest income	$	1,460		$	(463	)	$	997		$	6,397		$	(2,684	)	$	3,713		$	3,598		$	1,277		$	4,875

Provision for Loan Losses.Our management assesses the adequacy of the allowance for loan losses by applying the provisions of Statement of Financial Accounting Standards No. 5 and No. 114. Specific allocations are determined for loans considered to be impaired and loss factors are assigned to the remainder of the loan portfolio to determine an appropriate level in the allowance for loan losses. The allowance is increased, as necessary, by making a provision for loan losses. The specific allocations for impaired loans are assigned based on an estimated net realizable value after a thorough review of the credit relationship. The potential loss factors associated with the remainder of the loan portfolio are based on an internal net loss experience, as well as management’s review of trends within the portfolio and related industries.

Generally, commercial, commercial real estate, and residential real estate loans are assigned a level of risk at origination. Thereafter, these loans are reviewed on a regular basis. The periodic reviews generally include loan payment and collateral status, the borrowers’ financial data, and key ratios such as cash flows, operating income, liquidity, and leverage. A material change in the borrower’s credit analysis can result in an increase or decrease in the loan’s assigned risk grade. Aggregate dollar volume by risk grade is monitored on an ongoing basis.

Our management reviews certain key loan quality indicators on a monthly basis, including current economic conditions, delinquency trends and ratios, portfolio mix changes, and other information management deems necessary. This review process provides a degree of objective measurement that is used in conjunction with periodic internal evaluations. To the extent that this review process yields differences between estimated and actual observed losses, adjustments are made to the loss factors used to determine the appropriate level of the allowance for loan losses.

The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings, to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated risk inherent in the loan portfolio. Our provision for loan losses ~~decreased $102,000,~~increased $4.0 million, or ~~15.7%~~486.5%, to ~~$547,000~~$4.8 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$649,000~~$820,000 for the same period in ~~2006. Our provision for loan losses increased $300,000, or 18.8%, to $2.0 million for the nine-month period ended September 30, 2007, from $1.7 million for the same period in 2006.~~2007. The ~~decrease~~increase in the provision ~~for the three months ended September 30, 2007 compared to the same period~~is primarily associated with a decline in ~~2006 was impacted by the lower rate of~~asset quality, particularly in our Florida market combined with growth in the loan ~~portfolio~~portfolio. The decrease in our asset quality is primarily related to the ~~third~~unfavorable economic conditions that are impacting our Florida market. During the first quarter of ~~2007.~~2008, we recorded a provision for loan loss in our Florida subsidiary of $3.4 million.

Non-Interest Income.Total non-interest income was ~~$6.3~~$13.5 million for the three-month period ended ~~September 30, 2007~~March 31, 2008 compared to ~~$4.7~~$6.2 million for the same period in ~~2006. Total non-interest income was $19.1 million for the nine-month period ended September 30, 2007 compared to $13.7 million for the same period in 2006.~~2007. Our non-interest income includes service charges on deposit accounts, other service charges and ~~fees, trust~~ fees, data processing fees, mortgage banking income, insurance commissions, income from title services, increases in cash value of life insurance, dividends, equity in earnings of unconsolidated affiliates and other income.

Table 5 measures the various components of our non-interest income for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, as well as changes for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007~~March 31, 2008 compared to the same ~~periods~~period in ~~2006.~~2007.

Table 5: Non-Interest Income


	Three Months Ended						2007						Nine Months Ended						2007					Three Months Ended
	September 30,						Change from						September 30,						Change from					March 31,						2008 Change
	2007			2006			2006						2007			2006			2006					2008			2007			from 2007
										(Dollars in thousands)																	(Dollars in thousands)
Service charges on deposit accounts	$	2,816		$	2,354		$	462			19.6	%	$	8,073		$	6,669		$	1,404		21.1	%	$	3,097		$	2,588		$	509		19.7	%
Other service charges and fees		1,342			541			801			148.1			4,176			1,736			2,440		140.6			1,763			1,500			263		17.5
Trust fees		27			166			(139	)		(83.7	)		81			487			(406	)	(83.4	)
Data processing fees		192			215			(23	)		(10.7	)		619			623			(4	)	(0.6	)		210			218			(8	)	(3.7	)
Mortgage banking income		451			435			16			3.7			1,277			1,285			(8	)	(0.6	)
Mortgage lending income																									632			348			284		81.6
Mortgage servicing income																									231			—			231		100.0
Insurance commissions		153			153			—			—			613			642			(29	)	(4.5	)		272			289			(17	)	(5.9	)
Income from title services		181			233			(52	)		(22.3	)		575			752			(177	)	(23.5	)		168			156			12		7.7
Increase in cash value of life insurance		607			55			552			1,003.6			1,822			161			1,661		1,031.7			585			598			(13	)	(2.2	)
Dividends from FHLB, FRB & bankers’ bank		218			180			38			21.1			652			440			212		48.2			281			227			54		23.8
Equity in earnings of unconsolidated affiliates		47			(65	)		112			(172.3	)		(123	)		(213	)		90		(42.3	)
Gain on sale of SBA loans		—			—			—			—			170			34			136		400.0
Gain (loss) on sale of premises and equip, net		(31	)		129			(160	)		(124.0	)		150			157			(7	)	(4.5	)
Gain on securities, net		—			—			—			—			—			1			(1	)	(100.0	)
Equity in income (loss) of unconsolidated affiliates																									102			(114	)		216		189.5
Gain on sale of equity investment																									6,102			—			6,102		100.0
Gain on sale of SBA																									101			—			101		100.0
Gain (loss) on sale of premises and equipment, net																									(2	)		14			(16	)	(114.3	)
Gain (loss) on OREO																									(380	)		37			(417	)	(1,127.0	)
Other income		309			302			7			2.3			1,015			924			91		9.8			372			344			28		8.1

Total non-interest income	$	6,312		$	4,698		$	1,614			34.4	%	$	19,100		$	13,698		$	5,402		39.4	%	$	13,534		$	6,205		$	7,329		118.1	%

3534

Non-interest income increased ~~$1.6~~$7.3 million, or ~~34.4%~~118.1%, to ~~$6.3~~$13.5 million for the three-month period ended ~~September 30, 2007~~March 31, 2008 from ~~$4.7~~$6.2 million for the same period in ~~2006. Non-interest income increased $5.4 million, or 39.4%, to $19.1 million for the nine-month period ended September 30, 2007 from $13.7 million for the same period in 2006.~~2007. The primary factors that resulted in the increase include:

	•		~~The~~Of the $509,000 aggregate increase in service charges on deposit accounts, ~~was primarily a result~~our acquisition of Centennial Bancshares, Inc. accounted for $130,000 of the increase. The remaining increase is related to organic growth of our bank subsidiaries and an improved fee process.

	•		~~The~~Of the $263,000 aggregate increase in other service charges and fees, ~~was primarily~~our acquisition of Centennial Bancshares, Inc. accounted for $145,000 of the increase. The remaining increases are a result of increased retention of interchange fees ~~an infrequent referral fee received in the first quarter of 2007~~ and organic ~~growth. More specifically, during the fourth quarter~~growth of ~~2006, we were able to negotiate with a new vendor the processing of interchange fees associated with~~ our electronic banking transactions. This improved position is allowing us to retain more of the interchange fees by leveraging our in-house technology. During January 2007, we received a $125,000 referral fee from another institution for a large loan that we elected not to originate because it was outside our normal lending activities. We do not believe referral fees of this nature will be recurring.bank subsidiaries

	•		InOf the fourth quarter of 2006, we made a strategic decision to enter into an agent agreement for the management of our trust services to a non-affiliated third party. This change was caused by our aspiration to improve the overall profitability of the trust efforts. The aggregate decrease in trust fees for the three-month and nine-month periods ended September 30, 2007 was primarily the result of the vendor retaining a significant portion of our trust fees. The out-sourcing of the trust management resulted in $214,000 and $622,000 reductions of non-interest expense for the three-month and nine-month periods ended September 30, 2007, respectively, when compared to the same periods of the previous year. This non-interest expense reduction includes $162,000 and $490,000 related to salaries and employee benefits for the three and nine months ended September 30, 2007, respectively.

	•		Late in the third quarter of 2007, White River Bancshares moved their data processing services in house. This resulted in a decrease in data processing fee income of approximately $17,000 in the third quarter of 2007. This will result in an annual reduction of our data processing fees of approximately $300,000.

	•		~~Our community banks purchased $35 million and $3.5 million of additional bank owned life insurance on December 14, 2006 and April 23, 2007, respectively. The~~$284,000 aggregate increase in ~~cash surrender value~~mortgage lending income, our acquisition of Centennial Bancshares, Inc. accounted for $84,000 of the increase. The remaining increase is ~~primarily~~ related to ~~these new policies.~~organic growth of our bank subsidiaries.

	•		The ~~aggregate increase in dividends~~new revenue source, mortgage servicing income was ~~primarily associated with the Federal Reserve Bank (FRB) stock~~related to our ~~bank subsidiaries bought in connection with their change to supervision~~acquisition of ~~the Federal Reserve Board combined with additional stock they bought in Federal Home Loan Bank (FHLB) to increase their borrowing capacity with FHLB.~~Centennial Bancshares, Inc. As a result of this acquisition, we now have a mortgage loan servicing portfolio of approximately $290 million and purchased mortgage servicing rights of $2.3 million.

	•		The equity in earnings of unconsolidated affiliate is related to the 20% interest in White River Bancshares that we purchased during 2005. Because the investment in White River Bancshares is accounted for on the equity method, we recorded our share of White River Bancshares’ operating earnings. White River Bancshares had been operating at a loss as a result of their status as a start up company until ~~the current quarter. The maturity of~~late in 2007. White River Bancshares ~~and their acquisition of Brinkley Bancshares, Inc. helped to improve their earnings and should allow~~repurchased our interest in them ~~to be~~on March 3, 2008. This resulted in a ~~profitable position going forward.~~one time gain on the sale of the equity investment of $6.1 million.

	•		The $380,000 loss on OREO is related to a foreclosure on an owner occupied strip center in the Florida market. Due to the unfavorable economic conditions in the Florida market, the current fair market value estimate required for this write down be taken on the property.

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The aggregate decrease in gain on sale of premises and equipment for the three months ended September 30, 2007 compared to the same period in 2006 is primarily a result of our banking subsidiary acquired in 2003 disposing of excess premises and equipment in 2006 that were no longer needed as a result of synergies achieved from the combined entities. Gain on sale of premises and equipment for the nine months ended September 30, 2007 remained constant when compared to the same period in 2006 due to a gain in the second quarter of 2007 associated with the final settlement of insurance proceeds associated with the damage incurred by the storm surge during Hurricane Wilma, which struck the Florida Keys during the fourth quarter of 2005.

Non-Interest Expense.Non-interest expense consists of salary and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, amortization of intangibles, electronic banking expense, FDIC and state assessment, ~~insurance,~~and legal and accounting ~~fees, operating supplies and telephone.~~fees.

Table 6 below sets forth a summary of non-interest expense for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ as well as changes for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007~~March 31, 2008 compared to the same period in ~~2006.~~2007.

Table 6: Non-Interest Expense


	Three Months									Nine Months
	Ended				2007					Ended				2007					Three Months Ended
	September 30,				Change from					September 30,				Change from					March 31,				2008 Change
	2007		2006		2006					2007		2006		2006					2008		2007		from 2007
	(Dollars in thousands)																		(Dollars in thousands)
Salaries and employee benefits	$	7,739	$	7,376	$	363		4.9	%	$	22,936	$	22,123	$	813		3.7	%	$	9,278	$	7,440	$	1,838		24.7	%
Occupancy and equipment		2,446		2,223		223		10.0			6,998		6,351		647		10.2			2,702		2,210		492		22.3
Data processing expense		644		651		(7	)	(1.1	)		1,958		1,888		70		3.7			786		644		142		22.0
Other operating expenses:
Advertising		646		568		78		13.7			1,855		1,738		117		6.7			614		629		(15	)	(2.4	)
Amortization of intangibles		439		439		—		—			1,317		1,303		14		1.1			462		439		23		5.2
Amortization of purchased mortgage servicing rights																				147		—		147		100.0
Electronic banking expense		618		152		466		306.6			1,803		430		1,373		319.3			752		530		222		41.9
Directors’ fees		225		203		22		10.8			617		609		8		1.3			231		174		57		32.8
Due from bank service charges		55		91		(36	)	(39.6	)		162		245		(83	)	(33.9	)		62		56		6		10.7
FDIC and state assessment		266		142		124		87.3			757		394		363		92.1			315		260		55		21.2
Insurance		211		285		(74	)	(26.0	)		683		741		(58	)	(7.8	)		228		244		(16	)	(6.6	)
Legal and accounting		308		191		117		61.3			930		747		183		24.5			280		319		(39	)	(12.2	)
Mortgage servicing expense																				87		—		87		100.0
Other professional fees		201		204		(3	)	(1.5	)		585		487		98		20.1			833		170		663		390.0
Operating supplies		241		202		39		19.3			694		684		10		1.5			244		226		18		8.0
Postage		163		171		(8	)	(4.7	)		498		500		(2	)	(0.4	)		180		164		16		9.8
Telephone		227		251		(24	)	(9.6	)		688		755		(67	)	(8.9	)		231		228		3		1.3
Other expense		1,170		1,088		82		7.5			3,376		3,004		372		12.4			1,251		1,008		243		24.1

Total non-interest expense	$	15,599	$	14,237	$	1,362		9.6	%	$	45,857	$	41,999	$	3,858		9.2	%	$	18,683	$	14,741	$	3,942		26.7	%

Non-interest expense increased ~~$1.4~~$3.9 million, or ~~9.6%~~26.7%, to ~~$15.6~~$18.7 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$14.2~~$14.7 million for the same period in ~~2006. Non-interest expense increased $3.9 million, or 9.2%, to $45.9 million for the nine-month period ended September 30, 2007, from $42.0 million for the same period in 2006.~~2007. The increase is the result of our acquisition of Centennial Bancshares, Inc. during the first quarter of 2008, the continued expansion of the Company and additional costs associated with an efficiency study performed during the first quarter of 2008 combined with the normal increased cost of doing business. The most significant component of the increase was related to our acquisition of Centennial Bancshares. Another component was the ~~$466,000 and $1.4 million increase in electronic banking expense for the three and nine months ended September 30, 2007. The electronic banking increase was primarily the result~~$660,000 of ~~additional~~ costs associated with ~~our ability to retain more~~an efficiency study performed by a third party in the first quarter of ~~the interchange fee income.~~2008. The remaining increases are primarily the result of the continued expansion of the Company combined with the normal increased cost of doing business. During ~~2007~~2008 and ~~2006,~~2007, we have opened ~~five~~two de novo branch locations in Florida and six in Arkansas.

3736

At its April 20, 2007 meeting, our Board of Directors approved a Chairman’s Retirement Plan for John Allison, our Chairman and CEO. Beginning on Mr. Allison’s 65th birthday, he will receive a $250,000 annual benefit to be paid for 10 consecutive years or until his death, whichever shall occur later. This will result in an increase of approximately ~~$388,000 and~~ $535,000 to non-interest expense for ~~2007 and 2008, respectively.~~2008. An expense of $130,000 ~~and $258,000~~ was accrued for the three ~~and nine~~ months ended ~~September 30, 2007, respectively.~~March 31, 2008. During April 2007, we purchased $3.5 million of additional bank-owned life insurance to help offset a portion of the costs related to this retirement benefit.

Income Taxes.The provision for income taxes increased ~~$298,000,~~$1.7 million, or ~~15.2%~~84.8%, to ~~$2.3~~$3.6 million for the three-month period ended ~~September 30, 2007,~~March 31, 2008, from ~~$2.0~~$1.9 million as of September 30, 2006. The provision for income taxes increased $1.2 million, or 22.0%, to $6.3 million for the nine-month period ended September 30, 2007, from $5.1 million as of September 30, 2006.March 31, 2007. The effective income tax rate was ~~30.16% and 29.42%~~33.1% for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007,~~March 31, 2008, compared to ~~31.37% and 31.01%~~29.0% for the same ~~periods~~period in ~~2006, respectively.~~2007. The ~~lower effective income~~primary cause of this increase is the result of our increased earnings which is tax-effected at a marginal tax rate ~~for 2007 is primarily associated with our purchase~~ of $3.5 million and $35 million in additional bank owned life insurance in the second quarter of 2007 and fourth quarter of 2006, respectively, which resulted in additional tax-free non-interest income.39.225%.

Financial Conditions as of and for the Quarter Ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~

Our total assets increased ~~$77.0~~$279.5 million, an annualized growth of ~~4.7%~~49.1%, to ~~$2.27~~$2.57 billion as of ~~September 30, 2007,~~March 31, 2008, from ~~$2.19~~$2.29 billion as of December 31, ~~2006.~~2007. Our loan portfolio increased ~~$144.1~~$260.0 million, an annualized growth of ~~13.6%~~65.1%, to ~~$1.56~~$1.87 billion as of ~~September 30, 2007,~~March 31, 2008, from ~~$1.42~~$1.61 billion as of December 31, ~~2006.~~2007. Shareholders’ equity increased ~~$15.2~~$33.3 million, an annualized growth of ~~8.8%~~53.0%, to ~~$246.6~~$286.4 million as of ~~September 30, 2007,~~March 31, 2008, compared to ~~$231.4~~$253.1 million as of December 31, ~~2006.~~2007. Asset and loan increases are primarily associated with our acquisition of Centennial Bancshares, Inc. and organic growth of our bank subsidiaries. On January 1, 2008, as a result of our acquisition of Centennial Bancshares, assets and loans increased by $234.1 million and $192.8 million, respectively. The increase in stockholders’ equity was primarily the result of the issuance of $24.3 million in stock as a result of our acquisition of Centennial Bancshares and retained earnings for the ~~nine~~three months.

Loan Portfolio

Our loan portfolio averaged ~~$1.55 billion and $1.50~~$1.83 billion during the three-month ~~and nine-month periods~~period ended ~~September 30, 2007. Total~~March 31, 2008. Net loans were ~~$1.56~~$1.83 billion as of ~~September 30, 2007,~~March 31, 2008, compared to ~~$1.42~~$1.58 billion as of December 31, ~~2006.~~2007. The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer, and commercial and industrial loans. These loans are primarily originated within our market areas of central Arkansas, north central Arkansas, northwest Arkansas, southern Arkansas, southwest Florida and the Florida Keys and are generally secured by residential or commercial real estate or business or personal property within our market areas.

Certain credit markets have experienced difficult conditions and volatility during ~~2007.~~2007 and 2008, particularly Florida. These markets continue to experience pressure including the well publicized sub-prime mortgage market. The Company does not actively market or originate subprime mortgage loans.

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Table 7 presents our loan balances by category as of the dates indicated.

Table 7: Loan Portfolio


	As of		As of		As of		As of
	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007
	(In thousands)				(In thousands)
Real estate:
Commercial real estate loans:
Non-farm/non-residential	$	590,083	$	465,306	$	765,881	$	607,638
Construction/land development		365,236		393,410		341,442		367,422
Agricultural		22,432		11,659		24,739		22,605
Residential real estate loans:
Residential 1-4 family		251,057		229,588		343,475		259,975
Multifamily residential		38,528		37,440		73,220		45,428

Total real estate		1,267,336		1,137,403		1,548,757		1,303,068
Consumer		45,212		45,056		55,251		46,275
Commercial and industrial		206,744		206,559		224,756		219,062
Agricultural		25,506		13,520		17,559		20,429
Other		15,576		13,757		20,646		18,160

Total loans receivable before allowance for loan losses		1,560,374		1,416,295		1,866,969		1,606,994
Allowance for loan losses		28,636		26,111		37,075		29,406

Total loans receivable, net	$	1,531,738	$	1,390,184	$	1,829,894	$	1,577,588

Commercial Real Estate Loans.We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized over a 10 to 20 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

As of ~~September 30, 2007,~~March 31, 2008, commercial real estate loans totaled ~~$977.8 million,~~$1.13 billion, or ~~62.7%~~60.6% of our loan portfolio, compared to ~~$870.3~~$997.7 million, or ~~61.5%~~62.1% of our loan portfolio, as of December 31, ~~2006. This~~2007. Our acquisition of Centennial Bancshares resulted in an increase of $91.5 million of commercial real estate. The remaining increase is primarily the result of strong demand for this type of loan product which resulted in organic growth of our loan portfolio.

Residential Real Estate Loans.We originate one to four family, owner occupied residential mortgage loans generally secured by property located in our primary market area. The majority of our residential mortgage loans consist of loans secured by owner occupied, single family residences. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

3938

As of ~~September 30, 2007,~~March 31, 2008, we had ~~$289.6~~$416.7 million, or ~~18.6%~~22.3% of our loan portfolio, in residential real estate loans, compared to the ~~$267.0~~$305.4 million, or ~~18.9%~~19.0% of our loan portfolio, as of December 31, ~~2006.~~2007. Our acquisition of Centennial Bancshares resulted in an increase of $65.4 million of residential real estate loans. The changing market conditions have given our community banks the opportunity to retain more residential real estate loans. These loans have normal maturities of less than five years.

Consumer Loans.Our consumer loan portfolio is composed of secured and unsecured loans originated by our banks. The performance of consumer loans will be affected by the local and regional economy as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

As of ~~September 30, 2007,~~March 31, 2008, our installment consumer loan portfolio totaled ~~$45.2~~$55.3 million, or ~~2.9%~~3.0% of our total loan portfolio, ~~which is comparable~~compared to the ~~$45.1~~$46.3 million, or ~~3.2%~~2.9% of our loan portfolio as of December 31, ~~2006.~~2007. The primary cause for the increase is related to our acquisition of Centennial Bancshares which resulted in an increase of $8.3 million to consumer loans.

Commercial and Industrial Loans.Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to five years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally speaking, accounts receivable are financed at between 50% to 80% of accounts receivable less than 90 days past due. Inventory financing will range between 50% and 60% depending on the borrower and nature of inventory. We require a first lien position for those loans.

As of ~~September 30, 2007,~~March 31, 2008, commercial and industrial loans outstanding totaled ~~$206.7~~$224.8 million, or ~~13.2%~~12.0% of our loan portfolio, ~~which is comparable~~compared to ~~$206.6~~$219.1 million, or ~~14.6%~~13.6% of our loan portfolio, as of December 31, ~~2006.~~2007. Our acquisition of Centennial Bancshares resulted in an increase of $31.5 million of commercial and industrial loans. The offsetting decrease is related to the payoff of a couple of large credits during the first quarter of 2008.

Non-Performing Assets

We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status. Generally, non-accrual loans that are 120 days past due without assurance of repayment are charged off against the allowance for loan losses.

Table 8 sets forth information with respect to our non-performing assets as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007. As of these dates, we did not have any restructured loans within the meaning of Statement of Financial Accounting Standards No. 15.

Table 8: Non-performing Assets


	As of			As of			As of			As of
	September 30,			December 31,			March 31,			December 31,
	2007			2006			2008			2007
	(Dollars in thousands)						(Dollars in thousands)
Non-accrual loans	$	2,572		$	3,905		$	12,033		$	2,952
Loans past due 90 days or more (principal or interest payments)		150			641			—			301

Total non-performing loans		2,722			4,546			12,033			3,253


Other non-performing assets
Foreclosed assets held for sale		4,915			435			5,097			5,083
Other non-performing assets		—			13			27			15

Total other non-performing assets		4,915			448			5,124			5,098

Total non-performing assets	$	7,637		$	4,994		$	17,157		$	8,351


Allowance for loan losses to non-performing loans		1,052.02	%		574.37	%		308.11	%		903.97	%
Non-performing loans to total loans		0.17			0.32			0.64			0.20
Non-performing assets to total assets		0.34			0.23			0.67			0.36

Our non-performing loans are comprised of non-accrual loans and loans that are contractually past due 90 days. Our bank subsidiaries recognize income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improves. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses.

Total non-performing loans were ~~$2.7~~$12.0 million as of ~~September 30, 2007,~~March 31, 2008, compared to ~~$4.5~~$3.3 million as of December 31, ~~2006~~2007 for an increase of $8.7 million. Part of this increase is related to our acquisition of Centennial Bancshares on January 1, 2008 which reported $2.4 million of non-performing loans as of March 31, 2008. As anticipated, we saw an increase in non-performing loans from our Florida market. As a ~~decrease~~result of ~~$1.8~~the slowdown in housing sales in our Florida markets, our non-performing loans increased by $5.6 million. The weakening real estate market has and may continue to raise our level of non-performing loans going forward. When we reported our year-end results, we provided a projection for non-performing loans to total loans in the range of 0.60% to 2.0%. This continues to be our expected range for non-performing loans to total loans. While we believe our allowance for loan losses is adequate at March 31, 2008, as additional facts become known about relevant internal and external factors that effect loan collectability and our assumptions, it may result in us making additions to the provision for loan loss during 2008.

If the non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately ~~$103,000~~$136,000 and ~~$117,000~~$88,000 for the three-month periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006, respectively, and $193,000 and $374,000 for the nine months ended September 30, 2007 and 2006,~~ respectively, would have been recorded. Interest income recognized on the non-accrual loans for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ was considered immaterial.

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans may include non-performing loans (loans past due 90 days or more and non-accrual loans) and certain other loans identified by management that are still performing. ~~At September 30, 2007 and December 31, 2006, impaired loans totaled $7.9 million and $11.2 million, respectively.~~ As of ~~September 30, 2007, year-to-date~~March 31, 2008, average impaired loans were ~~$11.8~~$22.5 million compared to ~~$6.2~~$10.0 million as of ~~September 30, 2006. These changes represent normal variations and~~March 31, 2007. At March 31, 2008, impaired loans were $33.2 million compared to $11.9 million at March 31, 2007 for an increase of $21.3 million. The unfavorable economic conditions that are ~~not an indication~~impacting our Florida market accounted for $17.4 million of ~~a change in~~the $21.3 million increase, while the acquisition of Centennial Bancshares, increased our ~~overall asset quality.~~impaired loans by $2.4 million.

The ~~$4.5 million increase~~balance in foreclosed assets held for sale is primarily the result of one credit located in the Florida Keys. This foreclosure ~~was~~is an owner occupied strip center. The space the proprietor occupied has subsequently been leased and the rest of the center is occupied. ~~At this point, little or no loss is anticipated on~~In the ~~foreclosure.~~

~~The appreciation~~first quarter of 2008, we took a $380,000 write down of the ~~real estate~~property to reflect the current fair market value estimate. We are cautiously optimistic that this property can be disposed of during the second or third quarter of 2008.

Due to the unfavorable economic conditions in the Florida ~~Keys has slowed, as a result of the sluggish economy. This has the potential~~market, current fair market value estimates required that this write down to ~~decrease the real estate values in the Keys. While we have some concerns, management believes the loans are still adequately collateralized at~~be taken on this ~~time.~~

As a result of the building boom in northwest Arkansas, this market is experiencing over-development. More specifically, the number of residential real estate lots and commercial real estate projects available exceed the current demand. For example, “The Streetsmart Report” published in the second quarter of 2007 by Streetsmart Data Services, reported that the current absorption rate implies that the supply of remaining lots in northwest Arkansas active subdivisions is sufficient for approximately 58 months. Management will actively monitor the status of this market as it relates to our real estate loans and make changes to the allowance for loan losses if necessary. As of September 30, 2007, we had two credits amounting to $23.9 million in loans secured by real estate in northwest Arkansas. We anticipate no weakness in these credits as they are well-secured by substantial guarantors. At September 30, 2007, we had no loan participations in northwest Arkansas with our unconsolidated affiliate White River Bancshares Inc.property.

Allowance for Loan Losses

Overview.The allowance for loan losses is maintained at a level which our management believes is adequate to absorb all probable losses on loans in the loan portfolio. The amount of the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries on loans previously charged off, which increase the allowance; and (iii) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for our management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. If actual losses exceed the amount of allowance for loan losses, our earnings could be adversely affected.

As we evaluate the allowance for loan losses, we categorize it as follows: (i) specific allocations; (ii) allocations for classified assets with no specific allocation; (iii) general allocations for each major loan category; and (iv) miscellaneous allocations.

Specific Allocations.As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Our evaluation process in specific allocations includes a review of appraisals or other collateral analysis. These values are compared to the remaining outstanding principal balance. If a loss is determined to be reasonably possible, the possible loss is identified as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the expected future cash flows of the loan.

Allocations for Classified Assets with No Specific Allocation.We establish allocations for loans rated “special mention” through “loss” in accordance with the guidelines established by the regulatory agencies. A percentage rate is applied to each loan category to determine the level of dollar allocation.

General Allocations.We establish general allocations for each major loan category. This section also includes allocations to loans, which are collectively evaluated for loss such as residential real estate, commercial real estate, consumer loans and commercial and industrial loans. The allocations in this section are based on a historical review of loan loss experience and past due accounts. We give consideration to trends, changes in loan mix, delinquencies, prior losses, and other related information.

Miscellaneous Allocations.Allowance allocations other than specific, classified, and general are included in our miscellaneous section.

Charge-offs and Recoveries.Total charge-offs ~~decreased $38,000,~~increased $523,000, or ~~18.1%~~523.0%, to ~~$172,000~~$623,000 for the three months ended ~~September 30, 2007,~~March 31, 2008, compared to the same period in ~~2006.~~2007. Total ~~charge-offs~~recoveries decreased ~~$645,000,~~$2,000, or ~~65.5%~~1.9%, to ~~$340,000~~$101,000 for the ~~nine~~three months ended ~~September 30, 2007,~~March 31, 2008, compared to the same period in ~~2006. Total recoveries decreased $119,000, or 44.4%,~~2007. The changes in net charge-offs are due to ~~$149,000 for~~our proactive stance on asset quality. The acquisition completed in the three months ended September 30, 2007, compared to the same period in 2006. Total recoveries decreased $221,000, or 21.3%, to $818,000 for the nine months ended September 30, 2007, compared to the same period in 2006. The overallfirst quarter of 2008 has a minimal impact on net ~~recovery position for 2007 is a reflection of our thorough approach to asset quality.~~charge-offs.

4241

Table 9 shows the allowance for loan losses, charge-offs and recoveries as of and for the three-month ~~and nine-month~~ periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007.

Table 9: Analysis of Allowance for Loan Losses


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						As of March 31,
	2007			2006			2007			2006			2008			2007
	(Dollars in thousands)												(Dollars in thousands)
Balance, beginning of period	$	28,112		$	25,245		$	26,111		$	24,175		$	29,406		$	26,111

Loans charged off
Real estate:
Commerical real estate loans:
Commercial real estate loans:
Non-farm/non-residential		—			64			—			322			16			—
Construction/land development		—			43			8			45			44			—
Agricultural		—			10			—			18			—			—
Residential real estate loans:
Residential 1-4 family		32			2			42			109			357			10
Multifamily residential		6			—			6			—			—			—

Total real estate		38			119			56			494			417			10
Consumer		70			58			179			173			100			59
Commercial and industrial		64			29			105			281			106			31
Agricultural		—			—			—			—			—			—
Other		—			4			—			37			—			—

Total loans charged off		172			210			340			985			623			100


Recoveries of loans previously charged off
Real estate:
Commercial real estate loans:
Non-farm/non-residential		13			29			431			67			4			16
Construction/land development		—			25			1			123			2			1
Agricultural		5			—			5			—			—			—
Residential real estate loans:
Residential 1-4 family		47			93			151			344			29			24
Multifamily residential		5			5			5			65			—			—

Total real estate		70			152			593			599			35			41
Consumer		18			14			94			45			34			36
Commercial and industrial		58			87			100			150			31			19
Agricultural		—			—			—			—			—			—
Other		3			15			31			245			1			7

Total recoveries		149			268			818			1,039			101			103

Net (recoveries) loans charged off		23			(58	)		(478	)		(54	)		522			(3	)
Allowance for loan loss of Centennial Bancshares, Inc.														3,382			—
Provision for loan losses		547			649			2,047			1,723			4,809			820

Balance, September 30	$	28,636		$	25,952		$	28,636		$	25,952
Balance, March 31													$	37,075		$	26,934

Net (recoveries) charge-offs to average loans		0.01	%		(0.02	)%		(0.04	)%		(0.01	)%		0.11	%		—	%
Allowance for loan losses to period-end loans		1.84			1.87			1.84			1.87
Allowance for loan losses to period end loans														1.99			1.83
Allowance for loan losses to net (recoveries) charge-offs		31,382			(11,278	)		(4,481	)		(35,946	)		1,766			(221,375	)

4342

Allocated Allowance for Loan Losses.We use a risk rating and specific reserve methodology in the calculation and allocation of our allowance for loan losses. While the allowance is allocated to various loan categories in assessing and evaluating the level of the allowance, the allowance is available to cover charge-offs incurred in all loan categories. Because a portion of our portfolio has not matured to the degree necessary to obtain reliable loss data from which to calculate estimated future losses, the unallocated portion of the allowance is an integral component of the total allowance. Although unassigned to a particular credit relationship or product segment, this portion of the allowance is vital to safeguard against the imprecision inherent in estimating credit losses.

The changes for the period ended ~~September 30, 2007~~March 31, 2008 in the allocation of the allowance for loan losses for the individual types of loans ~~for~~are primarily associated with the ~~most part are consistent with the~~decline in asset quality, particularly in our Florida market, our acquisition of Centennial Bancshares, Inc. on January 1, 2008 and normal changes in the outstanding loan portfolio for those products from December 31, 2006. In the opinion of management, any allocation changes not consistent with the changes in the loan portfolio product would be considered normal operating changes, not downgrading or upgrading of any one particular type of loans in the loan portfolio.2007.

Table 10 presents the allocation of allowance for loan losses as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007.

Table 10: Allocation of Allowance for Loan Losses


	As of					As of
	September 30, 2007					December 31, 2006					As of March 31, 2008					As of December 31, 2007
	Allowance		% of			Allowance		% of			Allowance		% of			Allowance		% of
	Amount		loans(1)			Amount		loans(1)			Amount		loans(1)			Amount		loans(1)
	(Dollars in thousands)										(Dollars in thousands)
Real estate:
Commercial real estate loans:
Non farm/non-residential	$	11,626		37.8	%	$	9,130		32.8	%
Non-farm/non-residential											$	14,355		41.0	%	$	11,475		37.8	%
Construction/land development		7,283		23.4			7,494		27.8			9,363		18.3			7,332		22.9
Agricultural		655		1.4			505		0.8			367		1.3			311		1.4
Residential real estate loans:
Residential 1-4 family		3,269		16.1			3,091		16.2			6,291		18.4			3,968		16.2
Multifamily residential		600		2.5			909		2.6			1,190		4.0			727		2.8

Total real estate		23,433		81.2			21,129		80.2			31,566		83.0			23,813		81.1
Consumer		864		2.9			861		3.2			956		3.0			905		2.9
Commercial and industrial		3,355		13.3			3,237		14.6			3,652		12.0			3,243		13.6
Agricultural		876		1.6			456		1.0			532		0.9			599		1.3
Other		18		1.0			11		1.0			14		1.1			14		1.1
Unallocated		90		—			417		—			355		—			832		—

Total	$	28,636		100.0	%	$	26,111		100.0	%	$	37,075		100.0	%	$	29,406		100.0	%


(1)		Percentage of loans in each category to loans receivable.

Investments and Securities

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. As of ~~September 30, 2007,~~March 31, 2008, we had no held-to-maturity or trading securities.

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of shareholders’ equity as other comprehensive income. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities 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. Available-for-sale securities were ~~$447.8~~$403.8 million as

of ~~September 30, 2007,~~March 31, 2008, compared to ~~$531.9~~$430.4 million as of December 31, ~~2006.~~2007. The estimated duration of our securities portfolio was ~~2.9~~2.5 years as of ~~September 30, 2007.~~March 31, 2008.

As of ~~September 30, 2007, $187.3~~March 31, 2008, $194.1 million, or ~~41.8%~~48.1%, of our available-for-sale securities were invested in mortgage-backed securities, compared to ~~$219.8~~$181.6 million, or ~~41.3%~~42.2%, of our available-for-sale securities as of December 31, ~~2006.~~2007. To reduce our income tax burden, ~~$102.2~~$112.3 million, or ~~22.8%~~27.8%, of our available-for-sale securities portfolio as of ~~September 30, 2007,~~March 31, 2008, was primarily invested in tax-exempt obligations of state and political subdivisions, compared to ~~$103.4~~$111.3 million, or ~~19.4%~~25.9%, of our available-for-sale securities as of December 31, ~~2006.~~2007. Also, we had approximately ~~$146.6~~$86.4 million, or ~~32.7%~~21.4%, invested in obligations of U.S. Government-sponsored enterprises as of ~~September 30, 2007,~~March 31, 2008, compared to ~~$196.2~~$126.3 million, or ~~36.9%~~29.3%, of our available-for-sale securities as of December 31, ~~2006.~~2007.

Certain investment securities are valued at less than their historical cost. These declines primarily resulted from recent increases in market interest rates. Based on evaluation of available evidence, we believe the declines in fair value for these securities are temporary. It is our 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.

Table 11 presents the carrying value and fair value of investment securities as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007.

Table 11: Investment Securities


	As of September 30, 2007									As of March 31, 2008
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
			(In thousands)							(In thousands)
Available-for-Sale
U.S. government-sponsored enterprises	$	148,815	$	98	$	(2,313	)	$	146,600
U.S. Government-sponsored enterprises										$	85,367	$	1,042	$	(8	)	$	86,401
Mortgage-backed securities		191,777		50		(4,501	)		187,326		194,077		1,555		(1,517	)		194,115
State and political subdivisions		101,803		1,117		(754	)		102,166		111,915		1,520		(1,106	)		112,329
Other securities		11,893		—		(159	)		11,734		11,266		—		(356	)		10,910

Total	$	454,288	$	1,265	$	(7,727	)	$	447,826	$	402,625	$	4,117	$	(2,987	)	$	403,755


	As of December 31, 2006									As of December 31, 2007
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
			(In thousands)							(In thousands)
Available-for-Sale
U.S. government-sponsored enterprises	$	199,085	$	79	$	(2,927	)	$	196,237
U.S. Government-sponsored enterprises										$	126,898	$	268	$	(872	)	$	126,294
Mortgage-backed securities		225,747		41		(5,988	)		219,800		184,949		179		(3,554	)		181,574
State and political subdivisions		102,536		1,360		(496	)		103,400		111,014		1,105		(812	)		111,307
Other securities		12,631		—		(177	)		12,454		11,411		—		(187	)		11,224

Total	$	539,999	$	1,480	$	(9,588	)	$	531,891	$	434,272	$	1,552	$	(5,425	)	$	430,399

4544

Deposits

Our deposits averaged ~~$1.40~~$1.80 billion for the three-month ~~and nine-month periods~~period ended ~~September 30, 2007.~~March 31, 2008. Total deposits ~~decreased $8.6~~increased $262.5 million, or an annualized ~~decline~~increase of ~~0.7%~~66.3%, to ~~$1.60~~$1.85 billion as of ~~September 30, 2007,~~March 31, 2008, from ~~$1.61~~$1.59 billion as of December 31, ~~2006.~~2007. On January 1, 2008, as a result of our acquisition of Centennial Bancshares, deposits increased by $178.8 million. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions. Our policy also permits the acceptance of brokered deposits. As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006~~2007 brokered deposits were ~~$52.8~~$47.5 million and ~~$50.2~~$39.3 million, respectively.

The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing and do not anticipate a significant change in total deposits unless our liquidity position changes. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. ~~The increase in interest rates paid from 2006 to~~During 2007, ~~is reflective of~~ the ~~Federal Reserve increasing the Federal Funds~~federal funds rate ~~beginning in 2004 and the associated repricing of deposits during the subsequent years. On~~remained constant until September 18, 2007, when the Federal Funds rate was lowered by 50 basis ~~points.~~points to 4.75%. The Federal Funds rate decreased another 25 basis points on October 31, 2007 and December 11, 2007. Due to ~~this~~these reductions occurring late in ~~the third quarter of~~ 2007, the impact for the ~~quarter~~year was minimal. Average interest rates for 2007 reflect the higher interest rate environment that existed until September 18, 2007 when the Federal Funds rate was lowered. Going forward, we will begin to see more of an impact of the decrease in the Federal Funds rate as ~~deposits~~our interest-bearing liabilities begin to reprice. ~~Average interest rates for~~During 2008, the ~~three~~rate decreased by 75 basis points on January 22, 2008, 50 basis points on January 30, 2008 and ~~nine months ended September 30, 2007 reflect the higher interest rate environment that existed until September~~75 basis points on March 18, ~~2007 when the Federal Funds rate was lowered.~~2008.

Table 12 reflects the classification of the average deposits and the average rate paid on each deposit category, which is in excess of 10 percent of average total deposits, for the three-month ~~and nine-month~~ periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007.

Table 12: Average Deposit Balances and Rates


	Three Months Ended September 30,										Three Months Ended March 31,
	2007					2006					2008					2007
	Average		Average			Average		Average			Average		Average			Average		Average
	Amount		Rate Paid			Amount		Rate Paid			Amount		Rate Paid			Amount		Rate Paid
	(Dollars in thousands)										(Dollars in thousands)
Non-interest-bearing transaction accounts	$	212,298		—	%	$	213,682		—	%	$	237,028		—	%	$	214,461		—	%
Interest-bearing transaction accounts		531,292		3.12			451,051		2.73			596,526		2.21			534,610		3.14
Savings deposits		55,418		1.38			65,156		1.55			53,709		1.00			57,491		1.42
Time deposits:
$100,000 or more		468,168		5.00			432,207		4.68			525,770		4.39			472,219		5.00
Other time deposits		345,508		4.76			337,064		4.19			391,578		4.50			348,723		4.62

Total	$	1,612,684		3.55	%	$	1,499,160		3.18	%	$	1,804,611		3.01	%	$	1,627,504		3.52	%

Nine Months Ended September 30,
2007 2006
Average Average Average Average
Amount Rate Paid Amount Rate Paid
(Dollars in thousands)
Non-interest-bearing transaction accounts $ 215,716 — % $ 216,366 — %
Interest-bearing transaction accounts 540,895 3.15 448,234 2.51
Savings deposits 57,175 1.40 75,609 1.61
Time deposits:
$100,000 or more 461,570 4.98 407,398 4.48
Other time deposits 343,555 4.71 340,384 3.81

Total $ 1,618,911 3.52 % $ 1,487,991 2.94 %

FHLB Borrowed Funds

Our FHLB borrowed funds were ~~$226.0~~$249.8 million as of ~~September 30, 2007.~~March 31, 2008. The outstanding balance for ~~September 30, 2007~~March 31, 2008 consists of ~~$87.0~~$10.0 million of short-term FHLB advances and ~~$139.0~~$239.8 million of FHLB long-term advances. Our FHLB borrowings were ~~$151.8~~$251.8 million as of December 31, ~~2006.~~2007. The outstanding balance for December 31, ~~2006,~~2007, includes ~~$5.0~~$116.0 million of short-term advances and ~~$146.8~~$135.8 million of long-term advances. Our remaining FHLB borrowing capacity was ~~$205.5~~$223.6 million and ~~$323.6~~$186.6 million as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively.

Subordinated Debentures

Subordinated debentures, which consist of guaranteed payments on trust preferred securities, were ~~$44.6~~$47.6 million and ~~$44.7~~$44.6 million as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. As a result of the acquisition of Centennial Bancshares we acquired $3.1 million of additional trust preferred securities.

Table 13 reflects subordinated debentures as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, which consisted of guaranteed payments on trust preferred securities with the following components:

Table 13: Subordinated Debentures

As of As of
September 30, 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, issued in 2000, due 2030, fixed at 10.60%, callable beginning in 2010 with a prepayment penalty declining from 5.30% to 0.53% depending on the year of prepayment, callable in 2020 without penalty 3,356 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 $ 44,595 $ 44,663


	As of		As of
	March 31,		December 31,
	2008		2007
	(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, currently callable without penalty	$	20,619	$	20,619
Subordinated debentures, issued 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		3,311		3,333
Subordinated debentures, issued in 2003, due 2033, floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, currently callable 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
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2011 without penalty		3,093		—

Total	$	47,643	$	44,572

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 in our subordinated debentures, the sole asset of each trust. The trust preferred 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 subordinated debentures held by the trust. We wholly own the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related subordinated debentures. Our obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by us of each respective trust’s obligations under the trust securities issued by each respective trust.

Presently, the funds raised from the trust preferred offerings will qualify as Tier 1 capital for regulatory purposes, subject to the applicable limit, with the balance qualifying as Tier 2 capital.

Shareholders’ Equity

Stockholders’ equity was ~~$246.6~~$286.4 million at ~~September 30, 2007~~March 31, 2008 compared to ~~$231.4~~$253.1 million at December 31, ~~2006,~~2007, an annualized increase of ~~8.8%~~53.0%. As of ~~September 30, 2007~~March 31, 2008 our equity to asset ratio was ~~10.9%~~11.1%, compared to ~~10.6%~~11.0% as of December 31, ~~2006.~~2007. Book value per common share was ~~$14.30~~$15.62 at ~~September 30, 2007~~March 31, 2008 compared to ~~$13.45~~$14.67 at December 31, ~~2006, an 8.4%~~2007, a 26.0% annualized increase. The increases in stockholders’ equity and book value per share were primarily the result of our acquisition of Centennial Bancshares and retained earnings during the prior ~~nine~~three months.

~~Initial Public Offering~~. We priced our initial public offering of 2.5 million shares of common stock at $18.00 per share. We received net proceeds of approximately $40.9 million from its sale of shares after deducting sales commissions and expenses. The underwriters 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. We received net proceeds of approximately $6.3 million from this sale of shares after deducting sales commissions. We have used $16.0 million of the initial public offering proceeds to provide capital contributions to our bank subsidiaries, $2.6 million as an additional investment in White River Bancshares to maintain our 20% ownership and $2.0 million to purchase a long-term investment.

~~Preferred Stock Conversion~~. During the third quarter of 2006, the Company’s Board of Directors authorized the redemption and conversion of the issued and outstanding shares of Home BancShares Class A Preferred Stock and Class B Preferred Stock into Home BancShares Common Stock, effective as of August 1, 2006.

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 be 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.

~~After the exercise of the over-allotment and the conversion of the preferred stock, Home BancShares outstanding common stock increased by approximately 2.5 million shares.~~

Cash Dividends.We declared cash dividends on our common stock of ~~$0.04~~$0.05 and $0.025 per share for the three-month periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006, respectively, and $0.10 and $0.065 per share~~respectively.

On January 18, 2008, we announced the adoption by our Board of Directors of a stock repurchase program. The program authorizes us to repurchase up to one million shares of our common stock. Under the repurchase program, there is no time limit for the ~~nine-month periods ended September 30, 2007~~stock repurchases, nor is there a minimum number of shares that we intend to repurchase. The repurchase program may be suspended or discontinued at any time without prior notices. The timing and ~~2006, respectively. We declared~~amount of any repurchases will be determined by management, based on its evaluation of current market conditions and other factors. The stock repurchase program will be funded using our cash ~~dividends on~~balances, which we believe are adequate to support the stock repurchase program and our Class A preferred stock and Class B preferred stock of $0.0208 and $0.0475 per share, respectively, for the three-month period ended September 30, 2006 and $0.14583 and $0.3325 per share, respectively, for the nine-month period ended September 30, 2006.normal operations.

Liquidity and Capital Adequacy Requirements

Risk-Based Capital.We as well as our bank subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. ~~Furthermore, we are deemed by federal regulators to be a source of financial strength for White River Bancshares, despite owning only 20% of its equity.~~ Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, we met all regulatory capital adequacy requirements to which we were subject.

Table 14 presents our risk-based capital ratios as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007.

Table 14: Risk-Based Capital


	As of			As of			As of			As of
	September 30,			December 31,			March 31,			December 31,
	2007			2006			2008			2007
	(Dollars in thousands)						(Dollars in thousands)
Tier 1 capital
Shareholders’ equity	$	246,577		$	231,419		$	286,391		$	253,056
Qualifying trust preferred securities		43,000			43,000			46,000			43,000
Goodwill and core deposit intangibles, net		(42,607	)		(43,433	)		(54,780	)		(42,332	)
Unrealized loss on available-for-sale securities		3,895			4,892
Unrealized (gain) loss on available-for-sale securities								(581	)		2,255
Other								(233	)		—

Total Tier 1 capital		250,865			235,878			276,797			255,979


Tier 2 capital
Qualifying allowance for loan losses		23,403			20,308			26,642			23,861

Total Tier 2 capital		23,403			20,308			26,642			23,861

Total risk-based capital	$	274,268		$	256,186		$	303,439		$	279,840

Average total assets for leverage ratio	$	2,200,626		$	2,089,130		$	2,495,518		$	2,236,776

Risk weighted assets	$	1,867,012		$	1,618,849		$	2,120,915		$	1,903,364


Ratios at end of period
Leverage ratio		11.40	%		11.29	%		11.09	%		11.44	%
Tier 1 risk-based capital		13.44			14.57			13.05			13.45
Total risk-based capital		14.69			15.83			14.31			14.70
Minimum guidelines
Leverage ratio		4.00	%		4.00	%		4.00	%		4.00	%
Tier 1 risk-based capital		4.00			4.00			4.00			4.00
Total risk-based capital		8.00			8.00			8.00			8.00

As of the most recent notification from regulatory agencies, our bank subsidiaries were “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, our banking subsidiaries and we must maintain minimum leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiaries’ categories.

Table 15 presents actual capital amounts and ratios as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, for our bank subsidiaries and us.

5048

Table 15: Capital and Ratios


											To Be Well															To Be Well
											Capitalized Under															Capitalized Under
						For Capital Adequacy					Prompt Corrective										For Capital					Prompt Corrective
	Actual					Purposes					Action Provision					Actual					Adequacy Purposes					Action Provision
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)										(Dollars in thousands)
As of September 30, 2007
As of March 31, 2008
Leverage ratios:
Home BancShares																$	276,797		11.09	%	$	99,837		4.00	%	$	N/A		N/A	%
First State Bank																	56,835		9.27			24,524		4.00			30,655		5.00
Community Bank																	34,835		8.89			15,674		4.00			19,592		5.00
Twin City Bank																	62,940		9.10			27,666		4.00			34,582		5.00
Marine Bank																	33,554		8.71			15,409		4.00			19,262		5.00
Bank of Mountain View																	16,440		9.05			7,266		4.00			9,083		5.00
Centennial Bank																	19,975		8.23			9,708		4.00			12,135		5.00
Tier 1 capital ratios:
Home BancShares																$	276,797		13.05	%	$	84,842		4.00	%	$	N/A		N/A	%
First State Bank																	56,835		10.53			21,590		4.00			32,385		6.00
Community Bank																	34,835		10.91			12,772		4.00			19,158		6.00
Twin City Bank																	62,940		10.17			24,755		4.00			37,133		6.00
Marine Bank																	33,554		10.06			13,342		4.00			20,012		6.00
Bank of Mountain View																	16,440		14.70			4,473		4.00			6,710		6.00
Centennial Bank																	19,975		10.48			7,624		4.00			11,436		6.00
Total risk-based capital ratios:
Home BancShares																$	303,439		14.31	%	$	169,637		8.00	%	$	N/A		N/A	%
First State Bank																	63,605		11.79			43,159		8.00			53,948		10.00
Community Bank																	38,864		12.17			25,547		8.00			31,934		10.00
Twin City Bank																	70,681		11.42			49,514		8.00			61,892		10.00
Marine Bank																	37,771		11.33			26,670		8.00			33,337		10.00
Bank of Mountain View																	17,710		15.83			8,950		8.00			11,188		10.00
Centennial Bank																	22,372		11.74			15,245		8.00			19,056		10.00

As of December 31, 2007
Leverage ratios:
Home BancShares	$	250,865		11.40	%	$	88,023		4.00	%	$	N/A		N/A	%	$	255,979		11.44	%	$	89,503		4.00	%	$	N/A		N/A%
First State Bank		52,306		8.97			23,325		4.00			29,156		5.00			54,537		9.18			23,763		4.00			29,704		5.00
Community Bank		32,376		9.20			14,077		4.00			17,596		5.00			34,189		8.90			15,366		4.00			19,207		5.00
Twin City Bank		59,193		8.66			27,341		4.00			34,176		5.00			61,178		8.87			27,589		4.00			34,486		5.00
Marine Bank		33,783		9.29			14,546		4.00			18,182		5.00			33,332		8.91			14,964		4.00			18,705		5.00
Bank of Mountain View		15,962		7.98			8,001		4.00			10,001		5.00			16,174		8.26			7,832		4.00			9,791		5.00
Tier 1 capital ratios:
Home BancShares	$	250,865		13.44	%	$	74,662		4.00	%	$	N/A		N/A	%	$	255,979		13.45	%	$	76,128		4.00	%	$	N/A		N/A	%
First State Bank		52,306		9.96			21,006		4.00			31,510		6.00			54,537		10.29			21,200		4.00			31,800		6.00
Community Bank		32,376		11.02			11,752		4.00			17,628		6.00			34,189		11.21			12,199		4.00			18,299		6.00
Twin City Bank		59,193		10.09			23,466		4.00			35,199		6.00			61,178		10.10			24,229		4.00			36,343		6.00
Marine Bank		33,783		10.55			12,809		4.00			19,213		6.00			33,332		10.20			13,071		4.00			19,607		6.00
Bank of Mountain View		15,962		13.42			4,758		4.00			7,137		6.00			16,174		13.84			4,675		4.00			7,012		6.00
Total risk-based capital ratios:
Home BancShares	$	274,268		14.69	%	$	149,363		8.00	%	$	N/A		N/A	%	$	279,840		14.70	%	$	152,294		8.00	%	$	N/A		N/A	%
First State Bank		58,893		11.21			42,029		8.00			52,536		10.00			61,188		11.54			42,418		8.00			53,023		10.00
Community Bank		36,104		12.29			23,501		8.00			29,377		10.00			38,036		12.47			24,402		8.00			30,502		10.00
Twin City Bank		66,525		11.34			46,931		8.00			58,664		10.00			68,754		11.35			48,461		8.00			60,576		10.00
Marine Bank		37,294		11.64			25,632		8.00			32,040		10.00			37,429		11.45			26,151		8.00			32,689		10.00
Bank of Mountain View		17,213		14.47			9,517		8.00			11,896		10.00			17,442		14.92			9,352		8.00			11,690		10.00

As of December 31, 2006
Leverage ratios:
Home BancShares	$	235,878		11.29	%	$	83,571		4.00	%	$	N/A		N/A	%
First State Bank		46,811		8.69			21,547		4.00			26,934		5.00
Community Bank		26,235		7.94			13,217		4.00			16,521		5.00
Twin City Bank		50,375		7.51			26,831		4.00			33,539		5.00
Marine Bank		27,317		8.08			13,523		4.00			16,904		5.00
Bank of Mountain View		15,230		7.73			7,881		4.00			9,851		5.00
Tier 1 capital ratios:
Home BancShares	$	235,878		14.57	%	$	64,757		4.00	%	$	N/A		N/A	%
First State Bank		46,811		10.29			18,197		4.00			27,295		6.00
Community Bank		26,235		10.31			10,178		4.00			15,268		6.00
Twin City Bank		50,375		10.15			19,852		4.00			29,778		6.00
Marine Bank		27,317		9.59			11,394		4.00			17,091		6.00
Bank of Mountain View		15,230		14.09			4,324		4.00			6,485		6.00
Total risk-based capital ratios:
Home BancShares	$	256,186		15.83	%	$	129,469		8.00	%	$	N/A		N/A	%
First State Bank		52,519		11.54			36,408		8.00			45,510		10.00
Community Bank		29,471		11.58			20,360		8.00			25,450		10.00
Twin City Bank		56,586		11.40			39,709		8.00			49,637		10.00
Marine Bank		30,582		10.74			22,780		8.00			28,475		10.00
Bank of Mountain View		16,316		15.09			8,650		8.00			10,812		10.00

5149

Non-GAAP Financial Measurements

We had ~~$45.7~~$57.8 million, ~~$47.0~~$45.2 million, and ~~$47.4~~$46.5 million total goodwill, core deposit intangibles and other intangible assets as of ~~September 30, 2007,~~March 31, 2008, December 31, ~~2006~~2007 and ~~September 30, 2006,~~March 31, 2007, respectively. Because of our level of intangible assets and related amortization expenses, management believes diluted cash earnings per share, tangible book value per common share, cash return on average assets, cash return on average tangible equity and tangible equity to tangible assets are useful in evaluating our company. These calculations, which are similar to the GAAP calculation of diluted earnings per share, book value, return on average assets, return on average shareholders’ equity, and equity to assets, are presented in Tables 16 through 20, respectively.

Table 16: Diluted Cash Earnings Per Share


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended March 31,
	2007		2006		2007		2006		2008		2007
	(In thousands, except per share data)								(In thousands, except per share data)
GAAP net income	$	5,228	$	4,288	$	15,050	$	11,440	$	7,278	$	4,761
Intangible amortization after-tax		267		267		801		792		282		267

Cash earnings	$	5,495	$	4,555	$	15,851	$	12,232	$	7,560	$	5,028


GAAP diluted earnings per share	$	0.30	$	0.25	$	0.86	$	0.74	$	0.39	$	0.27
Intangible amortization after-tax		0.01		0.01		0.04		0.05		0.01		0.02

Diluted cash earnings per share	$	0.31	$	0.26	$	0.90	$	0.79	$	0.40	$	0.29

Table 17: Tangible Book Value Per ~~Common~~ Share


	As of		As of		As of		As of
	September 30,		December 31,		March 31,		December 31,
	2007		2006		2008		2007
	(Dollars in thousands, except				(Dollars in thousands, except per share data)
	per share data)
Book value per common share: A/B	$	14.30	$	13.45
Book value per common share: (A/B)					$	15.62	$	14.67
Tangible book value per common share: (A-C-D)/B		11.65		10.72		12.47		12.05

(A) Total shareholders’ equity	$	246,577	$	231,419	$	286,391	$	253,056
(B) Common shares outstanding		17,243		17,206		18,337		17,250
(C) Goodwill		37,527		37,527		49,849		37,527
(D) Core deposit and other intangibles		8,141		9,458		7,934		7,702

Table 18: Cash Return on Average Assets


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2007			2006			2007			2006			2008			2007
	(Dollars in thousands)												(Dollars in thousands)
Return on average assets: A/C		0.92	%		0.83	%		0.91	%		0.77	%		1.15	%		0.88	%
Cash return on average assets: B/(C-D)		0.99			0.90			0.98			0.84			1.22			0.95
(A) Net income	$	5,228		$	4,288		$	15,050		$	11,440

(A) Net Income													$	7,278		$	4,761
(B) Cash earnings		5,495			4,555			15,851			12,232			7,560			5,028
(C) Average assets		2,243,233			2,059,931			2,217,923			1,996,121			2,550,531			2,197,695
(D) Average goodwill, core deposits and other intangible assets		45,887			47,647			46,323			48,095			58,098			46,765

Table 19: Cash Return on Average Tangible Equity


	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2007			2006			2007			2006			2008			2007
				(Dollars in thousands)									(Dollars in thousands)
Return on average shareholders’ equity: A/C		8.60	%		7.81	%		8.48	%		8.25	%		10.35	%		8.30	%
Return on average tangible equity: B/(C-D)		11.16			10.61			11.09			11.90			13.53			10.96
(A) Net income	$	5,228		$	4,288		$	15,050		$	11,440

(A) Net Income													$	7,278		$	4,761
(B) Cash earnings		5,495			4,555			15,851			12,232			7,560			5,028
(C) Average shareholders’ equity		241,153			217,944			237,391			185,492
(C) Average equity														282,748			232,771
(D) Average goodwill, core deposits and other intangible assets		45,887			47,647			46,323			48,095			58,098			46,765

Table 20: Tangible Equity to Tangible Assets


	As of			As of			As of			As of
	September 30,			December 31,			March 31,			December 31,
	2007			2006			2008			2007
	(Dollars in thousands)						(Dollars in thousands)
Equity to assets: B/A		10.87	%		10.56	%		11.14	%		11.04	%
Tangible equity to tangible assets: (B-C-D)/(A-C-D)		9.04			8.60			9.10			9.25

(A) Total assets	$	2,267,672		$	2,190,648		$	2,571,145		$	2,291,630
(B) Total shareholders’ equity		246,577			231,419			286,391			253,056
(C) Goodwill		37,527			37,527			49,849			37,527
(D) Core deposit and other intangibles		8,141			9,458			7,934			7,702

Adoption of Recent Accounting Pronouncements

FAS 157

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the period.

5351

~~Recent Accounting Pronouncements~~ FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


		Level 1		Quoted prices in active markets for identical assets or liabilities

		Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

		Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

~~In February 2007,~~Available-for-sale securities are the only material instruments valued on a recurring basis which are held by the Company at fair value. The Company does not have any Level 1 securities. Primarily all of the Company’s securities are considered to be Level 2 securities. These Level 2 securities consist of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. Level 3 securities were immaterial.

Impaired loans are the only material instruments valued on a non-recurring basis which are held by the Company at fair value. Impaired loans are considered a Level 3 valuation.

Compared to prior years, the adoption of SFAS 157 did not have any impact on our 2008 consolidated financial statements.

FAS 159

Statement of Financial Accounting Standards ~~Board (FASB) issued SFAS~~ No. 159, ~~“The~~The Fair Value Option for Financial Assets and Financial ~~Liabilities” to provide~~Liabilities(FAS 159) became effective for the Company on January 1, 2008. FAS 159 allows companies ~~with~~ an option to report selected financial assets and liabilities at fair value. Because we did not elect the fair value measurement provision for any of our financial assets or liabilities, the adoption of SFAS 159 did not have any impact on our 2008 consolidated financial statements. Presently, we have not determined whether we will elect the fair value measurement provisions for future transactions.

EITF 06-4 and 06-10

Recent Accounting Pronouncements

~~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.~~operation.

5453

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Liquidity and Market Risk Management

Liquidity Management.Liquidity refers to the ability or the financial flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available for reserve requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Our primary source of liquidity at our holding company is dividends paid by our bank subsidiaries. Applicable statutes and regulations impose restrictions on the amount of dividends that may be declared by our bank subsidiaries. Further, any dividend payments are subject to the continuing ability of the bank subsidiary to maintain compliance with minimum federal regulatory capital requirements and to retain its characterization under federal regulations as a “well-capitalized” institution.

Each of our bank subsidiaries has potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers. Many of these obligations and commitments to fund future borrowings to our loan customers are expected to expire without being drawn upon, therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

Liquidity needs can be met from either assets or liabilities. On the asset side, our primary sources of liquidity include cash and due from banks, federal funds sold, available-for-sale investment securities and scheduled repayments and maturities of loans. We maintain adequate levels of cash and cash equivalents to meet our day-to-day needs. As of ~~September 30, 2007,~~March 31, 2008, our cash and cash equivalents were ~~$49.0~~$59.7 million, or ~~2.2%~~2.3% of total assets, compared to ~~$59.7~~$55.0 million, or ~~2.7%~~2.4% of total assets, as of December 31, ~~2006.~~2007. Our investment securities and federal funds sold were ~~$459.0~~$441.1 million, or ~~20.2%~~17.2% of total assets, as of ~~September 30, 2007~~March 31, 2008 and ~~$540.9~~$430.5 million, or ~~24.7%~~18.8% of total assets, as of December 31, ~~2006.~~2007.

We may occasionally use our federal funds lines of credit in order to temporarily satisfy short-term liquidity needs. We have federal funds lines with three other financial institutions pursuant to which we could have borrowed up to ~~$88.2~~$99.7 million and ~~$62.1~~$88.2 million on an unsecured basis as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. These lines may be terminated by the respective lending institutions at any time.

We also maintain lines of credit with the Federal Home Loan Bank. Our FHLB borrowings were ~~$226.0~~$249.9 million as of ~~September 30, 2007~~March 31, 2008 and ~~$151.8~~$251.8 million as of December 31, ~~2006.~~2007. The outstanding balance for ~~September 30, 2007~~March 31, 2008 included ~~$87.0~~$10.0 million of short-term advances and ~~$139.0~~$239.9 million of FHLB long-term advances. The outstanding balance for December 31, ~~2006,~~2007, included ~~$5.0~~$116.0 million of short-term advances and ~~$146.8~~$135.8 million of FHLB long-term advances. Our FHLB borrowing capacity was ~~$205.5~~$223.6 million and ~~$323.6~~$186.6 million as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007.

We believe that we have sufficient liquidity to satisfy our current operations.

Market Risk Management. Our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. We do not hold market risk sensitive instruments for trading purposes. The information provided should be read in connection with our audited consolidated financial statements.

Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiaries are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.

5554

One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

Interest Rate Sensitivity.Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use repricing gap and simulation modeling as the primary methods in analyzing and managing interest rate risk.

Gap analysis attempts to capture the amounts and timing of balances exposed to changes in interest rates at a given point in time. As of ~~September 30, 2007,~~March 31, 2008, our gap position was relatively neutral with a one-year cumulative repricing gap of ~~-5.2%~~1.4%, compared to ~~-1.1%~~-5.2% as of December 31, ~~2006.~~2007. During these periods, the amount of change our asset base realizes in relation to the total change in market interest rates is approximately that of the liability base. ~~As a result, our net interest income should not have a material positive or negative affect in the current rate environment.~~

We have a portion of our securities portfolio invested in mortgage-backed securities. Mortgage-backed securities are included based on their final maturity date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

5655

Table 21 presents a summary of the repricing schedule of our interest-earning assets and interest-bearing liabilities (gap) as of ~~September 30, 2007.~~March 31, 2008.

Table 21: Interest Rate Sensitivity


	Interest Rate Sensitivity Period																							Interest Rate Sensitivity Period
	0-30			31-90			91-180			181-365			1-2			2-5			Over 5					0-30			31-90			91-180			181-365			1-2			2-5			Over 5
	Days			Days			Days			Days			Years			Years			Years			Total		Days			Days			Days			Days			Years			Years			Years			Total
	(Dollars in thousands)																							(Dollars in thousands)
Earning assets
Interest-bearing deposits due from banks	$	2,573		$	—		$	—		$	—		$	—		$	—		$	—		$	2,573	$	5,828		$	—		$	—		$	—		$	—		$	—		$	—		$	5,828
Federal funds sold		11,145			—			—			—			—			—			—			11,145		37,331			—			—			—			—			—			—			37,331
Investment securities		12,752			40,707			43,822			50,226			96,251			93,645			110,423			447,826		41,468			28,458			32,895			60,928			49,551			94,640			95,815			403,755
Loans receivable		538,054			127,932			139,990			247,918			234,259			245,476			26,745			1,560,374		737,776			133,449			147,767			224,324			291,694			306,723			25,236			1,866,969

Total earning assets		564,524			168,639			183,812			298,144			330,510			339,121			137,168			2,021,918		822,403			161,907			180,662			285,252			341,245			401,363			121,051			2,313,883


Interest-bearing liabilities
Interest-bearing transaction and savings deposits		32,572			47,240			70,853			141,689			38,228			101,243			137,972			569,797		30,637			61,274			91,911			183,823			43,885			116,493			159,229			687,252
Time deposits		97,345			189,816			223,190			217,802			46,783			35,944			228			811,108		137,229			164,365			228,731			286,420			58,581			36,270			358			911,954
Federal funds purchased		8,690			—			—			—			—			—			—			8,690		—			—			—			—			—			—			—			—
Securities sold under repurchase agreements		103,365			—			—			—			3,839			11,518			12,285			131,007		91,370			—			—			—			3,225			9,675			10,319			114,589
FHLB and other borrowed funds		87,175			6,080			41,367			26,531			5,516			57,783			1,576			226,028
FHLB borrowed funds																									93,598			6,092			5,299			10,392			38,042			84,996			11,429			249,848
Subordinated debentures		1			5,158			4			20,627			17			65			18,723			44,595		25,775			2			4			8			16			61			21,777			47,643

Total interest-bearing liabilities		329,148			248,294			335,414			406,649			94,383			206,553			170,784			1,791,225
Total interest- bearing liabilities																									378,609			231,733			325,945			480,643			143,749			247,495			203,112			2,011,286

Interest rate sensitivity gap	$	235,376		$	(79,655	)	$	(151,602	)	$	(108,505	)	$	236,127		$	132,568		$	(33,616	)	$	230,693	$	443,794		$	(69,826	)	$	(145,283	)	$	(195,391	)	$	197,496		$	153,868		$	(82,061	)	$	302,597

Cumulative interest rate sensitivity gap	$	235,376		$	155,721		$	4,119		$	(104,386	)	$	131,741		$	264,309		$	230,693				$	443,794		$	373,968		$	228,685		$	33,294		$	230,790		$	384,658		$	302,597
Cumulative rate sensitive assets to rate sensitive liabilities		171.5	%		127.0	%		100.5	%		92.1	%		109.3	%		116.3	%		112.9	%				217.2	%		161.3	%		124.4	%		102.3	%		114.8	%		121.3	%		115.0	%
Cumulative gap as a % of total earning assets		11.6			7.7			0.2			(5.2	)		6.5			13.1			11.4					19.2			16.2			9.9			1.4			10.0			16.6			13.1

5756

Item 4: CONTROLS AND PROCEDURES

Article I.Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures.

Article II.Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting during the quarter ended ~~September 30, 2007,~~March 31, 2008, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

5857

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which Home BancShares, Inc. or any of its subsidiaries is a party or of which any of their property is the subject.

Item 1A. Risk Factors

There were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, ~~2006.~~2007. See the discussion of our risk factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5: Other Information

Not applicable.

Item 6: Exhibits


~~Item 6:~~		~~Exhibits~~

15		Awareness of Independent Registered Public Accounting Firm


31.1		CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)


31.2		CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)


32.1		CEO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes –— Oxley Act of 2002


32.2		CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes –— Oxley Act of 2002

5958

(i) SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HOME BANCSHARES, INC.
(Registrant)


Date: April 29, 2008		/s/ John W. Allison

	~~HOME BANCSHARES, INC.~~ ~~(Registrant)~~

		John W. Allison, Chief Executive Officer

Date:	~~October 31, 2007~~ April 29, 2008		/s/ ~~John W. Allison~~Randy E. Mayor

			~~John W. Allison, Chief Executive Officer~~

~~Date:~~	~~October 31, 2007~~		~~/s/ Randy E. Mayor~~
			Randy E. Mayor, Chief Financial Officer

6059


															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		—			—			—		—			11,440			—			11,440
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $903		—			—			—		—			—			1,409			1,409
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate		—			—			—		—			—			10			10

Comprehensive income																			12,859
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 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 47,597 shares of common stock from exercise of stock options		—			—			—		446			—			—			446
Tax benefit from stock options exercised		—			—			—		187			—			—			187
Share-based compensation		—			—			—		303			—			—			303
Cash dividends — Preferred Stock A, $0.1458 per share		—			—			—		—			(303	)		—			(303	)
Cash dividends — Preferred Stock B, $0.3325 per share		—			—			—		—			(56	)		—			(56	)
Cash dividends — Common Stock, $0.065 per share		—			—			—		—			(916	)		—			(916	)

Balances at September 30, 2006 (unaudited)		—			—			172		194,406			37,496			(6,484	)		225,590
Comprehensive income (loss):
Net income		—			—			—		—			4,478			—			4,478
Other comprehensive income (loss):
Unrealized gain on investment securities available for sale, net of tax effect of $1,023		—			—			—		—			—			1,585			1,585
Unconsolidated affiliates unrecognized gain on investment securities available for sale, net of taxes recorded by the unconsolidated affiliate		—			—			—		—			—			7			7

Comprehensive income																			6,070
Issuance of 9,419 shares of common stock from exercise of stock options		—			—			—		88			—			—			88
Tax benefit from stock options exercised		—			—			—		24			—			—			24
Share-based compensation		—			—			—		77			—			—			77
Cash dividends — Common Stock, $0.025 per share		—			—			—		—			(430	)		—			(430	)

Balances at December 31, 2006		—			—			172		194,595			41,544			(4,892	)		231,419


	Key Financial Measures
	As of and for the Three Months						As of and for the Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
	(Dollars in thousands, except per share data)
Total assets	$	2,267,672		$	2,113,498		$	2,267,672		$	2,113,498
Loans receivable		1,560,374			1,387,279			1,560,374			1,387,279
Total deposits		1,598,571			1,557,533			1,598,571			1,557,533
Net income		5,228			4,288			15,050			11,440
Basic earnings per share		0.30			0.26			0.87			0.82
Diluted earnings per share		0.30			0.25			0.86			0.74
Diluted cash earnings per share (1)		0.31			0.26			0.90			0.79
Annualized net interest margin — FTE		3.55	%		3.57	%		3.49	%		3.54	%
Efficiency ratio		62.47			63.72			62.65			65.66
Annualized return on average assets		0.92			0.83			0.91			0.77
Annualized return on average equity		8.60			7.81			8.48			8.25