Simmons First National Corp (SFNC) 2003 Q3 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Simmons First National 3rd quarter earnings conference 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.

In you would like to withdraw your question, press star then the number 2 on your telephone keypad.

Thank you.

At this time, I would like to turn the conference over to Mr. Barry Crow.

Sir, you may begin your conference.

Thanks, Erika.

Good afternoon.

I'm Barry Crow, Chief Financial Officer of Simmons First National Corporation, and we want to welcome you to our 3rd 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 analysts from the investment firms that provide research on our company to participate in the question-and-answer session.

Our other guests to 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.

And 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, noninterest income and 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 captioned of our annual report on Form 10-K 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.

Welcome, everyone, to the 3rd quarter conference call.

Today, Simmons First National Corporation announced record 3rd quarter earnings of $6.6 million, or 46 cents diluted earnings per share, for the quarter ended September 30, 2003.

These earnings reflect a 6 cents or 15-cent increase in diluted earnings per share on a quarter-over-quarter basis.

Return on average assets and return on average stockholders' equity for the three-month period ended September 30, '03, was 1.31% and 12.65% compared to 1.18% and 11.87%, respectively, for the same period in 2002.

The significant increase in earnings over the same quarter last year is primarily attributable to the increased volume in the company's mortgage banking operation, growth in our loan portfolio, and a lower provision for loan losses, which correlates to improved asset quality ratios.

We will discuss those items in more detail later during this teleconference.

And needless to say, we are very pleased with the results of this quarter.

Earnings for the nine months ended September 30, '03, were $18.5 million, or $1.28 diluted earnings per share.

These earnings reflect a 12.5% increase in net income and a 12.3% increase in diluted earnings per share of the same nine-month period last year.

At our last earnings teleconference we discussed the Q2 nonrecurring income related to a reserve that had been established in conjunction with reps and warranties associated with the 1998 sale of mortgage servicing.

Excluding this nonrecurring item, the company would have reported $1.25 diluted earnings per share for the nine months ended September 30, 2003.

Net interest income for the 3rd quarter increased some $447,000, or 2.3% over the same period last year.

Total interest income was down on a quarter-over-quarter basis by $2.3 million due to a 71-basis point decrease in the yield on earning assets primarily associated with the decline in interest rates.

Correspondingly, total interest expense decreased $2.7 million, or a 75-basis point drop in cost of funds.

As a result, the quarter-over-quarter net interest margin declined slightly by some 7 basis points from 4.5% to 4.43%.

Noninterest income for the 3rd quarter 2003 was $9.9 million compared to $9.1 million for the same period in 2002.

This represents an $800,000 or an 8.8% increase.

This increase can be primarily attributed to the improvement we have experienced in our mortgage loan production units and the investment banking operations, which were once again driven by lower interest rates.

For Q3, mortgage income, net of commissions, was $1.5 million or a $550,000 increase from the same quarter last year.

Income on investment banking activities, net of commissions, was $388,000 or a $138,000 increase from the same quarter last year.

Like most of the banking industry, both the mortgage production and investment banking result revenues allowed us to grow earnings during the period of slow loan demand.

The challenge going forward is that the market expects to see higher interest rates at some point in the next year, which will naturally result in reduced revenues from these sources.

Noninterest expense for the 3rd quarter '03 was $17.9 million, an increase of $400,000 or 2.4% from the same period in 2002.

This increase is primarily the result of a $760,000 increase in salary and employee benefits, which is principally associated with normal salary adjustments and an increase in the costs of health care.

Concerning our loan portfolio as of September 30, '03, we are pleased to report loans total $1.3 billion, an increase of $44 million or 3.4% from this same period a year ago.

We were particularly pleased with the increased loan demand in our construction and commercial real estate loan portfolios, which resulted in growth of $98 million or 27% for those particular products.

However, as previously reported, the consumer market remains a challenge.

We continue to experience relatively slow consumer loan demand, which we attribute to the general economic conditions and competitive pressures in the credit card and indirect lending.

As a result, our credit card and consumer lending portfolios decreased $38 million, or 11% over the same period last year.

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

As of September 30th, the allowance for loan losses as a percent of total loans equaled 1.72% and the allowance improved to 184% of nonperforming loans.

We continue to see improvements in our net chargeoff ratio.

The annualized net chargeoff ratio in Q3 was 50 basis points versus 63 basis points last year.

As mentioned in previous teleconferences, while our net chargeoff ratio appears higher than our peer, it should be noted that our credit card net chargeoffs represents 29 basis points of the 50 basis points.

Further, credit card net chargeoff ratio is 2.4% of the average credit card portfolio, which is some 380 basis points below the industry average of 6.2%.

As previously discussed, the company has a stock repurchase program that authorizes the repurchase of up to 800,000 shares.

During the 3rd quarter, the company repurchased 32,000 shares of stock with a weighted average repurchase price of $23.07 per share.

To date under the current stock repurchase program, the company has repurchased 744,000 shares of stock with weighted average repurchase price of $12.86 per share.

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

Recently, the company has made two acquisition announcements.

In September, Simmons First announced an agreement to purchase nine additional financial centers in North Central and Northeast Arkansas from Union Planters Bank, NA, with assets totaling approximately $126 million.

This transaction is expected to close in the 4th quarter of 2003.

Last week, the company announced the merger of Alliance Bancorp of Hot Springs, Arkansas, into the Simmons First National Corporation with assets totaling of approximately $140 million.

This transaction is expected to close in the 1st quarter of 2004.

Both of those transactions, which are expected to be slightly accretive in 2004, allow us to fill a geographic void that we currently have and reflect the vision of Simmons First to provide our customers with statewide access.

After completion of the recently announced acquisitions, Simmons First will be a $2.3 billion financial holding company with 8 community banks conducting financial operations from 78 offices, of which 76 are financial centers, in 44 communities, all in Arkansas.

Now, that concludes our prepared comments, and we would like to now open the phone line for questions from any of our analysts.

And let me ask Erika to come back on the line and once again explain how to queue in for questions.

Erika?

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.

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

Your first question comes from Joseph Stieven of Stifel Nicolaus.

Hello, Joe.

Good afternoon, guys.

This is actually John Rodis.

How you doing?

How you doing?

Good.

You guys talked a little about your last two deals that you recently announced, and I was curious, is your plate full right now or should we -- would you guys consider doing more deals in the near future or are you guys kind of on the sidelines for a little while?

John, I don't think our plate is full.

We obviously need a little bit of time to digest both of these, what I think are very good strategic acquisitions for us.

But we are looking for other opportunities, all in Arkansas.

And, hopefully, some of those opportunities will be available to us maybe in the first half of '04.

Okay.

And then I guess the key there you said was all in Arkansas, so you are not really looking outside the state?

We are not looking outside the state right now.

We think that, again, our objective is to provide our customers statewide access.

While there may be opportunities that could develop outside the state that we would look at, there's not anything that's on the drawing board, and our continued focus is statewide access in Arkansas.

Okay.

Another question, if I can.

I think I might have missed part of this, but can you just give a little update on the share buyback?

Well, I can tell you that on the share buyback our authorization was some 800 -- let's see, hold on just a second -- 800,000 shares.

We're currently at 744,000 shares, so we still have what, 56,000 shares that we can do.

We did 32,000 shares this last quarter.

Obviously, this last quarter we were restricted somewhat in our stock buyback program relative to the two deals that we were working on.

There was a period in which we were not interested or we could not be in stock repurchase program.

So I would say that during the 4th quarter we'll continue to look for opportunities there and we'll complete this 56,000 that's remaining and then we hope to move into another authorization.

Okay.

Does that tell you what you need, or do you need something on the average weighted --

No, I think I know where you are going with that.

Okay.

And then, I guess, finally is just loan growth.

Maybe if you guys could just talk a little bit about -- I mean, I think in general it was a little bit stronger than at least we had expected, and I was just kind of wondering your thoughts and kind of where you see it going from here?

John, I think it's probably a little bot stronger than we had expected.

Even though we had it in the pipeline, the bulk of the growth that we have seen we saw in Northwest Arkansas and also Central Arkansas.

And while we felt like that the pipeline was there and was a positive, that we just didn't expect possibly the results that we saw in the quarter.

So, again, we're very pleased with that.

As we look at the pipeline, and not only the 4th quarter but our expectations on into the 1st quarter, I think we're cautiously optimistic there.

So we hope to see that continue.

I think we're still disappointed that we may not have seen it on the consumer side yet, especially in the credit card portfolio; but if the economy continues to recover, we'll expect to see some activity there.

Okay.

Thanks, guys.

Nice quarter.

John, thank you very much .

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

At this time, there are no further questions.

Mr. Crow, do you have any closing remarks?

No, that completes it.

We thank all of you for being a part of our teleconference.

This concludes today's conference.

You may now disconnect.