Question-and-Answer Session
Operator
Your first question comes from the line of Barry McCarver – Stephens Inc.
Barry McCarver – Stephens Inc
Hi, good morning George. Great quarter.
A bunch of questions, let me just get a few and then I’ll let somebody else get on. Starting off with margin, I did see where the rate you’re paying on deposits has dropped pretty dramatically, can you talk a little about what’s driving that? It certainly sounds like it’s an easing up of competition there.
George Gleason
Certainly we’re working hard on that and we are being very attentive, Barry to seek deposits in the most cost-effective manner, which is leading us to be more active in certain types of deposits in certain markets and less active in other markets where competition continues to pay a very high rate.
So we were pleased to some degree with our success in lowering deposit rates in the first quarter. But I’ll be honest with you, we did not achieve as much success as we had hoped to in lowering rates.
Deposit rates continue to be more sticky than I think they should be as a result of fundamental economic conditions and I think part of that is just the result of the fact that liquidity markets of all sorts nationally are gummed up and I think that’s creating a higher demand for deposits and keeping rates somewhat sticky and somewhat higher.
What helped us really offset the stickiness in that deposit cost was two things. One I’ve already addressed, the normalization of credit pricing. On new loans we’re originating, we’re probably getting 100 basis points and in many cases a lot more than that, better rate and by rate I mean relative rate, not absolute rate, than we would have gotten on those loans 6 months or 12 months or 18 months ago.
And secondly, while 53.8% of our loan portfolio is variable rate, we started several years ago really trying to get floor rates in a lot of those loans, anticipating that if we got in a situation where the Fed was reducing rates again that we might find deposit cost to be somewhat more sticky than normal.
As a result of that at the end of the first quarter 49% of that 53%, almost half of our variable rate loans were at their floor rates. So the combination of floor rates on our variable rate loans and normalization of credit terms have helped us mitigate the impact of the stickiness on deposit costs and led in part to that improvement in the net interest margin in the first quarter.
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