UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Exchange Act of 1934
Date of Report (Date of earliest event reported) April 21, 2005
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 0-6253 71-0407808
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM: 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following text is the script used by J. Thomas May, Chairman and Chief
Executive Officer, Barry L. Crow, Chief Operating Officer, and Robert A.
Fehlman, Chief Financial Officer, of Simmons First National Corporation during
the Company's First Quarter Earnings Release Conference Call held at 3:00 P.M.
Central Time on April 21, 2005.
Good afternoon, I am Bob Fehlman, Chief Financial Officer of Simmons First
National Corporation, and we want to welcome you to our first quarter earnings
teleconference and web cast. Here with me today is Tommy May, our Chief
Executive Officer and Barry Crow, our Chief Operating 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 we will entertain
questions. We have invited the analysts from the investment firms that provide
research on our Company to participate in the question and answer session. Our
other guests in this conference call are in a listen-only mode.
Our earnings release has been filed on Form 8-K and is also located at
simmonsfirst.com in the Investor Relations earnings release section of our
website.
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 paragraphs of our press release and in our Form 10-K.
With that said, I will turn the call over to Tommy May.
Thank you Bob, and welcome everyone to our first quarter conference call.
In our press release issued earlier today, Simmons First National Corporation
reported record first quarter 2005 earnings of $5.9 million or $0.40 diluted
EPS. This represents a $450,000, or $0.03 increase in diluted EPS over the same
period last year, an increase of approximately 8.3%.
We are pleased with the Company's solid financial performance in the first
quarter. On a quarter over quarter basis, the increase in earnings is primarily
attributable to the growth in the loan portfolio, an improvement in net interest
margin, and an increase in the level of non-interest income. I would like to
spend the next few minutes talking about each of these issues.
On a quarter over quarter basis, the Company's net interest margin
increased 14 basis points to 4.17%. This increase in net interest margin can be
primarily attributed to the continued growth in real estate loans, combined with
the reduction in interest expense resulting from the December 31, 2004
prepayment of $17.3 million of trust preferred securities. While we are pleased
with the 14 basis point margin improvement, during March, we have seen some
compression due to competitive pressures on deposit repricing and a temporary
impact from a fairly aggressive corporate-wide deposit promotion based on our
projected liquidity needs for the balance of the year. In all likelihood, we
will see a continuation of deposit repricing as interest rates continue to rise
from 50 year lows. We expect to utilize the $45 million generated in the deposit
promotion to fund loans currently in our pipeline, thus a positive impact on
margin. Considering these issues, we anticipate a flat to slightly compressed
margin for Q2 05.
Non-interest income for Q1 05 was $10.1 million, compared to $9.6 million
for the same period in 2004, or a 4.4% increase. This increase in non-interest
income can be primarily attributed to acquisitions completed in 2004, normal
growth in transaction accounts, and improvements in the fee structure associated
with our deposit accounts.
The Company continues to experience pressure in the mortgage and investment
banking areas due to the rising interest rate environment. The decrease in
income related to these two areas in Q1 05 was $226,000, when compared to the
same period in 2004.
Due to our long-term membership in Pulse EFT, a regional ATM switching
network, the Company received a one-time $250,000 distribution as a part of the
proceeds when Pulse merged with Discover Financial Services.
Now let me move to the expense category. Non-interest expense for the first
quarter was $21.4 million, an increase of $1.7 million, or 8.7%, from the same
period in 2004. The increase is primarily due to the 2004 acquisitions and the
normal increased cost of doing business. Excluding acquisitions, the increase in
non-interest expense was 4.6%.
Now, let me shift our focus to the loan portfolio. As of March 31, 2005,
loans totaled $1.6 billion, an increase of $82 million, or 5.5%, from the same
period a year ago. We continue to be pleased with the loan demand in our
construction, residential and commercial real estate loan portfolios, which in
aggregate increased 11.5%. However, portions of the consumer market remain a
challenge. We continue to experience significant competitive pressure from the
credit card industry and financing incentives from automobile manufacturers.
Concerning our credit card operations, we continue to lose a portion of our
cardholder base to the very aggressive pricing of the very large credit card
banks. Over the last two years, our portfolio has decreased by approximately $10
million per year, and we anticipate the same reduction relative to the average
portfolio for 2005. In order to reverse this trend, we have introduced several
new initiatives that will make our product more competitive. Our primary
initiative is to move as many qualifying accounts as possible from our standard
VISA product to our Platinum VISA Rewards product. The Platinum card is very
competitive and carries a low fixed interest rate of 8.95% and offers the
customers competitive air mileage based on their purchases. Our plans are to
expand the rewards program beyond the air mileage offering. We believe that the
increased usage will more than offset the increased cost. Needless to say, our
credit card portfolio carries a very significant potential premium that is not
reflected on our balance sheet, and is a significant contributor to the earnings
of the Company.
Asset quality for the first quarter continued to strengthen as
non-performing assets decreased by $5.1 million from the same period last year,
a 28% decrease. On a quarter over quarter basis, the non-performing assets ratio
was 0.83% and 1.23%, respectively. On a linked quarter basis, non-performing
assets decreased by approximately $700,000. Non-performing loans to total loans
improved to 0.75% from 1.05% from the same period last year. The allowance for
loan losses improved to 223% of non-performing loans as of March 31, 2005
compared to 170% as of March 31, 2004. At quarter end, the allowance for loan
losses equaled 1.67% of total loans.
The net charge-off ratio for the quarter was 59 basis points. When adjusted
for credit card net charge-offs, that ratio is 37 basis points. As you may
recall, we have mentioned in previous teleconferences potential asset quality
concerns related to the catfish industry. Included in the net charge-off ratio
is a charge-off on a single loan associated with the catfish industry. Excluding
credit card and the catfish loan, net charge-offs for Q1 05 would be 4 basis
points. As a reminder, the credit card net charge-offs as a percent of the
credit card portfolio was 2.77% for Q1 05, which is approximately 300 basis
points below the industry average of 5.76%.
The Company's stock repurchase program authorizes the repurchase of up to
5% of the outstanding common stock, or approximately 730,000 shares. During Q1
05, the Company repurchased approximately 262,000 shares. This includes 11,500
shares that were a part of our repurchase plan, and an additional 250,000 shares
negotiated in a private transaction that was outside of our plan. The Company
continues to be active in repurchasing its stock.
Let us take a minute to update you on our current branch expansion plans.
You will see that our expansion focus is on the growth markets of Arkansas. We
have begun construction on a new branch facility in Bentonville, our first entry
into that fast-growing community. When this branch is completed, we will have 11
financial centers in Northwest Arkansas MSA, the fastest growing region of
Arkansas.
We have also acquired land and have begun construction of a new branch
facility in Van Buren, which compliments our branch network in Ft. Smith, the
second largest city in Arkansas. When this branch is completed, we will have 5
financial centers in the Fort Smith area.
In Central Arkansas, we have two new facilities under construction in
Little Rock and another facility in Conway. When these new locations come on
line, we will have nine financial centers in the Little Rock MSA. We expect
these five new facilities to open before the end of this year.
In addition, we have acquired or are in the process of acquiring property
for expansion in 2006. These locations include Rogers, El Dorado, Beebe, Ft.
Smith, and Little Rock.
As previously announced, we did close three small financial centers during
the first quarter of 2005. The decisions to close these financial centers are a
part of our on-going efforts to improve the efficiency of our branching network,
many of which were acquired through mergers and acquisitions.
As a matter of information, we are currently in the process of investing
$25 million in Bank Owned Life Insurance. As you know, the regulatory limit for
BOLI is 25% of capital and our investment will be at approximately 12.5%. The
$25 million will be moved from earning assets to other assets, thus decreasing
margin by about 2 basis points. However, we project a $0.03 increase in EPS and
a 20 basis point improvement in ROE. The 2005 EPS impact of the BOLI transaction
is approximately $0.02. We expect to close the transaction by the first of May.
We remind our listeners that Simmons First experiences seasonality in our
quarterly earnings due to our agricultural lending and credit card portfolios
and quarterly estimates should always reflect this seasonality.
This concludes our prepared comments and we would like to now open the
phone line for questions from our analysts. Let me ask Tina to come back on the
line and, once again, explain how to queue in for questions.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SIMMONS FIRST NATIONAL CORPORATION
Date: April 21, 2005 By: /s/ Robert A. Fehlman
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Robert A. Fehlman, Senior Vice President
and Chief Financial Officer