Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Matt Olney – Stephens, Inc.
Matt Olney – Stephens, Inc.
I wanted to ask about the margin. I was expecting some margin benefit but I was surprised at the level of margin expansion that we saw in the quarter. Could you give us some more details on that margin expansion during 3Q over 2Q?
J. Thomas May
Well, the increase over 2Q was 17 basis points on the linked quarter basis as you know. On a quarter-over-quarter basis it was down some 17 basis points. But, the real pick up on a linked quarter basis is primarily seasonality driven both the agra and the student loan portion of our portfolios so on a linked quarter basis that that would be the primary driver.
Robert A. Fehlman
Part of that also Matt you’ll see in our seasonality on the agra loans were up quite a bit on a quarter-over-quarter basis. Some of that is driven by the amount of rain that’s been in Arkansas over the last couple of months from the hurricanes and it’s delayed the farmer and being able to harvest those crops. So, the seasonality was a little bit stretched out this year. We expect some of those to start paying off in the early part of the fourth quarter here.
J. Thomas May
Both input costs caused the portfolio to go up higher than expected, and at the same time just what Bob said on the rain and the [inaudible] that went harvesting.
Matt Olney – Stephens, Inc.
As far as the near term margin outlook for some compression, how much of that outlook is based off the recent 50 basis point cut and fed funds? And how much of that were you already assuming, even prior to that announcement?
J. Thomas May
All of that was based on the announcement, all of the compression projected forward. On the 50 basis point cut, it certainly will affect us, to what extent, we are not exactly sure yet. What we do know is that when you look at our overall loan portfolio and the fact that we have $672 million in variable rate loans that are going to reprice with about 15% of that being credit card loans that were repriced, that is obviously going to have a pretty negative impact to us.
We don’t have the floors in place on most of the commercial loans. They are not at the level yet where they hit the floors. Certainly that will help us going forward below the 4.5%. I think the other big part of that, outside the large amount of variable rate loans that we have is going to be that we have about $300 million of CDs that are repricing at about the 3.25 range. Right now, just looking at the competition for the CD dollars, if we go ahead and match to keep those CD dollars, it will be about a wash. There certainly will not be any basis points pickup for us.
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