Home BancShares Inc (HOMB) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the Home BancShares Incorporated third quarter 2008 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The Company's participants will begin with prepared remarks then entertain questions. (OPERATOR INSTRUCTIONS) The Company's participants in this call are John Allison, chief executive Officer, Ron Strother, chief operating officer, Randy Mayor, Chief Financial Officer, 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 10k filed with the SEC in March, 2008. At this time, all participants are in a listen-only mode. This conference is being recorded. (OPERATOR INSTRUCTIONS) It's my pleasure to turn the call over to our first participant, Mr. Allison.

Thank you, Camille. Good afternoon and welcome to the Home BancShares third quarter earnings report. In the first and second quarter we talked about the stressful financial times that we were experiencing. Little did we know that the worst was in front of us and not behind us, history has been made. Our children and grandchildren will read about this crisis in their history book. We live at a time in history that will report the worst financial crisis since the great depression. Credit markets remain dysfunctional and are leading too the demise of major financial players in the US and abroad. I said on earlier calls that we need to keep our defense on the field, protect our stong capital base, be proactive on asset quality and build reserves when appropriate and needed. People ask me, say what keeps you up at night. My answer is circumstances beyond our control.

We run good conservative well capitalized banks. I tell our people, keep your chin strap buckled, keep your head down and run your banks the way you know how. There is no reason to worry about circumstances you can't control and that is exactly what they've come to do. We call it stay the course. And congratulations to the team for what was a good solid quarter in spite of extremely uncertain times. The third quarter was probably best described as flat to up in several areas. However, we have some new high water marks that we are pretty proud of. On the revenue side, both net interest income and noninterest income, while up only slightly, would be described by Randy Sims, the star CEO of our First State Bank in Conway, as a world record. They were the best in the Company's history. By the way, Sims ran a 184 last month with his Conway bank.

On the expense side, both interest expense and noninterest expense were both down slightly, which resulted in the best efficiency ratio in the Company's history. We broke 60 on a GAAP basis for first time ever. If you remember, on a core basis last quarter we broke 60, but the performance wasn't quite as good as it was this month. This quarter, excuse me. Couple that performance with the implementation phase of the efficiency study that will be completed in the third quarter of '09 and we are optimistic that we can reach our goal of mid-50s. Heads up, the fourth quarter of '08 and the first quarter of '09 will be a little noisy as we will spend $2 million to $3 million on the implementation phase. The best way to look at us is a fourth quarter of '09 should be the strong indication of our on going run rate. October of this year represents ten years for our Company since the formation of Home BancShares and my wife will tell you the 10th year without a paycheck and that's probably long enough.

Ron told me that the government was buying banks, was going to nationalize them and freeze the CEO salary at the present rate and mine will be frozen at zero forever. All jokes aside, if the compensation committee approves a nominal salary for me this week, you will probably see a 8k later this week or next week. I can assure you that the salary will not be excessive or in any way near the peer group. My only source of income over the past ten years has been my board fees, which I will continue to draw plus a salary. Let's go to the numbers. Quarter over quarter, excuse me, year-over-year for Q3 of '07 to Q3 of '08 we increased income $1.3 million or 25.6% and EPS increased $0.04 to $0.32 or 14.3%. Cash earnings up $1.4 million or 24.6% and EPS was up $0.05 on the cash side of 17.2%. On a link quarter basis, which sometimes is more meaningful to see how we are doing, excuse me, net income was up $910,000 to $6.6 million from $5.7 million on Q2 of '08. That is up an annualized rate of 64%.

Likewise EPS was up from the second quarter of this year to the third quarter from $0.28 to $0.32, up $0.04 or 56.8%. Cash earnings also up likewise $911,000 on a analyzed rate of 61% to $6.8 million and cash diluted EPS was up $0.05 to 68.6%. Net interest income, Q3 '07 versus Q3 '08 was up $4.5 million from $17.3 million to $21.9 million, which is a record net interest income, as I said earlier, annual change of 26%. We put in about $1.4 million in loan loss reserve this quarter from versus 547 last year quarter. We just felt like it was time to build loan lost reserves. Noninterest income was $7.8 million, that is up $1.5 million from $6.3 million Q3 of '07, up 23%. And that also was a record for the Company. Noninterest expense $15.6 million to $18.5 million this year, that's up $2.9 million or 18.6%, primarily as a result of the Centennial acquisition.

We increased net interest margin up to 3.82 from 3.55, up 27 basis points year-over-year. On a link quarter basis, it is pretty close, as I said most of this is flat to up slightly. Net interest income Q2 '08 was $21.7 million and Q3 '08, $21.9 million, up $114,000. But still a record number for the Company. The loan loss provision, we put in $704,000 second quarter, we put in $1.4 million this quarter up $735,000. And noninterest income was up slightly from $5.7 million to $7.8 million. That sounds pretty good. That's $2.1 million, but if you remember we had the trust write-down of $2.1 million. But even in spite of that, the noninterest income was up by about $50,000 Q3 over Q2. Noninterest expense, holding the line on expenses, guys, actual expenses were down by $19,000. Q2 '08 shows $18,500 and Q3 '08 shows $18,500, but actually they were down by about $19,000. Net interest margin dropped about 7 basis points from 389 to 382.

Randy has been calling for that, we will let him give you more color on that in a minute. He has been calling for the past year, I think, the last three quarters at least, saying the margin is going to squeeze. I guess he finally was right. Return on assets year-over-year, Q3 '07 was 0.92 and we improved to 1% Q3 '08. Cash ROE for the same period went from 0.99 up to 0.107. And cash tangible ROE improved from 11.16 last year to 11.72. Efficiency ratio, last year we were pretty proud of that 62.47, but we hit 59.25 this year and we are very proud of that. That's down 322 basis points. On a link quarter basis, second quarter we earned on ROA was 0.89, third quarter 1%. Cash ROA second quarter 0.95. Cash ROA third quarter 107. Cash tangible ROE second quarter was 10.38 and we improved to 11.72 for the third quarter. Efficiency ratio dropped second quarter from 64.04 to 59.25.

Actually, if you remember, we had that $2 million trust write-off that was in there and we did break, on a core basis we broke 60 efficiency ratio but not quite as good as we did the third quarter, so continued improvements. Enjoy that for a while, because as I said, those efficiency ratios are going to be messed up here for a little bit as we go through the B-3 steps. Loans year-over-year grew $408 million. About $192 million of that came from the Centennial acquisition and the balance was just pure organic growth. So it was up 26%. Total assets up $383 million to $2.65 billion up 16.9%. Total deposits up $315 million to $1.91 billion up 19%, 19.7% actually. Stockholders equity grew another $45 million to $291 million from $246 million last year. Loans deposits grew from 97.61 last year to 102.87 this year. On a link quarter basis you kind of get back to the flat and slightly up and Ron will put more color on the loans in a few minutes.

Loans were up $17 million for the quarter. We had some pay downs that he will be discussing with you. Total assets up $39 million to $2.65 billion and total deposits up $11 million to $1.91 billion. Stockholders equity grew $3.2 million to a record $291 million. And loans deposit remain flat at 102. Allowance to loan loss reserve last year, that's Q3 of '07, we had 1.84% reserve, second quarter of this year we went to 1.87% and Q3 of '08, 1.85%. Allowance to nonperforming loans was 226% Q3 '08 versus 299% Q2 '08. Nonperformings picked up a little bit from, as we expected, as we said they would, from 0.63 to 0.82. As we have given our range there, we are still on the low end of the range from 0.6 to 2%. Nonperforming assets to assets ticked 1.11 from 0.82. And past due loans over 30 days were 0.50 or one-half of 1%.

The Company opened a new branch in Morrilton, new branch in Cabot and are presently working, as we said last time, we may move on up into the Fayette Shale, so the Company is looking at some opportunities up in the Fayette Shale and you may see some news announcements on that in the next month or so. That completes the majority of my remarks. I'm going to turn it over the Ron right now to give us a little update on the loans. Ron, please.

Thank you, Johnny. As Johnny indicated, the loan volume, while it looks at a slower pace at $17 million, we actually witnessed a higher than normal payoff ratio during the quarter. We had a very large multifamily loan that we have had on the books for a while, $24 million, that went permanent nonrecourse as planned and then we saw a couple of other projects totaling collectively about $11 million, we saw those move out of the bank. So save these pay downs, Q3 was actually a good quarter, the entire loan growth came from central Arkansas. Let me touch on mix for just a second. Once again we saw a relatively small shift away from real estate. It was offset by increases at CNI and AGRI. In Q2 real estate was 82.2%, in Q3 it went down to 81.4%. CNI grew conversely from 12.2 to 13 and AGRI was up slightly from 1.7% to 2%.

We had a nice funding for a municipal loan in the central Arkansas market and we have energy related credits of $12.5 million. Johnny has already touched on asset quality. Let me give you a little bit of color on three points. Year-to-date we have added $6.9 million to the reserve for loan loss. We recovered $1.4 million, we have charged off $4.8 million, therefore our allowance for loan loss has increased $3.5 million Q3 '08, reflecting the 1.85 ALL to loans. Net charge-offs were 1.4 for the quarter about half of that came from the Florida market, about half of that came from the Centennial acquisition, which is covered by the earn out. My last point , 78% of the $8 million increase in MPAs came from the Florida market, as we continue to identify and work through the problem loan issues there. John that concludes my remarks.

Ron, what would you think about the pipeline? You think the pipeline is hanging pretty strong.

Yes, it is. We continue in the central Arkansas market, particularly with the influx of businesses that we are having, we are seeing good loan growth in central Arkansas. And the other than the AGRI paying down, AGRI was a little different, it funded up in the quarter and then paid down at the end of the quarter. So we do see the AGRI paying out. But CNI continues to be strong.

Okay, thank you. I guess we need a round of applause for Randy Mayor, he has been calling for margins to go down forever and he finally is right on one. Randy, tell us what is going on.

Not that it's a good thing. I knew eventually I had to be right on this. As Johnny mentioned, I've been calling for margin compression for several quarters and this quarter it has come true. The net interest margin declined 7 basis points. However, the interest associated with loans placed on non accrual during the quarter accounted for 6 of the 7 basis points drop. The yield on interest earning assets dropped 22 basis points, with the majority of the decline attributable to the loans. The yield on interest bearing liabilities declined 19 basis points, of which the largest component was associated with interest bearing deposits. With the recent 50 basis point drop in rates, I do foresee additional pressure on the margin. The floating rate loans, which are about 41% of our portfolio now, will reprice immediately, checking and savings account rates are at or near floors and it will take some time for the CD portfolio to be able to reprice. I hate to say it again, Johnny, but I expect the margin to compress again next quarter. That's all of my remarks.

Ron, you want to talk about loan rates and what we are doing on loan rates and what we are seeing. With General Electric paying 10% and IBM paying 7%, looks like we haven't been paid properly for our risk in the past. You want to comment on what you're seeing out there and what we are doing.

Yes, John, thank you. The general perception is when you see the Fed drop the rates and say prime goes to 4.5, the general perception is that the rates are going down. We are seeing better opportunity to strengthen our loan pricing because of the availability of money. And when our loan officers come to committee, we are pushing those rates up, we are getting fees, and generally, Randy, I guess we are trying to counteract as much as we can on the margin. But we are not having a lot of push back from the customer base on getting good rates.

It is a limited commodity, every bone one has today you might as well make money with it. The Company is just staying the course. Sometimes market excess, as in market corrections, are not all bad. With the way we position this Company with strong loan loss reserves, excess capital, improving earnings trends and excellent demographics for our primary market, we intend to stay the course and execute our proven plan. We hope that we are properly rewarded for being conservative and not yielding to the temptations of excesses. Generally, the strong survive and are allowed to take advantage of the market opportunities caused by disruption. As we witnessed in the 80s, a vast amount of assets changed hands as the market corrected. As we are well positioned for that opportunity. And to give an example of how well positioned we are, tier one capital, we have $157 million in excess tier one capital and $168 million in excess leverage capital and $96million in excess risk based capital. We truly think we are ready for our position for opportunities that may come our way. We are ready for the Q&A, Camille.

(OPERATOR INSTRUCTIONS) Our first question comes from Jon Arfstrom from RBC Capital Markets. Please go ahead, sir.

Thanks, good afternoon, guys.

Good afternoon, Jon, how are you?

Doing well. Ron, when did the $24 million loan pay off? At what point in the quarter?

We expected it right in the last month of the quarter and it came really almost in the last week and that funded permanent nonrecourse. The good news is we already have another loan to that borrower that has booked and we will be funding back up that money. But it will be a construction project, Jon, but it was right at the end of the quarter.

You touched on the pipeline a bit but the first couple of the weeks of the quarter seem like you're continuing to roll along at the traditional rate.

Over the last 12 months we've booked a fairly substantial amount of credits that have advancing notes, Jon. Those will continue to fund up and therefore the volume will increase commensurately.

Okay. Good. Then on asset quality, can you give us an idea of the components of what is in the NPL, and OREO category and then also maybe a little more color on the Florida project you talked about in your prepared comments?

The Florida market, as I indicated, 78% of the increase was there. It's a particular project that we think is extremely well secured. There is an issue between some partners. And we understand the moneys to pay us in full are already in escrow. So, we did not expect this loan to go nonperforming. And it was quite a surprise. We were hoping, Jon, to be able to announce on the call today that it had all been resolved. I was on the phone with the Florida loan committee this morning and we do expect that to cure itself fairly quickly.

Okay.

This is Johnny. It came as a surprise at the end of the quarter where they called for a pay off and we thought that loan was paying off and they tried to short sell us, tried to take a discount on us at the end of the quarter. We didn't like that, so we filed suit. It may cure itself up, Jon.

Okay. Then, Ron, how about REO, how granular is that or is it just a couple of projects?

We have the one property that you're familiar with up in the upper Keys that we are continuing to market and other related channel personal property that we are marketing. The rest will be single family in nature. It's a few houses, only one large credit in all of that. But we are attempting to push the OREO out, obviously, as fast as we get it in.

And if I heard you correctly, the charge-offs came from Florida and Centennial so that you're essentially saying without saying it that the rest of the bank was extremely clean?

Outstanding.

Actually, the -- go ahead, John.

Go ahead.

Actually the Arkansas asset quality was really pristine. We probably got a couple of more quarters in Florida as we continue to deal with these credits, they are not surprise credits to us, so we probably have got a couple of more quarters of those deals. Before we think, we really had not seen much lately. We've just seen very little coming out of Florida. Little bit of stuff. We had a little nonperforming out of Arkansas, had a builder in Little Rock that went upside down and we started to sell it. We've got that property back and I think we've sold about a third of it already.

The other is moving to a contract.

Okay. Great, thanks for the color, guys.

Our next questions will come from Matt Olney from Stephens Incorporated. Please go ahead, sir.

Good afternoon, guys, and congratulations on getting that efficiency ratio down. I know that's been a long fitting goal for you guys, that's fantastic.

We are going to keep bringing it down, too, Matt.

I wanted to stay with the topic on the asset quality with the charge-offs in Florida. Have you guys been able to kind of aggregate all the potential charge-offs you see and kind of look at a range of potential charge-offs from those Florida credits?

I think I've told -- been saying that we are going to lose between $2 million and $8 million in that market before it's all said and done. I think I still hold with that $2 million to $8 million before it's all said and done, but w We think we have the reserves for it. It hadn't changed much. It really hadn't changed much. Those credits that we see out there, we see was a little surprise credit, as Ron talked about, at the end of the quarter, because we thought that was paid off because the money was in escrow to pay us off, we understand, and we didn't get a pay off on it. We will see how that one works out over the next period of time. We may see more. We may see some more. I think the next two quarters will really tell the tale in that market. Excuse me. I think we've seen -- I think we've seen most everything we are going to see. We either know about it, think we are going to have to deal with it or we have already recognized it as of now.

Okay.

Matt, this is Ron. We are in the slow season in the Keys. Things generally come to life in January, February, March, April. That's the selling season quote unquote, and we are looking for the market to recover at that point.

As far as writing down on some of those OREO, is that something you get reappraised every quarter if it's still on there from previous quarters or how do you usually treat that.

Depends on where it is in the collection pipeline, Matt. If it's still performing, generally we don't. As soon as it goes nonperforming we will order an appraisal. Fair market value appraisal will look at it and provide for it accordingly. We generally don't take the write-down until and if it goes into OREO. And at that point we will get another appraisal and then we will take it in as a percentage of that value, Matt.

Example of that, Matt, is with a house down there we had 2.2 loaned on, appraisal came in at about 2, we wrote it to 1.5 million.

Okay. And also I wanted to ask Randy about the margin. Is the margin compression forecast, is it purely a result of the 50 basis point cut or do you think we were heading downward in the fourth quarter even before we got the announcement of the cut last week.

I may be a little pessimistic but I think we were still headed downward a little bit even without the cut there, because we were coming to the tail end of our year window, so to speak, on the repricing on the CD side. This may actually give us a little more room to reprice even lower on the CD side. But I think it's going to take a little time to catch up. As I mentioned, 41% of our loans are floating and a percentage of those have floors on them. But we will see some drop in the other loans that don't have the floors.

Okay. As far as the tax rate, Randy, looks like my affected tax rate ticked up a little bit. We still looking just to model 31% or should it be any higher than that?

Matt, this is Brian. One of the things that happens with our affective tax rate has to do with the amount of income, because every marginal dollar of income that we have comes in at 39.225. So if you look at Q1 2008, we had a 33.1% affective tax rate, but we made $7.3 million. And then when we had Q2, '08, we had a 31.1% affective tax rate, but we had $5.6 million, which brought it down. And this quarter it is back up to 32.5% and it's really the primary driver is the fact that all the new dollar of income comes in at 39.225. If you kind of grow us $1million, you would need to grow the taxes by $392,000.

Okay. And lastly, as far as deposits. There are so many news articles out there about deposit movements from one bank to another bank, from a worse performing bank to a healthier bank. What are you guys seeing within your own depositors in terms of moving deposits around, maybe from account to account or are you attracting deposits from other banks perhaps.

We have started attracting deposits from other banks. Interestingly, Bob Birch, who is the CEO of Twin City, last week saw money rolling in last week from some large regionals in local banks for just actually safety. They wanted to be where they thought their money was safe. We are seeing people move around with CDs and different names as they do to protect themselves. There was a fear out there for a while. We didn't match up. Some of our competitors were paying 4 plus, as you know, and we didn't match up with them and we let that money, some of that money go. If they are a core customer, we'd keep them and try to keep them competitive. But if they weren't a core customer, we let them go. That's been our philosophy the whole time and we will continue with that.

Okay. Thanks, guys.

Thank you.

Our next question will come from Steve Covington from Stevens Capital. Please go ahead.

Hi, Johnny, it's actually Joe Steven.

Hi, Joe. How are you?

Doing very well thank you. Johnny, just big picture question. Deposit rates are just staying sticky and way too high. We are seeing deposit rates at 300 over treasuries and ridiculous. When do you think that's going to start coming down and who is in your market holding things up? Thanks.

Regents has been the lead in this market. They came out with a pick-im CD at four plus and they pulled some money with that. That's really been the primary leader in this region around here has been Regents Bank. The rest of the people are pretty, it's pretty normal. We are writing CDs in the 250, 260, 270 and a lot of money is starting to roll to us, Joe. The money came in to Bob Birch last week, they didn't ask the rate. They just wanted it in our banks, because they know the strength of the capital base of our Company. They absolutely didn't ask the rate they just walked in and opened accounts.

Where were they coming from?

They were coming from regional banks and local financial institutions. I would rather not say the names.

That's fine. Well, listen, guys, great quarter, thank you.

Thank you, appreciate it.

(OPERATOR INSTRUCTIONS) Our next question will come from Brian Martin from Howe Barnes. Please go ahead.

Hi, guys,.

Hi, Brian.

Just a quick question. Johnny, you talked a little bit about the expenses being a little bit noisy the next two quarters, can you give any thoughts as far as how we factor in that 2.5 million that sounds like it is going to flow through there the next two quarters. It is more lopsided one quarter versus the other at this point?

I will let Randy. I think it's probably going to be pretty equal. Randy, is it?

It's associated with all the mergers and stuff. It is probably going to be pretty equal, maybe a little bit heavier fourth quarter than it will be first and second.

Okay. So it is going to go over three quarters or just the next two quarters.

Mainly two quarters, there may be a little trickle into the second quarter of '09.

Stripping that out, the core expense where you guys have held the line the last two quarters, is there -- does that seem to be a realistic goal going forward as far as holding that level pretty close or do you expect to see any material increases there or anything unusual in the expense line or is this a pretty good kind of core number to look at?

Brian, I'm expecting it to come down. I'm actually -- .

I guess I'm saying outside of the cost savings you're going to get out of the integration.

It's going to hold pretty tight. We've really got our foot on expenses and our expenses were a little too high and we are pulling them down. I think our CEO's are doing a great job of that, I believe we can hold the line on expenses.

Okay.

Brian, this is Randy, but keep in mind we won't have everybody together until second, third quarter, so you really won't see, what I would call as Johnny referred to in the opening, is normalized run rate until fourth quarter of '09.

Right, okay. Randy, you mentioned -- do you have a fair amount of loans that are at their floors of those floating rate, floating rate loans or is it only a handful at this point and you still have room to go down or -- ?

There is about $807 million are floating and about $130 million of that $807 million at are floors.

Okay. Fair enough. Just one question if you guys had it, the construction book you guys talked about at last quarter being about $350 million, I just wanted to see if you could quantify what of that was residential versus what was commercial?

Brian, do you have it?

I'm looking here.

I don't recall. Hold on one second we are looking it up, Brian. Okay.

The percentage of construction.

Just the percentage of construction if you know what was residential versus what was commercial. If you had the breakdown of Arkansas versus Florida.

Total residential was 22.2%. And total real estate was 81.4%. So you can do the difference on that to get the commercial real estate. If you're looking for the total real estate in Florida, I don't have that percentage but total real estate was $285 million in Florida.

Okay.

Florida is about 16%. Guys, isn't that about right, about 16%.

Brian, this is Ron. One of the reasons the mix is changing to CNI and AGRI, obviously, is we haven't been funding that many new construction loans, or A and D, if you will. What you see out there is projects that are maturing out, where there's lots available for absorption, but there are very, very few new bookings of A and D or single family construction of any magnitude. That's why you see the mix change.

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

Our next question will come from Brian Hagler from Kennedy Capital. Please go ahead.

Good afternoon, guys. Just two quick questions. One, I wanted to get your thoughts on the government capital program, since companies like yourselves don't appear to need the capital. Was wondering if you'd consider participating to potentially use it to do acquisitions. And then the second question is just wanted to get your thoughts on how much you think this reduces the potential to see some FDIC assisted deals? .

Well, I guess the jury is still out, Brian, and my opinion of it right now is that I don't know, but I'm of the belief that it's not going to help us at this point. I'm of the belief that it may help the people that hadn't operated in the fashion that we've operated in the past and that it may help them. I'm a little disappointed that we are bailing out some of these people or appear to be bailing out some of these people. How it affects the local community bank remains to be seen. From one aspect with the credit crunch, the way its happened, we are seeing opportunities that we hadn't seen in the past. And we are pushing up pricing here and one of our big banks broke a 4% margin for the month and hopefully we can get the rest of them there. When Randy says he is counting margins to go down, I'm taking the contrarian view of that and I am pushing rights up.

I think we have got an opportunity, it's kind of a two edge sword, but I believe we have got an opportunity here to maybe push rates up, to see some, to get some opportunities that we hadn't had in the past and I believe you may be right about the FDIC assisted transactions. They are going to save the big boys, but are they going to save a $400 million community bank? I don't know the answer to that and I hadn't seen how that's going to trickle down. If they don't, maybe they want to fund somebody like us to go clean up those messes. The money is at 5%. We did a public offering two years ago and the cost of that public offering was about 10% total when you add it together. That's not a bad rate. I think it remains at 5% for five years, Randy, is that right? I believe so. Something like that and then moves up from there. Anyway, we are looking at it and we will know more about that as time goes on. Ron, do you have any comment on -- ?

The thing that's interesting to me, as I watch today as all of you guys do your earnings releases and your writeups on it, it's interesting to me that of the seven banks that they gave the $125 billion to, those guys did well. And for a while there the regionals rallied. I think some of them went up 30%. But the interesting part, as they are doing their earnings releases, they didn't suspend OTTI or the FAS 157, so the marks that are being taken is taking substantial amount of capital out of those banks. On one hand they gave it to them. On the other hand by the failure to suspend the mark to market it's being taken away. I think there is still going to be consolidation in the industry.

You think about it, this is just the -- this housing crisis is what's led to all this, it appears to me but it's just the manufactured housing business revisited from years ago, when if you could fog a mirror you could get a manufactured housing loan and that went upside down and those buyers who couldn't buy manufactured home were then able to buy a stick built house, as we lowered the standards in the early 2000s on the Fannie and Freddie and we are paying the price today.

Our next question will come from Matt Olney from Stephens Incorporated. Please go ahead.

I want to follow-up, Johnny, you made some comments in previous calls about some of the benefits of the Fayetteville shale. What are you hearing from some of your customers recently given that the fall in commodity prices and the fall of equity prices of some of the larger companies in the area?

We actually haven't seen any fall off or any complaints. The water trucks are still running, the wells are still being drilled. We have been able on the CNI side to build about a $15 million portfolio there thus far. New portfolio at pretty good rates and we are pleased with that. So far so good. Motels are full, warehouses are full. Things are still going well in this area. We have not seen a fall off. We are watching for it because of where natural gas prices are, but we haven't seen it yet, Matt.

Okay. Thanks, guys.

(OPERATOR INSTRUCTIONS) Our next question will come from Bob Whitehouse, a private investor.

Good afternoon, guys.

Hi, Bob.

Just a quick question. You talked about you -- new depositors, new customers and used Birch's group as an example where people were leaving less secure institutions and coming to ours. Do we have a formal business plan put together to go after that segment of customers?

Only from a marketing point of view, Bob, as we have been running some strength ads, talking about the excess capital and the strong loan loss reserves, the fortress balance sheet to let people know who has capital and who doesn't have capital.

But the average Joe, sometimes, doesn't understand those terms.

Do what.

The average person, the layman on the street sometimes doesn't understand all those terms.

Well, I understand that. We have done a little better job than that. It just -- it talks about lots of different aspects. Ron, you got -- ?

Bob, let me -- it's really a two edged sword. On the loan side it's appreciably different. When a bank changes, it gets bought, we get our lenders together and we go down that list of customers from that bank and we may even go after a loan officer in that bank to move those relationships. And with that loan relationship, Bob, so comes the deposits and they're generally substantial deposits, in a lot of cases not interest bearing. So, yes, sir. We have very specific targeted marketing approaches when there is any disruption in the market. When loan officers choose to leave or they are let go and we will find out those portfolios and we will go after those customers.

Okay. It just appears to be pretty and obvious opportunity for growth.

I agree.

I agree. Thank you.

Good work, guys. Thanks.

(OPERATOR INSTRUCTIONS) Gentlemen, we see no further questions at this time. I would like to conclude the question and answer session and I would like to turn the call back over to Mr. Allison for any closing remarks.

Thank you, Camille. In closing, I just want to say we believe we positioned our Company properly to take advantage of what market opportunities might come. Having the fortress balance sheet, as we talked about the capital reserves and the strong management team, we believe we are ready to face whatever the uncertain future is. As other banks continue to struggle to raise capital and build reserves, Home BancShares had the foresight to deal with these issues far in advance. We chartered a course ten years ago using a conservative game plan and in this kind of financial crisis, obviously, that was the correct course. Quite simply, we will stay the course. We thank you for joining our call today and we will talk to you in 90 days.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.