Simmons First National Corp (SFNC) 2002 Q4 法說會逐字稿

Good afternoon.

My name is Shawn, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Simmons first quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's 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 one, on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

Mr. Crow, you may begin your conference.

Thank you, Shawn.

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

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 analysts from the investment firms that provide research on our company to participate in the Q&A session.

Our other guests on this conference call are in a listen-only mode.

Our goal is to make this call as useful as possible 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 margin, net interest income, non-interest income and expenses, and asset quality.

You should understand that our actual results might differ materially from those projected in any forward-looking statement, 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 risk associated with our business, you should refer to the forward-looking information caption in our annual report on form 10K and other public reports filed with the SEC.

Now with that said, I will turn the call over to Mr. Tommy May.

Thank you, Barry, and welcome, everybody.

I hope the weather in your area is good.

I know there's a lot of ice and snow, and again, we appreciate you being here.

Today, Simmons First National Corporation announced record fourth quarter earnings of $5,663,000, or 79 cents diluted earnings per share, for the fourth quarter of 2002.

These earnings reflect a 24 cents, or a 43 percent increase, in diluted earnings per share on a quarter-over-quarter basis.

Needless to say, we're all pleased with the results of this quarter.

Now the fourth quarter of 2002 represents the fourth full quarter that our company has been able to fully utilize the changes in the Arkansas usury law that were made possible through the Gramm-Leach-Bliley Act, and you'll remember that we have discussed that in detail over the last three quarters.

As we expected, this ability to reprice our loan portfolio, coupled with the ongoing repricing of our deposit base, has enabled us to achieve considerable improvement in both net interest income and net interest margin.

Net interest income for the fourth quarter increased $2.1M, or 13 percent, over the same period last year.

This is particularly significant, when one considers that our quarter-to-date loan portfolio is down 1.6 percent over the same period last year.

Total interest income was down on a quarter-over-quarter basis by $3.6M, due to the aforementioned reduction in the loan portfolio, and a 53 basis point decrease in the yield on earning assets, primarily associated with the decline in interest rates.

However, these declines were mitigated somewhat by our ability to reprice the credit card portfolio.

Correspondingly, total interest expense decreased significantly, by $5.8M, or 129 basis point drop, in cost of funds, due to our repricing opportunities during the falling interest rate environment.

As a result, the quarter-over-quarter net interest margin improved 62 basis points, to 4.41 percent from 3.79 percent.

While we are pleased with the quarter-over-quarter increase, on a lean quarter basis, net interest margin decreased nine basis points.

This decrease is due to the seasonality associated with our agrile loan portfolio, which historically has been mitigated by the fourth quarter increase in our credit card portfolio.

However, the credit card balances were below expectations during the fourth quarter, thus the decrease in margin.

Non-interest income for the fourth quarter, 2002, was $9.3M, compared to $8.4M for the same period in 2001.

This represents an $812,000, or a 9.6 percent, increase.

This increase can be primarily attributed to an increase in service charges on deposit accounts, and the improvement we have experienced in our investment banking and mortgage loan production units, which were driven by lower interest rates.

These increases were partially offset by relatively small decreases in credit card and trust income.

Non-interest expense for the fourth quarter, 2002, was $17.6M, an increase of $302,000 from the same period in 2001.

The fourth quarter of 2002 figures reflect the positive impact of the elimination of amortization of goodwill.

Excluding the impact of the goodwill amortization on a quarter-over-quarter basis, non-interest expense increased $1.1M, or 6.5 percent.

This increase is primarily associated with normal salary adjustments and increased cost of health insurance.

At year-end 2002, loans totaled $1.3 billion, relatively unchanged from the previous year.

During this past year, we continued to see competitive pressures on consumer loans, specifically in our credit card and indirect loan portfolios.

These competitive pressures, coupled with disappointing retail sales during Christmas, resulted in a $42M decrease over the same period last year in this segment of the portfolio, that being indirect paper and credit cards.

In contrast, the balance of our portfolio increased by $41M, thus our loan portfolio ended the year relatively flat.

While we are still disappointed with loan demand in our specialized products, that being credit card and indirect paper, we remain cautiously optimistic about our commercial pipeline.

We continue to be pleased with the trends that we're seeing in our asset quality.

Non-performing loans decreased $2.7M, or 18 percent, from this time last year.

As of December the 31st, the allowance for loan losses as a percent of total loans equaled 1.75 percent.

The allowance for loan losses improved to 175 percent of non-performing loans, and we continue to see improvements in our loans charged off through 2002, with a net charge-off ratio for the year of 72 basis points, versus 82 points last year, or 82 basis points, last year.

While our net charge-off ratio appears higher than our peer, it should be noted that our credit card net charge-off represent 32 basis points of the 72.

Further, the credit card net charge-off ratio is 2.3 percent of the average credit card portfolio, which compares favorably by some 400 basis points, better than the industry average of 6.3 percent.

To recap, while we expect to see continued improvements in our charge-off ratio in 2003, because of our credit card portfolio, our charge-off ratio will always be a bit higher than peer.

As previously discussed, the company has a stock repurchase program that authorizes the repurchase of up to 400,000 shares.

To date, the company has repurchased 331,000 shares of stock, with a weighted average repurchase price of $23.71 per share.

We expect to renew the repurchase program upon the completion of the current plan.

Although for various reasons we were not overly active in the 2002 stock repurchases, based on the current price and cap levels, we anticipate being more aggressive in our stock repurchase program during 2003.

Needless to say, we were extremely pleased with both our fourth quarter and our year-to-date performance, and as a reminder, going forward, on a linked quarter basis, we do anticipate the first quarter of 2003 will see another slight decrease in our net interest margin, due to seasonality of our Agra and credit card portfolios.

Otherwise, we are cautiously optimistic about the earnings in 2003.

That concludes our prepared comments, and we would now like to open the phone lines for questions from our analysts, and let me ask Shawn to come back on the line and once again explain how to queue in for questions.

Shawn?

Yes, at this time, I would like to remind everyone, in order to ask a question, please press star, then the number one, on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from [Joe Siebens] of Stifel Nicolaus.

Hello, Joe.

Good afternoon, guys.

This is actually [John Rodis].

How are you doing?

Hi.

How are you doing?

Good.

Nice quarter.

Nice year, too.

I was just wondering if you could maybe expand a little bit upon your expectations for loan growth going forward next year?

You talked a little bit about commercial, and I was just wondering what you expect from the other pieces of the balance sheet?

Well, John, that's a good question.

On the-- I told you earlier in the presentation that we felt reasonably good about our commercial loan pipeline.

We had, and you'll remember, we had mentioned this in our last two, or maybe our last three reports.

Obviously, it did not come to fruition in the fourth quarter.

But we have several projects that are construction-real estate type financing that are underway, and we believe that we will begin to see some activity in that area, both probably in the first and second quarter, and some bleeding over into the third quarter.

And probably the bulk of that pipeline does fall in some of those type transactions.

Secondly, you know, we believe that there is a couple of large commercial, just commercial, NI-type loans, that we believe will fund that we have approved, and we see those coming in the first quarter, and some in the second quarter.

On the indirect, on the consumer transactions, which would be, again, the indirect paper and the credit card operations, we think it's too early to tell.

Obviously a lot of that is going to depend on the economy, and the indirect paper right now is just a matter of the-- the risk-reward is just simply not there, you know, based on some of the buy down rates that you have to pay to be able to get the paper, and we're just willing to pass on it until that changes.

And the credit card arena, since about 50 percent of our portfolio is outside the state of Arkansas, then a lot of that just depends on the consumer buying, which is going to reflect what's happening in the economy.

So I guess what we're saying by all of that is the loan growth, while there is still some uncertainty in it, we feel better about it certainly now than we did in the fourth quarter of last year.

But we're still just cautiously optimistic and where we see that it will probably occur is on the-- in the commercial real estate side, and the commercial side.

OK, thanks, guys.

Yep.

Again, if you have a question, press star-one on your telephone key pad at this time.

There are no further questions at this time.

All right, then, we thank you very much.

This concludes today's conference.

Have a good day.

You may now disconnect.