Simmons First National Corp (SFNC) 2002 Q1 法說會逐字稿

Good afternoon. My name is

, and I will be your conference facilitator today. At this time I would like to welcome everyone to the first quarter earnings teleconference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad, and questions will be taken in the order they are received. If you would like to withdraw your question, press the pound key.

Thank you. Mr. Crow, you may begin your conference.

Thank you,

. Good afternoon. I'm Barry Crow, Chief Financial Officer of Simmons First National Corporation. And we want to welcome you to our first quarter earnings teleconference and Webcast.

Here with me today is Tommy May, our Chief Executive Officer.

The purpose of this call is to discuss the information and data provided by the company in our regular quarterly earnings release issued this morning. We will begin our discussion with prepared comments. And then Mr. May and I will entertain questions.

We have invited the analysts from the investment firms that provide research on our company to participate in the Q and A session. Our other guests in this conference call are in a listen-only mode.

Our goal is to make this call as useful as possible for you -- for each of you in understanding the future plans, prospects, and expectations for our company.

To that end, we will make certain forward-looking statements about our plans and expectations of future events, including statements about our goals and expectations for net income, earnings per share, net interest margins, net interest income, non-income expenses, and asset quality.

You should understand that our actual results may differ materially from those projected in any forward-looking statements due to a number of risks and uncertainties, some of which we will point out during the course of this call.

For more information concerning the risks associated with our business, you should refer to the forward-looking information caption of our annual report on Form 10-K and other public reports filed with the SEC.

And with that said -- with all that said, I will turn the call over to Mr. May.

Thank you, Barry.

Y'all will have to pardon me. I have a little bit of an allergy problem right now or pollen problem here in Arkansas.

We want to welcome everybody to the first quarter conference call. Today we'll spend time discussing our first quarter earnings. But as always, we will also want to point out the positives that we see for our company going forward.

Simmons First National Corporation today announced record first quarter earnings of $4,941,000 or $69 cents diluted earnings per share for the first quarter of 2002. These earnings reflect an increase of $5 cents per share, or 7.8% over the first quarter 2001 diluted earnings per share of 64 cents.

The first quarter 2002 represents the first full quarter that our company was able to fully utilize the changes in the Arkansas usury law that was made possible through the Gramm-Leach-Bliley Act which, as you know, was confirmed by the Eight Circuit Court of Appeals in October of 2001.

The effective date of our interest rate adjustments was not until December 2001. Thus, there was very little earnings benefit in the fourth quarter of 2001.

And as we expected, on a link quarter basis our net interest margin showed considerable improvement. During this period the margin improved 35 basis points from 3.79% to 4.14%. This is particularly important when you consider the seasonality of our company.

On a quarter-over-quarter basis net interest margin increased 6 basis points. Concerning the smaller quarter-over-quarter increase, it's also important to remember that the margin in Q1 of 2001 was the highest of that year, because the interest rate reductions had just begun.

Despite a decrease in our loan portfolio, which we will discuss later in our presentation today, we did achieve an improvement in net interest income.

Total interest income was down on a quarter-over-quarter basis by $6.1 million due to a 3.7% reduction in our average loan portfolio and the 175 basis points decrease in the yield on earning assets associated with the decline in interest rates. These declines were mitigated by a $93 million increase in average earning assets.

Correspondingly, total interest expense decreased $7.2 million, or 205 basis point drop in cost of funds due to the repricing opportunities during this falling interest rate environment.

As such, on a quarter-over-quarter basis net interest income for the first quarter of 2002 was up $1.1 million.

Non-interest income for the first quarter of 2002 was $8.4 million compared to $8.1 million for the same period in 2001. This represents a $300,000 or a 3.4% increase. This increase can be primarily attributed to the unexpected growth we have experienced in our mortgage loan production units that have been driven by the lower interest rate environment.

Also the company had an increase on service charges on deposit accounts which is primarily related to the new non-interest-bearing accounts and an increase in our fee structure.

Non-interest expense for the first quarter 2002 was $17 million compared to $16.8 million for the same period in 2001. While this represents only a slight increase from the first quarter 2001, the first quarter 2002 does reflect the positive impact of the elimination of the amortization of goodwill.

And as expected, this gap accounting change reduced the company's non-interest expense by approximately $750,000 on a quarter-over-quarter basis.

Excluding the impact of goodwill, on a quarter-over-quarter basis non-interest expense increased $950,000, or 5.7%. Approximately 50% of the increase is associated with normal salary adjustments with the balance associated with the increased cost of health insurance, the addition of two new financial centers in the Little Rock market, and a change in the company's vacation policy.

Now the vacation policy changed created a one-time non-cash charge to earnings. We expect to continue expanding the number of financial centers in the Little Rock market in 2002 and 2003.

Let me briefly explain the variances on our balance sheet. Since our loan portfolio reflects a seasonal pattern, we will focus on the quarter-over-quarter figures.

On a quarter-over-quarter basis the loans decreased $52 million, or 4%, to a level of $1.2 billion.

The majority of the reduction in the loan portfolio is a result of a $17 million decrease in single-family residential loans being refinanced in the secondary market, an $18 million decrease in indirect lending activities resulting from car manufacturer incentives being offered, and approximately $20 million in temporary payoffs of large lines of credit that are still customers at the bank.

While we have seen a slowdown in consumer loan demand, we have several large commercial loans in the pipeline that will fund in late 2002 and early 2003. We fully expect that the loan portfolio will be below our 2001 levels in the first three quarters of 2002, but up in the fourth quarter.

Non-performing loans decreased 500,000 from the fourth quarter to a level of 1.18% of total loans. As of December 31, the allowance for loan losses as a percent of total loans equaled 1.64%. The allowance for loan losses equaled 139% of non-performing loans.

While the non-performing loan ratio of 1.18% is higher than our corporate target, it is very manageable and we fully expect to see that ratio decrease during the second half of the year.

As previously announced, the company has a stock repurchase program that authorizes the purchase of up to 400,000 shares. To date, the company has repurchased 321,000 shares of stock with a weighted average repurchase price of $23.42.

Now that concludes our prepared comments, and we would like to now open the phone lines for questions from our analysts. And let me ask

to come back on the line and once again explain how to queue in for questions.

Yes sir. At this time I would like to remind everyone if you would like to ask a question, please press star then the number 1 on your telephone keypad.

Okay your first question comes from

.

Afternoon, both Tommy and Barry. First of all, good quarter.

With respect to the ability to reprice because of the changes in the usury law, how much of that impact was in the first quarter and how much more do you think you'll be getting coming down the pike? Because obviously the quarter turned out better than I think probably a lot of people were anticipating, and it was a great start for you guys.

Thanks.

Well thank you,

. And I think that the biggest part of the repricing in the credit card certainly took place because we were able to get the full impact early in the first quarter.

However, it is important to note that in the credit cards, again, it is seasonal. And as that portfolio grows throughout the year we will be repricing that portion of the portfolio, and we'll see a larger impact on the net interest income.

But we got a pretty good full load on the credit card portfolio in the first quarter.

I think the other thing to mention there is that also with the repricing, with the usury law change it gives us the opportunity to learn how to price based on risk and size of loans the rest of our portfolios, specifically our consumer portfolio.

And I think we will see some positives from that that really come about at -- maybe later in the year as we get more accustomed to pricing like every other bank in the country has done for years.

Does that answer the question

?

Yes it does. Could I ask one more question, Tommy?

Yes sir,

At the end of March looking at your equity ratios right now they're probably the highest I think I've ever seen for the company. And you don't have that much left on that share repurchase. I mean what are just sort of your thoughts on your capital levels, where they're, you know, where they're headed and where you'd sort of like to have them?

Well I think you said it exactly right. The equity numbers are very high. And our share repurchase program is nearing the end of this second phase.

We believe that using some of those equity dollars in the repurchase program is going to be a good investment for the shareholders. So more than likely we will be proposing another share repurchase program to follow on the heels of this second phase.

As far as the actual capital ratios, I think that, you know, we still feel like that there's some leveraging opportunity that we need to do on the balance sheet. And we're going to continue to look for those. There is a small amount in wholesale leveraging, but very, very small amount.

But certainly with some purchase accounting and mergers and acquisitions, we hope to put some of those dollars to use.

Okay, good quarter. Thanks, Tommy.

Thank you very much,

.

At this time I would like to remind everyone again if you would like to ask a question, please press star then the number 1 on your telephone keypad.

At this time there are no further questions.

Okay well we thank all of you for being here. And we look forward to meeting again this time next quarter.

Thank you very much.

Thank you for participating in today's conference call. You may now disconnect.

END