Simmons First National Corp (SFNC) 2009 Q4 法說會逐字稿

Good afternoon.

My name is Marie, and I will be your conference operator today.

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

(Operator Instructions).

Thank you.

I would now like to turn the call over to Mr.

Garner.

Good afternoon.

I am David Garner, Investor Relations Officer of Simmons First National Corporation.

We want to welcome you to our fourth quarter earnings teleconference and webcast.

Joining me today are Tommy May, our Chief Executive Officer; David Bartlett, our Chief Operating Officer; and Bob Fehlman, Chief Financial Officer.

The purpose of this call is to discuss the information and data provided by the Company in our quarterly earnings release issued this morning.

We will begin our discussion with prepared comments and then we'll entertain questions.

We have invited institutional investors and analysts from the investment firms that provide research on our Company to participate in the question-and-answer session.

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

I would remind you of the special cautionary notice regarding forward-looking statements, and that certain matters discussed in this presentation may constitute forward-looking statements and may involve certain known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from our current expectations, performance, or achievements.

Additional information concerning these factors can be found in the closing paragraph of our press release and in our Form 10-K.

With that said, I'll turn the call over to Tommy May.

Thank you, David.

Obviously, based on our recent equity offering, we have several new investors that will be joining our conference call for the first time, and we want to extend a very special welcome to each of you and to those that are with us on a regular basis.

In our press release issued earlier today, Simmons First reported fourth quarter 2009 earnings of $6.8 million or $0.44 diluted EPS compared to $0.40 diluted EPS in Q4 '08, which is an increase of 10%.

The earnings increase was primarily driven by improvement in net interest margin and non-interest income.

We will discuss these items in a bit more detail in a few moments.

For the year ended December 31, 2009, net income was $25.2 million or $1.74 diluted earnings per share compared to $26.9 million or $1.91 per share for the same period in 2008.

It is important to note that the EPS decrease of $0.17 was attributable to the previously-discussed non-reoccurring items that was related to the Visa Inc.

IPO in Q2 '08.

As such, normalized for the non-reoccurring items, the annual diluted core EPS increased by $0.01 from last year.

Not bad considering the challenges of the industry, coupled with historically low interest rates.

Also, I might mention, while not classified as a non-reoccurring item, 2009 results were negatively affected by the $1.5 million FDIC special assessment.

On December 31, 2009, the total assets of the Company were $3.1 billion and stockholder's equity was $371 million, both representing significant increases.

Our equity to asset ratio was a strong 12%, and our tangible common equity ratio was 10.2%.

The regulatory tier one capital ratio was 17.9%, and the total risk based capital ratio was 19.2%.

Both of these regulatory ratios remained significantly above the well-capitalized levels of 6% and 10%, respectively, and now rank in the 98 percentile of our peer group.

Now let me give you an update on how we achieve these capital levels.

During the fourth quarter, we completed a $75 million secondary stock offering, issuing 3,047,500 shares of common stock, which netted $70.5 million in new capital.

While this offering is dilutive to EPS in the short term, the excess capital positions us very effectively to take advantage of unprecedented acquisition opportunities through FDIC-assisted transactions of failed banks and future traditional acquisitions of healthy banks.

Obviously, we have considerable experience acquiring and integrating traditional bank acquisitions, which will be important in executing our FDIC-assisted transactions when they happen.

We have established a target area of approximately 325 mile radius of central Arkansas, which obviously includes the contiguous states of Arkansas.

We're working hard to prepare ourselves for the right opportunity.

As we have said, our focus will be on, but not limited to, banks with assets ranging from $200 million to $300 million.

Based on our current level of capital and infrastructure, we have capacity to acquire assets of up to $1.5 billion.

Net interest income for Q4 2009 increased $1.4 million or 6.1% compared to Q4 '08.

Net interest margin for Q4 2009 increased seven basis points to 3.77% when compared to the same period last year.

On a lean quarter basis, despite an 18 basis points decrease in our cost of deposits, the net interest margin decreased 20 basis points.

The margin compression was driven primarily by seasonality in loan portfolio and our strong liquidity position.

We continue to see more rational competitive pricing on deposits and loans, but unfortunately, loan demand remains extremely weak.

Looking forward to 2010, we expect flat to slight margin improvements.

Non-interest income for Q4 '09 was $12.9 million, an increase of $1.6 million or 14.2% compared to the same period last year.

Let me take a few minutes to discuss the items that positively impacted our non-interest income.

First, service charges on deposit accounts increased by $870,000 in Q4 '09 compared to the same period last year, due primarily to an improvement in our fee structure and our core deposit growth.

The second item, credit card fees increased $462,000 or 13.5% on a quarter over quarter basis.

This increase was due to higher volume of credit and debit card transactions.

The third item is income on the sale of mortgage loans, which increased by $304,000 or 57.4% compared to last year.

This improvement was primarily due to lower mortgage rates lending to a significant increase in residential refinancing volume.

Our Q4 mortgage production volume was $51 million or 50% more than the same period last year.

Obviously like the rest of the industry, the largest increase comes from refis.

However, the First Time Buyer Program was also a major stimulus for our overall mortgage production.

And the fourth item is the income from investment banking operations, which increased by $223,000 compared to last year.

This improvement was primarily due to a volume-driven revenue increase in our dealer bank operations.

Non-interest income was negatively impacted by a decrease in trust income of $207,000 or 13.6% in Q4 '09 compared to Q4 '08.

The Company received some large one-time estate administration fees in the fourth quarter of '08, causing part of the decrease in Q4 '09.

Additionally, we have seen our money fund shareholders' service fees decline in corporate trust area, as many market rates have gone to near zero.

Those revenues should recover when rates begin to rise.

Moving on to the expense category, non-interest expense for Q4 '09 was $25.8 million, an increase of $1.2 million or 5% from the same period in 2008.

This includes a $362,000 increase in our FDIC deposit insurance.

Unlike the FDIC special assessment, this increase is reoccurring, but the levels are significantly higher than last year.

For comparison purposes only, excluding the increase in FDIC insurance rates, non-interest expense increased by only a modest 3.6%.

Let me take a minute to briefly discuss several items.

The first is other real estate and foreclosure expense, which increased by $108,000 as we continued to aggressively liquidate non-performing assets.

The second item is the credit card expense, which increased by $106,000 as a result of increased transaction volume, which we continue to view as very positive.

And the third item would be professional fees, which increased by $238,000.

During Q3, we begin to expense costs associated with our ongoing efficiency project which will produce expense savings and revenue enhancements in 2010 and beyond.

Let me move now to our loan portfolio.

As of December 31, 2009, we reported that total loans of $1.9 billion that represented a decrease of $58.1 million or 3% compared to the same period a year ago.

Our consumer loan portfolio increased $23.8 million or 5.7%, driven primarily by a $19.5 million increase in our credit cards.

Conversely, the real estate loan portfolio decreased by $49.8 million.

The C&D portfolio decreased by $44.2 million, with approximately $11 million migrating to our CRE portfolio and the balance being liquidated or refinanced elsewhere.

Considering the challenges in the economy, it is important to continue to point out that we have no significant concentrations in our portfolio mix.

Our construction and development loans represent only 9.6% of the total portfolio.

CRE loans, excluding C&D, represent 31.8% of our loan portfolio, both of which compare very favorably to our peers.

Like the rest of the industry, our loan pipeline remains very soft.

Now, let me give a brief update on credit cards.

We continue to see an increase in the number of net new accounts.

During the year of 2009, we added over 15,000 net new accounts compared to 5,000 last year.

Our credit card portfolio increased to $189.2 million or an increase of 11.5% on the quarter-over-quarter basis.

Let me remind you that we have not changed our underwriting standards as reflected in our approval rate of approximately 17%.

We believe the increase in applications represents a movement from some of the larger credit card companies that have become much more aggressive in raising their interest rates and fees while lowering credit limits.

We continue to have exceptional credit card asset quality, which I will discuss shortly.

Although the general state of the national economy remains somewhat unsettled, and despite the challenges in the northwest Arkansas region, we continue to have good asset quality compared to the rest of the industry.

At December 31, 2009, the allowance for loan losses equaled 1.33% of total loans and approximately 100% of non-performing loans.

Non-performing assets as a percent of total assets were 112 basis points.

Non-performing loans is a percent of total loans were 135 basis points.

Now while these ratios compare favorably to the industry, we have shown some weakness from the prior quarter, but the numbers are somewhat distorted because of the impact of student loans which are government guaranteed.

Let me discuss the student loan scenario first.

Historically, student loans were sold into secondary markets just prior to the student graduating, thus our past dues were at a minimum because the loans were not on a payout basis.

With the previously-discussed changes in the government programs -- and that is the Administration's efforts to move all student loans into the direct loan program, and they're effectively eliminating the private sector -- we have seen the elimination of the secondary market and we're now required to service loans that have converted to a payout basis.

Thus, our past dues will increase until our claims are filed.

Under existing rules, the Department of Education will not purchase the payout loans until they have exceeded a 270-day past due status.

As such, while they remain fully guaranteed, they will impact our non-performing asset ratios.

With this said, these ratios include approximately $1.9 million of government guaranteed student loans over 90 days past due.

When these loans exceed 270 days past due, the Department of Education will purchase them at 97% of principal and accrued interest.

Excluding these past due student loans, the allowance for loan losses to non-performing loans improves to 107%.

Non-performing assets as a percent of total assets improves to 105 basis points.

and non-performing loans is a percent of total loans improves to 125 basis points.

The second factor impacting our asset quality ratios was the movement of an $8 million motel loan to non-accrual status.

This loan had previously been identified as impaired, with reserves established accordingly.

Based on a recent appraisal, the reserve is more than adequate.

Thus, there were no additional reserves required at the time of movement to the non-accrual status.

Our management team is actively working on a resolution to this issue.

The motel is continuing operations and the borrower is actively trying to sell the property.

While our hopes are that the property can be sold, we're prepared to deal with a transition to OREO.

Except for this loan, our non-performing assets would have increased only slightly on a linked quarter basis.

So despite the increase, we continue to have relatively good asset quality.

In fact, our non-performing asset ratio puts us in the 87th percentile within our peer group based on September 30th peer versus our December 31 actual.

The annualized net charge-off ratio for Q4 '09 was 75 basis points, up 35 basis points when compared to the third quarter.

Excluding credit cards, the annualized net charge-off ratio was 57 basis points compared to 19 for the third quarter.

Now while the fourth quarter ratio was somewhat elevated due to year end clean up, it should be noted that the third quarter ratio of 19 basis points was unusually low.

We remain aggressive in the identification, quantification and resolution of problem loans.

The credit card industry continues to see pressure relative to the past dues and charge-offs.

However, our portfolio continues to compare very favorably to the industry, as our Q4 '09 annualized net credit card charge-offs to loans decreased to 2.41% compared to 2.58% during the previous quarter, and is now more than 800 basis points below the most recently published credit card charge-off industry average of 10.56%.

One of the real strengths that we have in our credit card portfolio is our geographic diversification with no concentrations of over 6% in any state other than Arkansas, where we have 41% of our portfolio.

We're very conscious of the potential problems associated with high levels of unemployment, and we continue to reserve accordingly.

We're currently reserving at a level of 3% for our credit card portfolio.

During Q4 '09, the provision for loan losses was $2.8 million, an increase of $16,000 from the same quarter in 2008.

Looking forward to 2010, we expect a quarterly provision of $2.9 million.

Bottom line, quarter over quarter, we experienced margin expansion of seven basis points, relatively good asset quality compared to the industry, a continuation of relatively low credit card charge-offs of 2.41%, exceptional non-interest income growth of 14.2%, normalized non-interest expense growth of 3.6%; and most importantly, an extremely strong capital base of base, with a 10.2% tangible common equity ratio.

Like the rest of the industry, we expect 2010 to be another year of challenge relative to meeting our normal growth expectations.

However, Simmons First is well-positioned based on the strength of our capital, asset quality and liquidity to deal with the challenges and the opportunities that we may all face in the coming year.

Our conservative culture has enabled us to engage in banking for 106 years.

We consistently rank in the upper quartile of our national peer group relative to capital, asset quality and liquidity.

There has never been a greater time to have these strengths.

We continue to believe that the Arkansas economy will better sustain the economic challenges because, as primarily a rural state, we have not and likely will not experience the same highs and lows that will challenge much of our nation.

However, we will not be lulled to sleep, since there is always some concern relative to a lag effect occurring in a major economic downturn.

We remind our listeners that Simmons First experiences seasonality in our quarterly earnings due to our agricultural ending.

Student loan and credit card portfolios and quarterly estimates should always reflect the seasonality.

Now this concludes our prepared comments, and we would like to now open the phone lines for questions from our analysts and institutional investors.

Let me ask the operator to come back online and once again explain how to queue in for questions.

(Operator Instructions).

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

Okay.

Your first question comes from the line of Matt Olney.

Your line is now open.

Hey, Tom, you gave us some good commentary on the NPO bucket.

Is there anything you can tell us about the OREO balance of $9 million, kind of what's in there by location and loan type maybe?

Yes, I can.

On the OREO, as you've already said, the total dollars is $9.2 million with $6.8 million of that being in northwest Arkansas, and the biggest portion outside of that would be $1.3 million with the lead bank.

With the $6.8 million in northwest Arkansas, I'm not exactly sure how many properties that is, but virtually all of it is related to construction -- residential construction-type properties, either development or those that are residential that have already gone through foreclosure or some type of deed in lieu.

The growth that we have seen in this particular area really is a positive, because we're moving it out of the -- in those particular areas, moving it from the non-performing into the OREO to move it through the liquidation process.

So most of it, again, is in northwest Arkansas, and it just has continued to be as we have expected, as we begin to continue the clean up.

Matt, David Bartlett here.

Of that $6.8 million in northwest Arkansas, two of those properties are residential development loans that have infrastructure in place.

Those two have less than $2 million in total balances, and the rest are single family properties and homes that were in some phase or another of cleaning up, moving, listing and selling.

So not a large concentration of anything in particular in that OREO portfolio.

Okay.

Great.

And is there any other color you can give us as far as the credit quality by charter within your HRs in Arkansas?

Well, I think the credit quality continues to be very good in certainly seven of the eight institutions that we have.

And as we have spoken before, as far as the asset quality issues, we have a total of $32 million in non-performing, and probably -- well, let's see, about 43% of that is in northwest Arkansas and about 35% is in the lead bank; and in the lead bank, the bulk of that represents two or three properties -- I think three properties in central Arkansas.

So basically, out of the eight banks, six of them are -- have really good asset quality numbers.

The other two have the bulk, some 78%, almost 80% of the non-performings, and all very manageable.

all very manageable.

Okay, great.

And last question, I'll let somebody else hop on.

As far as the FDIC, assisted transaction outlook, to the extent that you can talk about it, can you give us any commentary as far as what you're hearing about the number of banks that are kind of in your strike zone that you have discussed in the past?

Matt, I'll be glad to respond initially to that and I'm sure Mr.

May will have a few more comments as well.

But since we last updated with the 9/30 numbers, we had about 19 banks within our 325 mile radius, as Mr.

Mays already mentioned, that totaled about $14.3 billion in assets.

Those are 9/30 numbers.

We're anxiously awaiting December numbers to see if anything has migrated.

But honestly, in that 325 mile radius, there have been no failures.

Touching that radius somewhat, there was a failure in Oberlin Park, Kansas in Solutions Bank that (inaudible) acquired, and then a bank -- or a savings bank in Alabama, at about a billion and a half in size, that (inaudible) Bank acquired.

So not a whole lot of movement right now, and certainly we haven't been able to update the Texas ratios past the 9/30 numbers, but just not a lot of failures that have occurred in our sweet spot of the 325 mile radius.

Matt, the only thing I would add is that we spent a lot of time in preparing.

We have certainly broken it down into three areas -- purchase and integration, liquidation and settlement -- and David and his teams are doing a very good job in making sure that when, in fact, that process does happen and those banks do become available, that we're prepared not only to bid but we're also prepared to do the rest, and I think we're doing very well there.

And I would also make one comment also, Matt, is you know, the FDIC at the end of the year, kind of slowed down the closings.

Our expectations is it is going to significantly pick up in the next couple of weeks here through the remainder of the year.

The FDIC had the prepayment from all of the banks across the country, and replenished their funds by some $40 billion or $50 billion.

So we expect that to pick up significantly in the coming weeks.

All right.

Sounds great, guys.

Thank you.

Thank you, Matt.

Okay, your next question comes from the line of Derek Hewett.

Your line is now open.

Hello, Derek.

Good afternoon.

Good quarter.

Thank you.

Hey, I know -- can you talk a little bit about restructured loan?

I know it is part of the business.

But kind of just directionally, it has gone from about $8 million in the second quarter to about $13 million in the third quarter.

Where do you think it is going to settle down in the fourth quarter?

And have you seen any sort of migration from restructured loans into non-accrual status?

Yes.

And in the fourth quarter, as we mentioned, we have moved the $8 million into non-accrual -- the motel loan.

And that motel loan was already classified as a TDR so basically, it will go down $8 million.

Outside of that, it is --

Shouldn't be much change outside of that.

Been pretty stable.

Okay.

Wonderful.

Thank you very much.

Yes, sir, thank you.

Your next question comes from the line of Michael Rove.

Your line is now open.

Hello, Michael.

Hi.

Good afternoon, guys.

How are you?

Good.

I wanted to circle back on the FDIC assisted acquisition opportunities again.

I know you mentioned kind of a range in terms of dollar size, anything from a couple hundred million all the way up to 1.5 billion in assets.

Would you have a preference for doing one larger deal or several smaller deals over the next few years?

Well, I think we have said that our focus was where we have our sweet spot when you look at the network of community banks we have, and that would be the $200 to $300 million range.

So that in fact is probably where our preference would be at this point in time.

Quite honestly, we also believe that's where we'll have some of the greatest opportunities when you look at our footprint and you go back to the 325 mile radius using the Texas ratio numbers.

So you know, we just have shown that we do very well in not just acquiring those institutions, but in this case, taking the good bank and taking it and moving it forward.

So that would be our preference.

But again, as we have said, throughout the process, that does not mean that we wouldn't look at a strategic purchase and/or an economic purchase that would be outside those boundaries.

We want to keep our options open, and I think the same thing applies for a traditional M&A.

That would be our sweet spot.

Just a follow-up to that.

I mean, would you have a preference to do -- or find a bank that's somewhat closer in geography to you all?

I know you mentioned a 325 mile radius, but would the preference be to do something a little bit closer to home as opposed to the outer edges of that range?

I think that's a good question, Michael, and as you know from our history, we haven't strayed very far from our footprint of 100 years.

And as we have said, the closer to home, the more aggressive we're going to be because we simply think that the efficiency and integration opportunities give us a chance to make it more rewarding for the shareholder.

One of the things, though, even when you expand it out 325 miles, we still can accomplish much of that even if we do go out a little bit further.

But yes, logically and historically, we like to look close to home.

Okay.

Thank you.

And just switching gears one last question, I know you've talked about some -- the cost save program.

Have you laid out any targets?

And if so, can you update the status and the progress of where you are and kind of what you expect going into 2010?

I'll let Bob Fehlman, our Chief Financial Officer, do that.

But I can tell you that what we have laid out, we are working very aggressively and in and beginning to execute some of these initiatives that we think, again, are going to be very positive in both the short run and the long run for the shareholders.

But Bob, why don't you touch on the -- the two items or the three items.

Well, the first one -- we've talked about a couple of these in a couple of different calls.

But the first item is our corporate purchasing power, and that was pretty much 2008-2009 project.

That's in place.

We've achieved some of the benefits in '09.

The remainder and the full impact will be in 2010 going forward.

That, what we said in the past, is in excess of $1 million from that project per year in savings.

The second project we continue to work on is our process improvement and our efficiency project, and we've had a consultant working with action teams that were set up specifically in the loan administration deposit OPS and financial center staffing and different back office areas.

We've received those recommendations from the consultants and our action teams, and we're in the process of implementing those recommendations right now.

We're still not at a point where we're ready to give a quantified number on that.

But we can tell you it will be more -- much more substantial than the first item.

And we think we'll be seeing some of those benefits starting to show into the -- a little bit into the second quarter, more in the third and fourth quarter and then a lot more into next year.

One of our strategies of how our Company does business is we've chosen to do, if there is any cost savings, through attrition over time.

So that will take us a little bit longer than if we were to do it in a more aggressive nature.

But we think it is a much better way to do it for our Company.

And so -- and then there's one other one that also we continue to look at, is our branch right sizing.

We have 84, 85 locations, and we've been studying and looking at those locations over time and trying to identify which ones make sense to move, relocate or close.

And that process is underway, and we'll see some changes in that sometime in the near future.

But we continue to monitor those to become more efficient and be in the right locations, but also in the profitable location.

Okay.

That's very helpful.

Thank you, guys.

Let me just mention a thing on that.

As Bob said, the corporate buying power piece, we've pretty well executed that -- gotten a lot of the benefit in '09 and we'll get all of it in '10.

The process improvements, as he mentioned, we're moving forward with that.

On the right sizing, we've really been doing some of that over the last two years.

We have closed some banks.

We have opened some new banks, and we have actually moved -- some branches, I mean when I'm saying banks.

And today, we've got 84 locations, and we know that all of them are not hitting the levels that provide us the most efficiency or the customers the best of service.

So we're going to continue that process as we move through 2010 in all of these efficiencies that Bob said -- and Bob, I appreciate you mentioning that.

It is our culture that we're going to do it in a way to where we will allow any movement in jobs to be associated with attrition.

And it will take us a little bit longer, but we just think it works better for our Company that way.

The other thing is that as we -- I know that we would love to go ahead and quantify at this point; as Bob said, there are some decisions that are still being made there.

We will quantify this.

And as we move into the second quarter and we start -- when all of those decisions are made and we begin the execution phase of most of it, then I think we will start quantifying it and even give you some guidance on where that will go and when it will happen.

Okay.

Thanks, guys.

That's very helpful.

Thanks, Michael.

Your next question comes from the line of David Bishop.

Your line is now open.

Hello, David.

Hello, gentlemen.

How are you?

I'm doing good.

How are you guys doing?

Good.

Hey, question -- obviously it's had a little bit of the impact in terms of the excess liquidity, in terms of the balance sheet there as it reflected the margin.

What -- over the near term, what can we expect in terms of securities balances, and what's the strategy there, I assume, about given the low rate environment and the potential for the Fed to get more hawkish here you're staying relatively short duration, relatively conservative in terms of short term liquidity?

Yes.

First of all, let me just address the big picture of the liquidity.

And as you well know, back in '08, we made the decision to build this liquidity because of this economy and we were very successful in the process, and probably have somewhere in the range of 140, $150 million in excess liquidity from that process, and then on top of that, the $70 million from the equity offerings.

So what we have been doing now since we can look forward -- or trying to look forward relative to the loan pipeline -- and we see it being relatively weak at least over the next 6 to 12 month period, we have decided that we're going to begin to price a little bit more aggressively -- excuse me, when I say price aggressively, we're going to be looking at our CDs as they are coming due over the next 90 day period -- and I can't remember -- Bob, what is that number?

About 340.

$326 million that we have coming due over the next 90-day period.

So we're going to look at those in the relationship side or those that are just here because of the interest rate, and probably shrink the balance sheet some as a result of that.

And we've always had a philosophy on our money market accounts is that we've got three pricing formulas -- one to grow, one to hold and one to decrease -- and we're probably going to test those limits and we'll begin to move the rate down some there.

And again, we're willing to shrink the balance sheet even in the range of $100 million.

The truth of the matter is we tried to shrink the balance sheet for at least a quarter, if not two quarters, and the flight to quality during this recessionary period has made that just not happen.

So I think from a liquidity standpoint, you will see us to begin to move the balance sheet down a little bit, simply because we don't have the reinvestment opportunities, whether it be through the loan pipeline and/or the investment securities.

Likewise, our history is that we're not going to chase the rates.

We're not going to crystal ball them, but we're still going to be staying relatively short during -- at least in our reinvestment strategy right now.

Okay.

And in terms of -- shifting gears here, commercial real estate trends, I know you mentioned the one motel loan in terms of the migration not performing.

Other than that, what has been some of the watch list trends and some of the other trends within the commercial real estate?

David, you might help me here some.

But I will tell you that we were talking earlier, when you look at the challenged assets that we have right now, obviously, they again are in the commercial real estate area and they're primarily in the residential real estate area.

And David, I think you can say it better than I, but when you told me that in looking at our portfolio and the migration of the past dues and the watch list and so forth, that we really were not seeing anything there that gave us a lot of heartburn.

No, that's exactly right, Mr.

May.

I don't see anything that's going to be a real surprise at all to us.

David, hat we do have in our non-accrual loans in northwest Arkansas, we're sitting there and just actually waiting on the backlog of the bankruptcy courts to be able to handle some of these cases.

And we have marked down and written down those assets and ready to transfer into OREO as soon as we can get through that process.

And that pipeline is actually starting to see a little bit of a slowdown as well.

In the CRE area, I talked to different banks around the state, and we've all read and we've all heard about the challenges that was the next shoe to drop relative to CRE, and I think we've all been concerned about it.

And while there are some challenges there, I think we're starting to see a little bit of absorption there.

I think there's going to be some challenges relative to lease rates and things such as that.

But what I'm hearing now is that while it is still an area of concern, that maybe it is somewhat stabilized.

Then I know when we were out there doing our due diligence, obviously you guys were fighting for a decent amount there.

Any sort of push-through in terms of an impact and seasonality in the agriculture portfolio?

Do you expect any impact in terms of the drawdowns on those loans, or even from a credit calling perspective?

Have you seen anything thus far?

That's a good question.

We, as I mentioned, we have about $130 or so million in row crop financing northeast to southeast.

We've got it in the northeast through our Jonesboro affiliate, and then the -- what I would call E-central through the lead bank, and then in the southeast through Simmons First National south.

And what we have found is the banks in the northeast and east central have fared very well with very little carryover despite all of the rains.

And as you know, there was lots of bad weather.

In the southeast, it was a little bit worse, with maybe some late beans being impacted, and cotton.

And so what we are seeing in southeast Arkansas is some carryover.

And again, we think that probably as we -- we know a lot of that carryover is because of the impact of cotton yields and so forth.

But a lot of the farmers, whether it be northeast, east central or southeast, probably made this -- made their way through this because of the low input cost that they were seeing.

And quite honestly, the yields in some of the other areas, the beans and rice, turned out pretty good.

The price turned out pretty good.

So I think that what I'm hearing is that as we move into this new year, that our farmers -- and again, the top part of the state probably were about the same level as they were when they started the year, made a little bit.

Those farmers in the southeast probably left some on the table.

But most of them are going to live to farm again, even though there will be some of them that don't.

Don't expect any major challenges there.

The catfish part of the industry, though, is a different animal.

And basically, we're beginning to think that's going to be a part of our history, that there's just so much happening in the area of imports and in competition with the processors and farmers or -- that are processed -- processors and farmers that are leaving the other farmers out in the cold.

So we see the catfish piece of this business probably beginning to reduce significantly, at least in the Arkansas/Mississippi area.

But overall, I would say we feel very good about the AGRA.

David?

That's exactly right.

The carryover is going to be minimal, if at all.

There was some cash reserve that the farmers used upfront for last year that has really been able to keep any kind of carryover on the farm on the AG loans down to a minimum.

So I think we may see a little earlier borrowing going into the planting season, but overall, I think our farmers are in pretty good shape.

One of the things that I would say, despite the challenges of farming, most of our row crop farmers, you know, are in a situation to where they have the irrigation and everything to handle the water risk that they have.

And generally speaking, if you can keep the low input costs down and the prices normal, they are going to do very well.

In fact, David, if I'm not mistaken, not just our banks but most of the AGRI banks in Arkansas have actually had some of the highest performance levels over the last two years relative to ROAs.

Yes, sir, that's exactly right.

Not a lot of growth there, but certainly higher ROA performance levels.

So we're glad to have the AGRA as part of our portfolio.

Got you.

(Operator Instructions).

There are no further questions, gentlemen.

I'll turn the call back over to you.

Okay.

Well, we thank all of you for being here, and certainly, we thank our new investors, and we look forward to continuing to work for you and hope you all have a great day.