Simmons First National Corp (SFNC) 2011 Q1 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good afternoon.

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

  • At this time, I would like to welcome everyone to the Simmons First first-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 session.

  • (Operator Instructions) On the call today are Tommy May, Chief Executive Officer; David Bartlett, Chief Operating Officer; Bob Fehlman, Chief Financial Officer; and David Garner, Investor Relations Officer.

  • I will now turn the call over to David Garner.

  • Sir, you may begin your conference.

  • - IR

  • 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 will 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 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 paragraphs of our press release and in our Form 10K.

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

  • - CEO

  • Thank you, David, and welcome, everyone, to our first-quarter conference call.

  • In our press release issued earlier today, Simmons First reported first-quarter core earnings of $5.2 million, which was up $225,000 or approximately 4.5% from the same quarter last year.

  • Diluted core EPS for our Q1 2011 was $0.30, up $0.01 from Q1 2010.

  • Included in Q1 2011 was $115,000 of an after-tax merger-related cost associated with our 2010 FDIC-assisted transactions.

  • Including this non-recurring expense item, first-quarter earnings were $5.1 million or $0.29 diluted EPS.

  • On March 31, the total assets were $3.3 billion, and stockholders' equity was $400 million.

  • Our equity to asset ratio was a strong 12.2%, and our tangible common equity ratio was 10.5%.

  • The regulatory tier one capital ratio was 11.7%, and the total risk-based capital ratio was 22.2%.

  • Both of these regulatory ratios remain significantly above the well capitalized levels of 5% and 10%, respectively, and rank in the 97th percentile of our peer group, based on December 31 peer versus our March 31 actual.

  • Net interest income for Q1 2011 was $26.8 million, an increase of $2.4 million or 9.9%, compared to Q1 2010.

  • Net interest margin for Q1 2011 was 3.87%, an increase of 16 basis points from Q1 2010, and 27 basis points from Q4 2010.

  • The increase in both net interest income and margin was primarily due to a higher yield on covered loans acquired through acquisitions compared to the yield on loans in our legacy portfolio.

  • Non-interest income for Q1 2011 was $12.6 million, an increase of $432,000, or 3.5% compared to the same period last year.

  • Let me take a moment to discuss some items that impacted non-interest income.

  • First, credit card fee increased $266,000 or 7.2% on a quarter-over-quarter basis.

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

  • The second item, other non-interest income, increased by $356,000 over the same period last year.

  • This increase was primarily due to the accretion on assets acquired through FDIC-assisted transactions in 2010.

  • In contrast, non-interest income was negatively impacted by a $444,000 decrease in service charges on deposit accounts.

  • This decrease was primarily due to a lower NSF income, as a result of regulatory changes related to overdrafts on point of sale.

  • Moving on to the expense category, non-interest expense for Q1 2011 was $30 million, an increase of $3.2 million or 11.9% compared to the same period in 2010.

  • The $3.2 million increase includes $2.7 million in normal operating expense at our 2 new acquisitions, and $190,000 in merger-related costs.

  • Normalizing for these expenses, non-interest expense increased by less than 1% compared to Q1 2010.

  • Further, included in the normalized expense is a $250,000 check fraud, which otherwise would have resulted in a flat non-interest expense compared to the same period last year.

  • Obviously, the modest increase in non-interest expense is the result of the implementation of our efficiency initiatives discussed in previous calls.

  • For the full-year 2011, we estimate a $1.5 million to $2 million improvement compared to 2010.

  • Concerning our Combined Loan Portfolio, as of March 31, 2011, we reported total loans and covered loans net of discount of $1.8 billion, a decrease of $22 million or 1.2% compared to the same period a year ago.

  • Covered loans net of discount increased $209 million through our FDIC acquisitions.

  • In our legacy portfolio, we experienced a decrease of $231 million or 12.5% compared to Q1 2010.

  • As expected, we saw a $96 million decrease in our Student Loan Portfolio, as a result of what I still believe was an irrational decision by the Administration and Congress to eliminate the private sector from providing student loans.

  • The balance of our legacy Consumer Loan Portfolio decreased $22 million, with declines in both our direct and indirect lending areas.

  • The legacy Real Estate Loan Portfolio decreased by $108 million, including a $31 million or 17.8% decrease in the Construction and Development Portfolio.

  • 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 8.8% of the total portfolio.

  • CRE loans, excluding C&D, represent 33.8% of our loan portfolio, both of which compare very favorably to our peer.

  • Simmons First affiliates, like the rest of the industry, are experiencing weak loan demand as a result of the recession.

  • We believe loan demand is likely to remain soft throughout 2011, but we are committed and positioned to meet the borrowing needs of our consumer and business customers.

  • Although the general state of the national economy has shown signs of improvement, it remains somewhat unsettled.

  • Also, despite the challenges in the northwest Arkansas region, overall we continue to have good asset quality compared to the rest of the industry.

  • As a reminder, covered assets acquired from the FDIC are recorded at their discounted net present value, and the resulting FDIC loss share indemnification provides significant protection against possible losses.

  • Thus, FDIC-covered assets are excluded from the computations of the asset quality ratios for our legacy Loan Portfolio.

  • The allowance for loan losses equaled 1.72% of total loans, and approximately 144% of non-performing loans as of March 31.

  • Non-performing loans as a percent of total loans increased from 83 basis points to 119 basis points.

  • Non-performing assets as a percent of total assets were 132 basis points, up 20 basis points from Q4 2010.

  • The increase in non-performings were primarily related to 2 classified credits previously reported as TDRs moving to a non-accrual status.

  • As a result of this reclassification, non-performing assets, including TDRs, as a percent of total assets, were 1.65% compared to 1.71% at Q4 2010.

  • Despite the 20 basis point increase in non-performing assets, these ratios compare favorably to the industry and our peer group.

  • In fact, our non-performing asset ratio, excluding covered loans, puts us in the 80th percentile within our peer group, based on December 31 peer versus our March 31 actual.

  • During Q1 2011, the provision for loan losses was $2.7 million compared to $3.7 million for Q4 2010.

  • The annualized net charge-off ratio for Q1 2011 was 29 basis points, down 41 basis points when compared to linked Q4 2010.

  • Excluding credit cards, the annualized net charge-off ratio was down to 7 basis points, compared to 52 basis points for Q4 2010.

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

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

  • However, our portfolio continues to compare very favorably to the industry, as our Q1 2011 annualized net credit card charge-offs to loans decreased 8 basis points to 2.06%, compared to 2.14% for Q4 2010.

  • Even with the national credit card charge-offs declining in recent months, our loss ratio is more than 500 basis points below the most recently published credit card charge-off industry average of over 7.5%.

  • One of the real strengths of our Credit Card Portfolio is geographic diversification, with no concentrations over 7% in any state other than Arkansas, where we have approximately 40% of our portfolio.

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

  • Despite our 2.06% loss ratio, we are currently maintaining a reserve of 3% for our Credit Card Portfolio.

  • Bottom line, despite a slight increase in our level of non-performing assets, we continue to experience good asset quality compared to the industry.

  • We continue to achieve low credit card charge-offs, a modest non-interest expense increase, and most importantly, an extremely strong capital base with a 10.5% tangible common equity ratio.

  • Simmons First is well positioned, based on the strength of our capital, asset quality, and liquidity to deal with the challenges and opportunities that we may face.

  • Our conservative culture has enabled us to engage in banking for 108 years.

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

  • We continue to reiterate that there has never been a greater time to have these strengths.

  • In closing, we remind our listeners that Simmons First experiences seasonality in our quarterly earnings due to our Agricultural Lending and Credit Card Portfolio.

  • Quarterly estimates should always reflect this seasonality.

  • 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 on the line, and once again explain how to queue in for questions.

  • Operator

  • (Operator Instructions) And your first question comes from the line of Matt Olney from Stephens Inc.

  • Your line is now open.

  • - Analyst

  • Hey, guys.

  • Good afternoon.

  • Hey, Tommy, you mentioned in your prepared remarks that you expect to continue to target that 3% reserve ratio within the Credit Card Portfolio, and this is despite the charge-offs in that portfolio being around 2% the last few quarters.

  • So what will that take in the future for you to provision less than that historical 3% target?

  • - CEO

  • Well, that's a good point.

  • Obviously, we've done better in our charge-offs than we expected to do.

  • As you'll remember, those numbers went up to about a 247, I believe - -

  • - EVP/CFO

  • 207.

  • - CEO

  • No at one time.

  • - EVP/CFO

  • The high point, yes.

  • - CEO

  • The high point was about a 247, and we were reserving at a 3% level, and then it has come down to the level now at 207 or 206.

  • I think that we're going to leave it just exactly as it is, continue to reserve at 3% for the time being, and the benchmark that would cause to us change that probably is the unemployment levels.

  • When we start to see a trend relative to the unemployment levels and we back that up with continuing to hold the 207, 210, 220 levels, I think at that point in time, we'd probably consider changing it.

  • But I think for right now, we're going to hold it as is, so I would expect that when you look at our provisions, the 3 drivers, one would be loan growth, and we certainly don't expect to see that.

  • The other would be the credit card, and right now, I just fully expect to leave it at 3%.

  • And then the third would be some surprise that might be out there that we just don't know about at this time.

  • So expectations is it would stay the same.

  • I think the provision for the first quarter was 2.6, so I think annualized out at 10.5.

  • - Analyst

  • Okay.

  • That's helpful.

  • And then you mentioned in that response about the challenge with growing loans, and certainly you're not alone in that respect over the last few quarters.

  • But it seems like seasonally, it was particularly tough for your bank, given the Ag loans and credit card loans coming down.

  • So, is it fair to assume that we could see some more pressure on loan balances in the near term, but maybe not to the degree that we saw in [Q2]?

  • - CEO

  • I would like to think that it would certainly not be to this degree.

  • Let me first point out that when you look at the decreased level on a quarter over quarter basis of $230 million, that $100 million of that is student loans.

  • - EVP/CFO

  • [True] decrease about $135 million.

  • - CEO

  • Yes, about $130 million to $135 million of what I would call normalized true decrease.

  • And obviously that's a whole lot more than we expected.

  • My belief right now is that based on the economy, that we may continue to see some decreases, but I certainly don't think we'll see them at this level.

  • - EVP/CFO

  • Yes.

  • Matt, that's roughly about a what, 7%, 8% decrease.

  • Again, we don't like to see it at those levels.

  • What we're seeing in other banks around the country and particularly in Arkansas, in the legacy portfolios is similar decreases and pay downs on loans, and that pipeline being slow.

  • - Analyst

  • Yes it's definitely a challenging environment out there.

  • In the prepared remarks there's also some commentary about expenses and the outlook there.

  • Can you give us that outlook again, as far as expenses?

  • - EVP/CFO

  • Well, you know in this quarter when you look first at our bottom line, the expenses were up quite a bit, and that would obviously be from the acquisitions from Kansas and Springfield.

  • We had about $2.5 million from Kansas and Springfield for this quarter, and when you back those out, the one-time items for the M&A conversion costs and so forth, and then also the one check fraud that we talked about, we were flat on non-interest expense.

  • So on the base that we have to be flat, it shows that the deficiency initiatives are coming into play.

  • We see the Kansas Springfield piece.

  • You know, obviously it'll cost to have a $400 million bank, and we're going to have those expenses in there.

  • We think this will be the highest quarter, as we've kind of gone through conversions and the staffing changes and so forth.

  • So we think that $2.5 million will be the high.

  • We believe we'll work that down over time, but I think you see a pretty good baseline going forward as you'd see this, and a little bit of cost savings from the Springfield area and Kansas.

  • - Analyst

  • Okay.

  • Great.

  • Thanks, guys.

  • - CEO

  • Thank you.

  • - EVP/CFO

  • Okay.

  • Thanks, Matt.

  • Operator

  • Your next question comes from the line of Michael Rose with Raymond James.

  • - Analyst

  • Good afternoon, guys.

  • How are you doing?

  • - CEO

  • Hey, Michael.

  • - Analyst

  • Just a question on kind of loan yields and deposit yields, and kind of how it relates to the margin going forward.

  • I noticed on the deposit side that time deposits greater than $100,000 actually went up a little bit.

  • Would you expect the mix to continue to improve from here, and kind of what opportunities do you have to lower the funding costs and the deposit costs?

  • And then on the loan side, obviously, the yields were up obviously because of the acquisition.

  • Where do you expect that to trend from here, and what are your thoughts on the margin?

  • - CEO

  • Let me just start with the yield on the earning assets of 464.

  • Obviously, the decrease in the loan piece is (inaudible) is pretty good.

  • We continue to be challenged a little bit by the maturities in the Investment Portfolio with rates as low as they are.

  • A plus obviously has been the covered loans in the loss share, which is showing yield of about 6.23%.

  • Right now, the outlook for the interest rates, your call is as good as ours.

  • We'd love to see a little bit of inflation.

  • That would sure help us a lot, but the biggest thing we've got going for us right now, I would say in Q2, will be seasonality on the credit card portion of the Portfolio, sort of going back to mass discussion, too, on loans is that the Agri-Row Crop portfolio is about $50 million in the lead bank, about $30 million northeast, $30 million southeast, so about $110 million.

  • Right now I would say that we're about 30% into the funding of the borrowings at this point in time.

  • The next quarter, I would expect them to probably go up to the level of about 65% maybe, and then the peak is going to be September.

  • So over the next two quarters, that's a positive.

  • Plus, I think that if our, let's just say, our normal Row Crop commitments are in the 100 to 110 range, I think you can expect that to maybe be up another $15 million to $20 million because of the input costs, especially diesel fuel and fertilizer.

  • And so again, for the next couple of quarters, we're going to get some buildup there, and that's going to help our yield and earning assets.

  • On the cost of [sun] side, we think we've pretty well tapped it out.

  • We obviously are looking for opportunities to decrease our levels of liquidity a lot higher than we want them to be.

  • But strategically, as you know, there's a couple ways to deal with the liquidity piece.

  • One is to go ahead and reduce the rates and lower the cost of funds a little bit below where they are now, and our total cost of funds right now in Interest-bearing deposits is 79 basis points.

  • And I think that we sure don't want to cut into the muscle.

  • While we'd love to see the deposits go down, we think that we're going to use some of those deposits, as we make acquisitions of some of the FDIC acquisitions and get rid of some of their wholesale deposits and replace that with our core deposits.

  • So my guess is our upside is going to be in the Loan Portfolio in Q2, Q3, Ag related.

  • From the deposit side it's going to be pretty flat probably for certainly the next quarter.

  • - Analyst

  • Okay.

  • That's helpful.

  • Is there any other updated thoughts on potentially looking at open bank transactions relative to FDIC deals, or is the focus still squarely on assisted transactions?

  • - CEO

  • The focus - - first of all, we're open to looking at traditional as well as the FDIC.

  • We still think that the most current window of opportunity is the FDIC assisted.

  • Certainly in the next 12 to 18 months, we will look at traditional acquisitions, as we have expanded into Missouri and Kansas.

  • We may look at some opportunities to fill in the footprint there with either one, traditional or FDIC assisted.

  • But right now, we still think the biggest and best opportunity is the FDIC assisted.

  • Let me go back to, Michael, one question, I think, you mentioned relative to the margin, and I think I said it anyway, where I was just talking about the yield.

  • We do expect to obviously pick up in the margin in the second quarter because of that seasonality.

  • And we certainly see a slight increase there up to a 4% level.

  • - EVP/CFO

  • Yes, 3.90% to 4% range.

  • - Analyst

  • Okay.

  • That's helpful, and Tommy, congratulations on your hole in one.

  • - CEO

  • Thank you, Michael, I appreciate it.

  • Operator

  • Your next question comes from the line of Dave Bishop with Stifel Nicklaus.

  • Your line is now open.

  • Hey, Dave.

  • - Analyst

  • Good afternoon, gentlemen.

  • I was wondering if you could talk to, just turning to credit a little bit, about the two credits you mentioned in terms of the (inaudible) non-performing status, a little color there?

  • - CEO

  • Okay, you're talking about the two challenges that we had that upped the non-performings by 20 basis points?

  • - Analyst

  • Right, correct.

  • - CEO

  • One of them is in northwest Arkansas, in the $3 million range, and the other one is central Arkansas in the $2 million range.

  • They were both listed on TDRs.

  • They were both moved to non-accruals .

  • I think from the standpoint of the reserves, all of the reserves have been adjusted relative to both of those.

  • I guess I would - - obviously both of them were in the Commercial Real Estate area.

  • One of them, I think the larger one, it's on non-accrual.

  • The borrower is still operating it.

  • We are hopeful that they will be able to find another buyer.

  • On the smaller loan, again, we're still working with the borrower relative to finding another investor.

  • But I think from the standpoint of the collateral values and so forth, that those have been adjusted for, relative to the loan loss

  • - Analyst

  • Would you happen to - - in terms of the TDR balances coming into the quarter and exiting, what those levels were?

  • - EVP/CFO

  • The TDR balances?

  • - Analyst

  • Correct.

  • - EVP/CFO

  • I think they were about - - down about $9 million.

  • They're about $19 million at year end, about $10.5 million or so at quarter end.

  • So $5 million of that million, $4.5 of that million was the TDR moving up to the non-accrual status, and the others are accruing TDRs.

  • So we didn't see anything else moving into TDRs, and we just saw TDR moving from a little bit worse condition into non-accrual.

  • - Analyst

  • Okay.

  • And then any update, I mean, I know it's in the hands of the politicians there, but any update you can give us in terms of Durbin for sale, in terms of potential impact there?

  • Is it still status quo from last quarter?

  • - CEO

  • I think the best thing to hope for right now in the Durbin is for it to be delayed.

  • I still believe that there's reasons to be optimistic that there is going to be a delay there.

  • If you look at what is coming out of Congress and the administration, plus what you're getting from testimony by the Chairman of the FDIC, the OCC, and the Federal Reserve, I think that most of the testimony calls for a step back, taking a little bit closer look at it, and I think that's what we can hope for.

  • And then, I think at that point in time, after a pretty good re-evaluation is done, then not only is the picture going to be clearer, but I think it will be more favorable than certainly what we've been looking at most recently.

  • - Analyst

  • Great.

  • Thank you, gentlemen.

  • - CEO

  • Thanks.

  • Operator

  • (Operator Instructions)And your next question comes from the line of Derek Hewett with KBW.

  • Your line is now open.

  • - Analyst

  • Good afternoon.

  • - CEO

  • Hey, Derek.

  • - Analyst

  • Question about FDIC deals.

  • I guess given that the pace appears to be slowing, what are you guys seeing on your end?

  • Are you kicking a lot of tires and maybe just a lot of banks end up finding ways to survive, or I guess can you provide some color in terms of what you're seeing?

  • - CEO

  • Well, as far as the slowing piece, I think we all anticipated a slowing in the first quarter, and so I don't think we're surprised there.

  • I think also, what we have seen is a little bit of acceleration that is coming in that area, maybe outside of our 325-mile radius that we set for ourselves.

  • And again, I don't think we're totally surprised with that, and my guess is that the pace will continue to rise probably through the next couple of quarters.

  • Now, whether or not it will be in our 325-mile radius, obviously we don't know.

  • We have a pretty good feel for how many banks are in that Texas 100 and where they rank, but a lot of it just obviously depends on how fast the FDIC wants to move and is able to move, and where the priorities are.

  • And I think it's the priorities probably more than anything else.

  • My guess is that the numbers are still pretty much where they were.

  • - EVP/CFO

  • Hey, Derek, this is Bob.

  • - Analyst

  • Yes.

  • - EVP/CFO

  • What we've kind of seen over the last two years is the FDIC tends to work in regions, and there's no rhyme or reason that we know, but obviously resources and the health of the banks and so forth, but we kind of see during periods of time certain areas is where they concentrate on, and then it moves to other areas, and it kind of moves around the country.

  • As last week, we saw it's been real slow the first quarter; we kind of really expected that because of the busy fourth quarter.

  • You get into the last week we saw six banks close last week, and a lot of those were concentrated into one area of the country.

  • And you start seeing that where you start seeing a region that they've hit, and then they go to another one, and it kind of moves around.

  • It's a really similar pattern to what we've seen last year, that you don't see anything for a while and then all of a sudden, you start seeing some.

  • But it's still no control obviously in that area, just kind of waiting.

  • - Analyst

  • Okay.

  • And in terms of your acquisitions in Kansas and Missouri, are you planning on opening additional branches to fill out the footprint up there?

  • - CEO

  • Well, I think I'll let Marty Casteel talk a little about his thinking process relative to the branch piece of it, but I think right now it's too early to tell.

  • I think that right now as we look at Kansas and we look at Missouri, and we look at that footprint, we realize that our plans are not to serve the whole state, but there are obviously certain parts of it that we're interested in.

  • Some of it, our filling in that footprint might be De Novo branching.

  • Part of it will be through traditional acquisitions, and part of it will be the FDIC, so really just a combination of all three.

  • Marty, you want to say a word about the branch style?

  • - EVP

  • I think that is exactly right.

  • Certainly in the Springfield, Missouri, area we're looking for more locations, but I think De Novo would be our last option.

  • We certainly would hope to have opportunities through mergers and acquisitions or even branch purchases before we go the De Novo route.

  • We do recognize we need a larger footprint in that market.

  • - Analyst

  • Okay, great.

  • And then finally, what are your updated thoughts on the Student Loan Portfolio?

  • Do you plan to kind of just let that amortize down, or are there opportunities now to potentially sell that at par and maybe even at a small premium?

  • [Do we] have some capital?

  • - CEO

  • There is definitely not an opportunity to sell it at par or a premium; it's still all at a discount based on what we have seen, but I think we, based on liquidity we had, we're more than satisfied to continue to manage it and allow it to amortize out.

  • - EVP/CFO

  • And the staffing expense side of that is relatively minimal at this time, and a lot of that's been reallocated, and it's shared in other areas in the Loan Administration area.

  • - Analyst

  • Great, thanks very much.

  • - CEO

  • Thanks, Derek.

  • Operator

  • (Operator Instructions).

  • There are no further questions at this time.

  • - CEO

  • All right.

  • Thank you, everybody, and have a great Easter.

  • See you.

  • Operator

  • This concludes today's conference call.

  • You may now disconnect .