Home BancShares Inc (HOMB) 2008 Q2 法說會逐字稿

Greetings, ladies and gentlemen, welcome to the Home BancShares Incorporated second quarter 2008 earnings conference call. The purpose of this call is to discuss the information and data provided in the quarterly earnings released issued this morning. The Company participants will begin with prepared remarks then entertain questions. (OPERATOR INSTRUCTIONS) . The Company participants' in the call are John Allison, Chief Executive Officer; Ron Strother, Chief Operating Officer; Randy Mayor, Chief Financial Officer; Brian Davis, Investor Relations Officer. The Company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page three of their Form 10-K filed with the SEC in March 2008. At this time, all participants are in a listen-only mode and this conference is being recorded. It is now my pleasure to turn the call over to our first participant, Mr. Allison.

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

I said in the first quarter report, we need to keep our defense on the field by being proactive on asset quality, building reserves when appropriate and protecting our strong capital base. What was the best core operations in the Company's history was marred by one-time charge of $2.67 million or $0.07 a share resulting from a write-down of an investment held by the holding company.

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

From a core operations, the second core was the best in the company's history, setting several records. We had record loan growth, record net interest income and record efficiency core. A core ratio, core efficiency ratio was a record and broke 60 for the first time in the company's history. We had expanded net interest margin and reduction in noninterest expense. Couple that with the organization portion of the Metavante study that just been completed is now ready for the implementation phase. It calls a one-time gains and expenses in the first quarter and in the one-time write off in the second quarter, I think the numbers will be far more meaningful on a core basis without all the noise in the two quarters, we will be comparing apples-to-apples. After I complete my remarks we will move to Ron on a update on loans and over to Randy, to see what magic he keeps providing on the margin side.

Let's go to the numbers. Q2 of '07 the company earned $5.1 million, net income core versus June 30, '08, $6.9 million increase at $1.8 million or 36.5%. Diluted EPS was $0.29, year ago, June a year ago, versus $0.37, this quarter, an $0.08 increase or 27.6%. Cash earnings core, was $7.2 million, for the second quarter this year, versus $5.3 million for the second quarter of last year an increase of $1.9 million or 35%. I like those 30s. Cash diluted EPS was $0.39 a share versus $0.30 up 9%, another 30% increase. On a link quarter basis, it was also strong on a core basis, last - - first quarter this year we earned 6.3 million. Second quarter this year, 6.9 million, an increase of $565,000, 35.8%. During the first quarter we earned $0.34 on a core basis, and $0.37 on the second quarter on a core basis up $0.03, another 35.5%. Cash earnings core for the second quarter were 7.2 million, versus 6.6 million for the first quarter, $ 565,000 increase or 34.3%. Cash diluted EPS core was $0.39 for the second quarter, versus $0.35 in the first quarter. that's $0.04 a share, up 46%. That's a little bit skewed because we get rounding, get about $0.02 and a penny in each, every other quarter.

On operating highlights, quarter-over-quarter, net interest income was a record 21.7 million for Q2 '08 versus 16.7 million Q2 '07, up $5 million or 29.8%.. Loan loss provision, second quarter of '07 we put in about $680,000, in Q2 '08, $704,000 about $24,000 increase in loan loss provision. Noninterest income core was 7.7 million for the second quarter of this year, versus 6.6 million for the second quarter last year, an increase of 1.2 million or 17.5%. Noninterest expense increased $3 million from $15.5 million last year to $18.5 million this year, an increase of 19.3%, primarily as a result of the acquisition of Centennial. Net interest margins continues to improve year-over-year from 3.51% last year to 3.89% this year, that's up 38 basis points.

Let's go to link quarter basis. Net interest income, as I said was a record 21.7 million, versus first quarter at [20.8] up $910,000 or 17.6%. Loan loss provision $704,000 for the quarter, just ended, versus 4.8 in the first quarter as we built reserves in the first quarter. Noninterest income core, was a record $7.7 million in the second quarter of '08 versus $7.7 million in the first quarter of '08, only slightly up by $23,000. Another bright spot for the organization is noninterest expense. Noninterest expense in the first quarter is $18.7 million, noninterest expense for the second quarter of '08, was $18.5 million, it was down $186,000 or 4%. We continue to work on the expense ratio and hopefully we will continue to see improvements there. Net interest margin, likewise improved from the first quarter at 3.78% to the second quarter of 3.89%, up 11 basis points.

Quarter-over-quarter, ROA core, last year was 0.92, this year 1.08, ROA . Cash core, 0.99 June of last year to 0.15 - - 1.15 second quarter of this year. Cash, tangible ROE core, moved from 11.14 last year to 12.57 this year and efficiency ratio dropped from 62.95 last year to a record 59.66, that's 329 basis points reduction. On a link quarter basis, return on assets in the first quarter, core, was 1% and the second quarter 1.08, continued improvement there. Cash, ROA core moved from the first quarter at 107, to 115 in the second quarter and cash tangible ROE core moved from 11.86 to 12.57, up 71 basis points. While efficiency ratio dropped, even though we were proud of our efficiency ration in the first quarter dropping to 60.09 on a core basis, it dropped to 59.66 down another 43 basis points.

Loans, loans increased year-over-year $426 million to 28% to a record 1.95 billion. Total assets increased 371 million to 2.61 billion up 16.6%. Total deposits, gained 258 million, to a record 1.9 billion up from 1.64 billion last year, 15.8%. Stockholders equity grew just short of $50 million, an increase of 20.8% to 287.9 million. On link quarter basis, we grew loans in the second quarter over the first quarter by $84.3 million, which was the best organic growth in the company's history. Loan's had been a major driver for this company. Total assets increased by 40.5 million to 2.61 billion, deposits up for the quarter, 47.1 million to 1.9 zero billion. Total assets increased by 40.5 million to 2.61 billion, and deposits were up for the quarter, 47.1 million to 1.90 billion. If remember in the first quarter we grew about $80 million in deposits and we come back with just short of $ 50 million here, so we are a little deposit growth. Stockholders equity grew to 287.9 million. We funded the $84.3 million of loan growth in the quarter with the $47 million in deposit growth and about $30 million in securities roll off.

Asset quality, talk about that, loan losses for June 30 last year we had 1.84% in reserve for loan losses. As of June 30 of this year we had 1.87. The coverage ratio, allowance to nonperforming loans last year was 147%, and this year was 299%. Nonperforming loans to loans, 6/30 of '07 was 1.25, dropped to 0.63, for the second quarter of this year down 62 basis points. Nonperforming assets to assets, likewise dropped from last year at 0.86 to this year at 0.82, down four basis points. Loans, past due 30 days or more including past due nonaccrual loans and total loans dropped from last year at 1.44 to this year at 0.84 down 60 basis points, showing marked improvement.

At last, loan loss on a link quarter basis we dropped from the first quarter we had 1.99% in reserve to 1.87% as we continue to clean up Florida and Ron will talk more about our charge-offs in a minute. At last, the nonperforming loans dropped from 308%, in the first quarter , to 299% in the second quarter. Nonperforming loans to loans in the first quarter were 0.64, dropped to 0.63 in the second quarter and nonperforming assets to assets increased 15 basis points from 0.67 to 0.82, that's primarily up totally as a result of the trust preferred that we put on nonaccrual that we discussed earlier in my opening remarks. Loans past due 30 days or more including past due nonaccrual loans to total loans, went up from 0.83 in the first quarter to 0.84 in the second quarter. On a branch expansion, we didn't open any new branches in the second quarter. This year we opened Morrilton, as we disclosed earlier in Cabot, Arkansas.

At this point, this concludes my opening remarks and I will turn it over to Ron Strother for a discussion on loans. Ron?

Thank you, John. AS Johnny indication it's just been a record quarter on credit. Our pipeline continues to be strong. We had $84 million increase which Johnny talked about. It's coming principally from central Arkansas. Great opportunity, the bank here in Conway produced 19 million on the quarter. Cabot, 24, Twin City and Little Rock, 17 and Centennial about 21 million. Talk about the mix for a second. Total real estate continues to subside, we began the quarter about 83% in real estate, were down to 82.2%.

Construction and land development also saw a decrease, it went from about 18.3 to 18.1, this is the seasonal time for [Agri], we saw it move from a 0.9 to a 1.7, with the funding of the crops, C&I continues to grow, as Johnny indicated with a Fayetteville Shale lending, were seeing lots of opportunities in that arena. Let me touch on asset quality, Johnny talked about a lot of it. Let me drill down just a little bit further. The MPAs's increased about 4.3 million for the quarter; however, 3.9 of that was specifically in the investment nonaccrual, and Florida has about 50% of our MPA's. Johnny asked me to talk about the charge offs, we had 2.5 million in charge offs for the quarter.

We had 1.3 million in recoveries for net charge offs of 1.2. Of that 2.5 million, 1.7 million was in Florida and the balance was in Arkansas. As we indicated last month or last quarter, 575,000 of those charges offs are part of the earn-out agreement with Centennial. A lot of attention is paid today on construction and land development and more particularly nonperforming loans in the C&D category. I'm pleased to report of the 12.2 million that we have a MPL's only 3.8 was in C&D. To put that in further perspective, we have $353 million in total C&D loans, and of that, $3.8 million or 1.03% was nonperforming as of the end of the quarter. John, that concludes my remarks.

Thank you, Ron. Good report. Randy, you seem to be the margin guru, we will give you all the credit for the increased margin and tell us what's going on here.

Well as Johnny mentioned our net interest margin did improved 11 basis points on a link quarter basis. The yield on our interest earning assets declined 42 basis points from 686 to 644, with the majority of the decline attributable to loans, loan yield decline 53 basis points from 731 to 678. However, we were are able to offset the 42 basis point decline in asset yield with a 56 basis point improvement in interest bearing liability yield, which dropped from 350 to 294. Deposit y yields improved 59 basis points from 347 to 2.88. We also saw a 65 basis point improvement on approximately 110 million in repurchase accounts. A 34 basis point improvement on approximately 250 million in borrowings and 64 basis improvement on $47 million in trust.

As for what the future holds, we are slightly negatively gaped at this time at about $39 million in the 12 month window. We basically have 1.2 billion in loans and 1.2 billion in deposits, repricing in the next 12 months, 841 million of the repricing deposits are in time deposits, and approximately 359 million are in nontime deposits that are at or nearing the floor and will cause us a little bit of pressure on the margin there. With that I'll turn it back over to you, Johnny.

Thanks, Randy, sometimes market excess can be good. For those of us with gray in our hair, market correction is painful to watch as the previous ones have been, but having benefit from the past experience your management team has attempted to position Home BancShares to take advantage of the market turndown and not be a victim of it. Excess capital, strong loan loss reserves and sticking to the basics in lending culture, we believe that we have set ourselves apart from the herd. We see great opportunity in building a solid engine for the future. Arkansas continues to be blessed with positive moves. The Fayetteville Shale revenues are growing by the day and Hewlett-Packard has just announced a new facility in Conway with the creation of 1200 jobs that average in salary from $48,000 to $60,000 each.

With the help of Metavante, HBI is beginning the implementation of several hundred improvement ideas that will make us a better bank. The process improvement program will help trim the efficiency ratio, while also positioning the product delivery platform to do what they are paid to do, that's push product. While it's still early, we are told that this should save us several million dollars annually, that's without charter consolidation and management has decided to per sue further consolidation over the next year. As the industry continues to struggle to raise capital, build efficient loan loss reserves as the expense of earnings Home BancShares is pleased to be in the position it's in. Sometimes market excesses and market corrections are not all bad.

Operator, we are ready to go to Q&A, at this point in time.

(OPERATOR INSTRUCTIONS). Our first question comes from John Arfstrom of RBC Capital Markets.

Good afternoon.

John, how are you?

Good, doing well. Few questions here, can you talk a little bit more about the charter consolidation and how that might lay out in terms of timing? And any name changes that go along with that or is that merely back office?

That is yet to be determined, John, if there is a name change. But the schedule for consolidation is that we could be completed providing things go our way, should be completed by the third quarter of '09. What are you wanting more specifically on it, John?

Costs benefit analysis and how you think about that.

You want us to tell you how much money we are going to save so you can forecast?

That would be great.

I will let Randy Mayor visit with you.

Johnny's, mentioned several times the V3 or the Metavante initiative we have been in, expected to bring us savings, we can't give a whole lot of guidance on that. We have been looking at that without the charter consolidation piece. That's going to be in addition to that. Something we are working our way through and as we first implement here you will see a increase in expenses as we start to implementation process, we don't expect the full brunt of the study and the charters to hit us probably until the last part of '09. So it's really kind of hard to quantify at this point. We are expecting good numbers out of that.

Great.

John I appreciate you asking that question, I've been asking on the same question, I get the same answer you just got.

All right. Good. Couple of questions on Centennial, Ron, you said, if I was writing -- I was writing quickly, Centennial 21 million in loan growth for the quarter?

Yes. They just had a really, really strong pipeline, the volumes come from the number of different areas, more of a private bank, bit of a boutique bank in the customer base has favored them. There has been some difficulty in the market lately, that's opened the door with competitors and they've done, they and Twin City both have done an effective job of moving in on the customers.

I just thought based on asset base that seemed like strong growth for the quarter

That was strong, they were $0.02 accretive to the corporation for the quarter, John they were $0.005 in the first and $0.02 in the second quarter so that acquisition is working out great.

They made $1.3 million for the year so far.

Good. Any update on the MPA's that they have? That's been carved out.

Very happy to tell you that the 2.1 paid off.

1.9.

1.9 paid off. And of the I don't know, 8 million or so, I think they are down to a fraction of that, maybe a couple of million, so in a six month period they have done a phenomenal job of moving those assets out.

Then just maybe a bigger picture question, Johnny you talked about market disruption, can you fill us in on what is happening in your various Arkansas markets and how you feel about growth in the keys?

John, we are -- there has been market disruption in Arkansas, primarily of the -- with the lenders who loaned in northwest Arkansas. A lot of that is coming to the top. And people are having to deal with those problems in northwest Arkansas. As you remember, we exited that back in January and we have less than I think $20 million worth of total loans in the market. Still a great market but it's going to take a while to work through that.

As a result of that and as a result of the A&B crisis that happened in Arkansas, excuse me, we have seen opportunities and some of the financial institutions in Arkansas have come under pressure from the regulators and when that happens, that's both good and bad. Where there is something bad for someone, could be good for us, we have been the beneficiary of some opportunities here recently and it appears that we are going continue to be the beneficiary of opportunities in the future.

As far as growth, John, we are primarily looking at Arkansas. Florida we are wrestling through that on the asset quality side and charge them as we get them. Think we are getting our arms around the Florida assets and taking them and dealing with them. See the charge offs, we will deal with them appropriately as we always have.

Okay. Thanks a lot, guys, nice job.

Thank you,.

Thank you, John .

Our next question comes from Brian Martin of Howe Barnes Hoefer & Arnett, Inc.

Hey, guys. With the loan growth this quarter, any larger loans in there, driving that growth or was it, -- they broke it up by bank, any larger ones that took it over the edge that made -- record quarter?

No, eight figure credits, it's solid singles, 4 million, 5 million. We did buy some participations from the energy company here in Arkansas. That was a nice deal. But it's still hotel, motel. The [Agri] we had good funding on that credit. Nothing large. The pipeline continues to look really good.

Okay. Similar type of credits, nothing large in the pipeline that would --

No Brian, we are feeling the benefits Fayetteville Shale. Seeing lots of smaller contractors that need assistance and carrying the receivables, that's coming pretty strong.

Brian, that's why the C&I is growing. We have been predominantly a real estate bank and these contractors, as Johnny said the vendors that's given us great opportunity.

Looking at the funding of the loan growth this quarter, part of , the drawdown on the securities portfolio versus deposits, what's the thought going forward, is there more to pull out of that securities portfolio or is it more get funded with the deposits at the point?

We got about another 90 million to roll out of a securities portfolio between now and the end of the year. But deposit growth has been, really been benign over the past several years, appears to be strengthening somewhat. I don't know if that's a flat to quality with everything going on, because we are known for our excess capital and strength. I'm not sure, I'm not sure where that's coming from. If that's where it's coming from, that's strong. We are not running deposit bonuses or high CD rates. With the demise of Indymac and Country Wide going in to Bank America, we may see pressure off of those rates because broker deposits were run up by them. We don't have but 47 or $48 million worth of broker deposit, we are pretty well core funded.

Maybe a question for Randy on the margin. The kind of being -- sounds like neutral. Slightly negative GAAPs but the CDs that you're putting on now -- what type of rate? Is there benefit on those CD. Is it a neutral? The average cost in the quarter was 375, I thought?

Yes. There is still some benefit coming off of those as far as the repricing, that's starting to dwindle, you're right the pick up will be going away. That's where we have been getting a lot of the kick along with some of our borrowing repricing also.

Okay. Just remind me the percentage of the loan book that floats with prime.

Floating is about, it's changing a little bit. It's about 46% float now.

If rates were to go up, you see that as a benefit here if the Fed were to take rates higher?

Yes. We would probably prefer stay flat or go higher because it's more on the liability side that there is not a lot of room to keep repricing what are nonCD deposits.

You by chance have the margin by month, where it ended June. An idea of what the trend was in the market.

The trend was strong in April and May and squeezed in June.

Okay.

So we had the trucks, the reversal of the trucks accrued interest in June which made an impact on it. I'm not sure -- I don't have the exact impact on that. But it got my attention when I saw that margin in the month of June and so now kind of a memo to everybody pay lots of attention to what we are doing.

It might not be a core number with that adjustment in there.

Brian has got the numbers here you go.

Brian, this is Brian. For April, it was 395. And for May it was 395. In June, it did drop to 378. But that's when we put the [TRUP] investment on nonaccrual status, we had to reverse all the accrued interest we had on that. That was probably if you normalized the months it was probably $200,000.

Okay. Perfect. That's all I had, nice quarter you guys.

Thank you.

Our next question comes from Matt Wahl of Stephens, Inc.

Hey, good morning. Great quarter.

Thanks, Mat.

My question deals with the loan loss provision. Kind of the first meaningful drop we seen in the reserve ratio, reserve ratios is now close to 4Q levels pre- Centennial. What are your thoughts on this reserve ratio going forward in terms of how you view it internally?

It's not the first time that the loan loss provision has dropped. We vacilated in and out on the loan loss provision for a while. That's why we built reserves because we anticipated the problems in this cycle as we clean up Florida we will continue to charge in Florida when we have a problem credit down there, we identified everything we know in that market and as we get it back we caring it and deal with it -- charge it and deal with it. I think probably you will see probably the loan loss provisions probably continue to come down over the next year.

The provision or the reserve ratio?

Reserve ratio, excuse me the reserve ratio. We basically were flat, we put about 700,000 in reserve at the end of the quarter, $1.3 million recovery for 2 million, charged off 2.5 and $500,000 of that is on someone else's ticket, on Centennial's ticket. We are flat for the quarter though we had tremendous loan growth. I don't expect that $84 million a year loan growth to run at that rate, that's phenomenal for our company.

Is it fair to assume with the reserve ration dropping the delinquent loans in terms of a dollar amount also have been decreasing recently? Is there a dollar amount change in delinquent loans you can provide for us.

I read that in my prepared statement. Let me go back to that. On past dues. If I could find that. Year ago period, it was 0.86. That included loans that were past due 30 days or more. Including past due nonaccrual total loans, that was 1.44, June 30, '07 and 6/30 of '08 it was 0.84. And on a link quarter basis, loans past due 30 days or more including past due nonaccrual loans to total loans was 0.83 and they went to 0.84. So that includes nonaccrual and past dues, they have been flat and very good.

Very good. I wanted to ask about, are there details you can provide on the impaired security in terms of where the banks are located, how many are in the pool and maybe the accounting rules regarding the impairment as to why a certain amount was put on or considered impaired and the rest were put on nonaccrual?

We had about $4 million in one pool. And about $1.7 million in another pool. Pool one, we will refer to it had 4 deferments in it from banks that deferred, no defaults but deferred and in each pool probably how many banks, Randy?

There is probably 45 to 55 banks.

Yes, 45 to 55 in the pool, we had four of it deferred. In pool two, we took a 50% charge down on, that we wrote that down 50% from 4 million to 2 million. Pool two, was $1.7 million pool, it had one deferment in it. As a matter of fact the guy deferred in pool two also deferred in pool one That bank has since been sold. And that transaction will close probably in the Q3 or just after the Q3. So we didn't write that security down we just nonpreformed it. If we see -- we expect those will probably recover at some point in time and in whole or in part. There is banks scattered throughout the country.

It is different banks, Matt we are down to 3.9 total left in both pools. Looking for a total disclosure , that would be it.

Okay.

I started to write it, how conservative we are, I started to write the whole thing off. I don't know if we started the dominos falling or not. You now how we do things if it's got a problem we get rid of it.

I understand that, unfortunately default risk wasn't a major consideration for anyone a few years ago. I know that you're in the same boat that many banks are. What about as far as expenses in Q2, anything there that is unusual or is that a pretty good run rate?

That's a pretty good run rate. We had, from the defalcation at Twin City was $100,000, then we had about $200,000 of Metavante still in there for the quarter. But it looks like a good run rate. We are pleased with that number.

Okay. Last question, could you reminds us what your dollar exposure is in the Florida mainland?

20 million. Less than 20 million. Less than 20 million, of which one loan is a $12 million citrus farm.

The rest are single family mortgages?

To my knowledge, maybe speaking out of target, we don't have single family mortgage, it's mainly C&I.

Strip centers on [Tammy-Ammy] and stuff between Marco and Port Charlotte.

Way on the western side, Mat.

We got there late, thank goodness.

That's right. Very good. Thank you very much.

Thank you, Mat.

(OPERATOR INSTRUCTIONS) We have a question from Bob Whitehouse.

Hey, guys. Just to give you a break from answering the technical questions.

Hey, Bob, how are you?

Hey, how are you? Thanks to the management team. Share appreciation with the employees at all level of the organization, we are proud to have your leadership in town.

Thank you very much, that's kind. Very kind. Was that your comment?

That my comment and questions.

Thank you very much Mr. White house, we get keyed up for this conference calls from time to time, it's nice to have a comment like that, look forward to seeing you again, Bob.

Our next question comes from Matt Wahl.

One more follow up, guys, saw the press release on the stock dividend, can you give us your thoughts on the strategy as to why a stock dividend and how you chose that amount.

That was a pretty long discussion around here, Mat. That was at first commercial corporation for many years we did that. We do it about every three years do a stock dividend. We are primarily a retail stock. I understand it doesn't -- change what my director says, it's still a ten inch pizza and I understand that ,we are primarily a retail stock and our retail people like that, we did it first commercial, it was successful. With the excess capital we thought we would do an 8% stock dividend and reward shareholders and show appreciation.

We shouldn't expect another one for a few more years it doesn't sound like?

That's correct. That's not going to be an every day event. We said we wanted to get dividend at some point in time in the 30s of earnings, with this, we will be about 17.9, 18% is the payout ratio. We will continue to build dividends open fully over a period of time -- hopefully over a peer of time.

Our next question is from Mr. David Scharf David Scharf.

Most of my questions have been answered. Curious looking at the loan to deposit ratios. You've been using the securities portfolio to bridge the gap. What's going to be the strategy should the loan remain as strong as it has been to draw the core deposits.

We still have lots of borrowing capacity if we choose to do that. We refinanced recently. We stayed out of the fray on the deposit game and step in there if we needed to. We still have continued security roll off over the next 24 months, basically, we will hopefully continue to build deposits. Basically the loan demand was funded the first six months of this year funded by deposit growth. We only have $49 million in broker deposits, and we are not afraid to use that if the rates are right, we have all the tools in the arsenal to fund our loan growth.

As it relates to the Fayetteville Shale and royalty checks, maybe getting in to the trust game or the brokerage game is that still on the table?

That is on the table and our Twin City bank has started that, actually started at Cabot, Twin City with (inaudible) has come in, hopefully bringing that to Conway before too long because Conway is really the head of where we play in the Fayetteville Shale.

Are you guys doing it internally or partnering up with someone in terms of the regional brokerages.

We use a [UFES] platform, our agents work for them. We moved up to a higher level with LPL and these are our employees, so it's internally generated.

How do you feel the rate -- (Inaudible).

I just saw that report Tuesday of this week, was very pleased.

Okay.

It's been in about -- operation about 120 days now. And was very very pleased. Someone asked if we had that. She started contributing it looks like it was a good move.

Just as an aside, Arkansas is being blessed with the national meeting of the National Royalty Owners and it will be held in Little Rock, in September at the Peabody, we are going to be the keynote sponsor of the National Royalty meeting, we will have people all over the United States. With the Fayetteville Shale it's quite the focus now.

Do you have any speculation you can give to when you expect the royalty checks to make it in to the banking system from a deposit standpoint.

They are in all phases, starting to build a pad to royalty checks starting to come in now. There is more construction going on than royalty checks coming in. As I told you before, the first thing the farmer is going to do is buy him a new pickup truck and build mom a house and son a pick up and a new house. But we are starting to see some of that money come in.

Very good, thank you for your help.

Our next question is from Joe Stephen of Stephen Capital.

Couple of questions, most have been answered. We are hearing some Bankers talk about that really able to start getting back to better pricing on both sides of the ladder, both on loans and deposit pricing. But a lot of it depends on competition, can you give us your macro comments, when you have commercial loans are you able to move rates up to little bit higher rates and same thing on the deposit side? Thanks .

We are seeing it on the deposit side. We are not seeing this as much on the loan side. We have some banks in Arkansas that were the leaders of low rates, they are kind of wounded, some of banks are wounded now. I expect we are going to see as competition has lessened on the loan side in this market I suspect we are going to see opportunities to raise those rates in the future. It has been very competitive, though, Joe, thus far. Thus far it's been competitive. As the number of big players begin to diminish, then we think we will have an opportunity to move the pricing up.

Okay. Great quarter, guys, thanks.

Thanks, Joe.

Our next question comes from Jon Thomas.

Hello, great quarter. Congratulations.

Thank you, John.

I'm traveling in New Jersey and I did not see the press release on the 8% stock dividend. Could you explain it a little bit more, please.

We declared a 8% stock dividend along with a increase in cash dividend of another $0.005 a share. We were paying $5.5 cents quarterly, we went to $0.06, and so your next dividend will have 8% more stock and a $0.005 increase on your dividend, it's about 63% increase in dividend, cash dividend year-over-year.

Thank you very much.

Have a good trip,.

Thank you.

(OPERATOR INSTRUCTIONS). At this time, it appears there are no further questions.

I will wrap up here if there is no further questions.

That's fine with me.

I want to thank you for attending our conference call today. As I said Arkansas' blessed with rice, soybean wheat and natural gas and this new HP contract coming in with 1200 jobs in Conway, we are excited about that. Hopefully we continue to separate ourselves from the pact and work hard to do that. Look forward to visiting with you in 90 days, thank you very much.