Simmons First National Corp (SFNC) 2003 Q1 法說會逐字稿

Good afternoon, my name is Thea (ph) and I'll be the conference facilitator today.

At this time I'd like to welcome everyone to the Simmons First quarter release conference call.

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

After the speakers' results, there will be a question and answer period.

If you'd like to ask a question during this time, simply press star and the number 1 on your keypad.

If you'd like to withdraw your question, you may press star and the number 2 on your keypad.

Thank you.

Mr. Crow, you may begin the conference.

Thank you, Thea.

Good Afternoon, I'm Barry Crow, Chief Financial Officer of Simmons First National Corporation, and we'd like to welcome you to our first quarter earnings and webcast.

Here today with me is Tommy May -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..

With prepared comments, and then Mr. May and I will entertain questions.

We have invited the analysts 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 each of you, and understanding the future plans, prospect examination is expectations for our company.

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

You should understand that our actual results may defer 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 reports filed with the SEC.

Now with that said, I'll turn the calling over to Mr. Tommy May

Thank you, Barry, and welcome everybody to our first quarter conference call.

Today Simmons first announced record first quarter earnings of $5,332,000, or 74 cents diluted earnings per share for the first quarter of 2003.

These earnings reflect a 5 cents or 7 percent increase in diluted shares on a quarter over quarter basis.

Needless to say we were particularly pleased with the results of this quarter.

Because of the seasonality inherent in the portion of the loan portfolio that is associated with the credit card and agricultural ending, earnings for the first quarter for our company are historically lower than the earnings for the last three-quarters.

At no point have we expected the first quarter this year to be any different relative to our seasonality.

The fact that the first quarter earnings are 5 cents below the analyst's consensus does not change our belief that 2003 earnings per share will be within the range of publicized earnings estimates.

Net interest income for the first quarter increased $819,000, or 4.5 percent over the same period last year.

Total interest income was down on the quarter over quarter basis by $3 million due to a 55 basis points decrease in the yield on earning assets, primarily associated with the decline in interest rates.

Correspondingly total interest expense decreased $3.8 million, or a 91 basis points drop in costs of funds due to the similar repricing opportunities during the falling interest rate environment.

As a result, the quarter over quarter net interest margin improved 25 basis points to 4.39 percent from 4.14 percent.

On a linked quarter basis, our margin is only down two basis points.

Non-interest income from the first quarter, 2003, was $9.3 million, compared to $8.4 million for the same period in 2002.

This represents a $932,000, or an 11 percent increase.

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

Non-interest expense for the first quarter 2003 was $18.2 million.

An increase of $1.2 million, or 6.8 percent from the same period in 2002.

This increase is primarily the result of an $800,000 increase in salary and employee benefits, and a $200,000 increase in occupancy expense.

The salary and employee benefit increase is primarily associated with normal salary adjustments, and an increase cost of healthcare insurance.

The increase in occupancy expense was due to accelerated depreciation on two branches that the company plans to replace in the near future.

Combined with the increased costs of new headquarters that opened in one of our community banks in mid-2002.

As of March 31st, 2003, loans totaled $1.3 billion an increase of $29 million over the same period last year.

We were particularly pleased with a $61 million, or 8 percent growth in our commercial and real estate portfolios.

As you may recall, we noted that there were several loans in the pipeline we expected to fund in the latter part of 2002.

These projects and now begun to fund, and in addition, we have seen increased activity from our commercial real estate borrowers.

You may also recall that we have vane a slow down there our consumer spending resulting from economic condition in increased competitive pressures in credit card and lending.

As a result, our consumer portfolio decreased $32 million, or 7 percent.

The consumer market continues to be our greatest challenge today.

In an effort to continue the commercial loan trend, and to stimulate the consumer portfolio, we have instituted 3 new lending promotions in the small business and equity markets.

At this point, we are pleased with the results we have seen from these new promotions.

We continue to be pleased with the trends we are seeing in our asset quality.

Our non-performing loans decreased $5.2 million, or 17 percent from this time last year.

As of March 31st,the allowance for loan losses as a percent of total loans equals 1.74 percent.

The allowance for loan losses improved to 182 percent of non-performing loans.

We continue to see improvement in our loan charge offs for the first quarter of 2003 with a net charge off ratio for the quarter of 75 basis points versus 88 basis points last year.

While our net charge ratio appears higher than our (inaudible) it should be noted that our credit card net charge offs represent 31 basis points of the 75 basis points.

Further, the credit card net charge off ratio is 33.2 percent of the average credit card portfolio, which compares favorably by some 370 basis points, better than the industry average of 6 percent.

To recap, while we expect to see continued improvements in our overall charge off ratio in 2003, because of our credit card portfolio, our charge off ratio will always tend to be higher than here.

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

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

Although we have been very active in buying our daily limit in our Aesop program, we have only seen limited activity in our corporate repurchase program.

We have expressed our interest in repurchasing any blocks that come available.

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

Excuse me.

Recently, the company announced a 2 for 1 stock split in the form of a 100 percent stock dividend on this class a common stock.

After the stock spread is completed on May 1, 2003, the company will adjust our historical earnings per share, as required by generally accepted accounting principles.

When the stock split is completed quarterly earnings per share figures for the first quarter for 2003 and 2002, as reflected in the 10-Q will be restated to 37 cents and 34 cents respectively thereby properly reflecting the stock dividend.

We think it is important to note that during Q-2, we anticipate a one-time fairly significant addition to earnings.

Let me take a minute to explain.

On June 30th, 1998, the company sold its 1.2 billion residential servicing portfolio.

As a result of this sale, the company establish a reserve for potential liabilities due to certain representation and warranties made on the sale date.

Today, the balance in this reserve is $807,000.

The time period for making claims under the terms of the mortgaging service sales representations and warranties will expire on June 30th, 2003, and until that date, the buyer has the ability to make claims.

As such, we believe it is necessary to maintain the reserve until the representation in warranties term expires.

If there is a remaining unclaimed balance in the representation and warranties reserve, and we believe there will be, it will be reflected as an additional gain on sale of mortgaging service rights in Q-2.

That concludes our prepared comments, and we would like to open the phone line to questions from our analysts.

Let me ask Thea to come back on the line, and once again explain how to cue in for the questions.

Thank you.

At this time, I would like to remind everyone that if you would like to ask a question, you may press star one on your telephone key pad now.

We'll pause a moment to exile the q and a roster

The first question comes from John Grodes (ph) of (inaudible) Nicholas.

Good afternoon guy, nice quarter.

Hello, John, thank you

I somewhere a couple of questions.

I guess first of all, regarding the 807,000 reserve you just talked bout, would that whole thing fall though the bottom line or -

Everything that is left in reserve on any claims made now between June and 30th would fall to th -- actually on a pre-tax income basis.

Okay.

So that's a pre-tax Number.

Yes, it is.

And I'm sorry, I'm sure you guys talked about a little bit about this, but I had to jump off a minute.

Can you talk about future loan growth, I guess, where you're seeing it.

I know in past projects you've talked about some projects you were looking to fund.

Can you maybe give on up date on that?

John, one of the things I mentioned is all of our loan growth has not been significant for the past several quarters, in and the net growth was not significant this first quarter, but when you look at the components of it, we have seen some good growth in the commercial real estate area.

Now, that has been mitigated somewhat by a lack of growth in our consumer loan portfolio, primarily, I think, driven by our credit card operations, where the activity just has not been great as has been expected.

The positive thing we have seen on the commercial loan growth is that, you know, for the last two quarters of 2002, we talked about a pipeline that - that we expected to -- to look fairly good, as we went into 2003.

Much of the expected funding that we were going to have in the fourth quarter '02, just simply did not take place, but we're starting to see some of it in '03.

As we look at our pipeline for the balance of the year, again, we're -- you know, we're cautiously optimistic, based on some of the things again we are seeing in the commercial side and commercial real estate side.

I don't think I have that same optimism yet on the consumer side.

We are introducing several new programs to try to jump start some of that, but we have not seen this yet.

Okay.

And as far as that growth goes, what parts of the state are you seeing that in?

I think much of the growth that we've seen during the first quarter has come from some projects in northwest Arkansas, and in central or can saw, probably more so in central Arkansas.

Okay.

Thanks guys, nice quarter.

Thank you, John.

I would like to again remind participants that if you would like to ask a question you may press star 1 on your telephone key pad now.

And no questions at this time.

Would you like to have closing remarks?

I think that completes our conference call.

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