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Simmons carves niche.

Credit Cards, Consumer Lending Are Positioning Pine Bluff Bank Corporation in National Spotlight

WHEN STOCK analysts in four states heard the story of Simmons First National Corp. during a road show in May, they must have found it hard to believe.

Why is this little bank holding company in Pine Bluff, which had almost a 70 percent increase in stock price last year, so successful?

Why was its credit card generating so many telephone calls last year that Robert Dill, a Simmons marketing officer, told a reporter from The New York Times, "If you go to your window and look out toward Arkansas, you can probably see the smoke rising from the phone lines"?

W.E. Ayres, Simmons' chairman and chief executive officer, and J. Thomas May, president of the corporation, traveled to Dallas, St. Louis, Atlanta and Memphis, Tenn., to promote a Simmons stock offering, underwritten by Stephens Inc. of Little Rock. By the end of the road show, Simmons' total offering of 700,000 shares, plus 105,000 shares set aside for excessive demand, had been sold.

"The response was tremendous," says May, 46, who has been president since 1987. "Anybody in a road show presents the story of their corporation as being something unique. I think at Simmons First they found that we really did have something unique."

Simmons' uniqueness lies with its emphasis on "niche banking," specifically its income generated from the consumer lending areas of credit cards, student loans and mortgage servicing.

"For the last two or three years, the demand for commercial loans has been very weak, particularly in this section of the state," says Ayres, 62, a Mississippi native who has been with Simmons since 1957.

Therefore, Simmons honed its expertise in consumer lending. The corporation generates 69 percent of its income from consumer loans -- an unusually high percentage compared with other banks, which strive just to reach 50 percent.

Here's how the bank does it:

* Simmons First National Bank, the corporation's lead bank, is the largest issuer of credit cards of any Arkansas bank and ranks 67th in the country with 197,000 active credit card accounts. It had more than $9.5 million in credit card fees in 1992.

* The corporation is the largest underwriter of government-guaranteed student loans in Arkansas with about $65 million. Simmons has a standing commitment with the Student Loan Marketing Association (Sallie Mae) to sell the government agency $25 million in student loans annually.

"We know there is a change in the wind as far as Washington is concerned in the student loan program, but we're not convinced that is going to be successful," Ayres says.

* Simmons has a mortgage servicing operation with a $1.4 billion nationwide portfolio. Those are loans in which Simmons has no investment, Ayres says, except for the expense of personnel to service them.

Conservatively Aggressive

"We consider ourselves as conservatively aggressive, which I would define as conservative lenders and spenders, yet aggressive in the development and delivery of retail banking products and services," May says.

The two men leading Simmons have more than 55 years of banking experience combined.

A graduate of Millsaps College in Jackson, Miss., Ayres moved to Pine Bluff in 1954 to work for a commercial finance company. After three years in automobile sales, Ayres says, a neighbor -- then-Simmons Chairman Wayne Stone -- suggested he join the bank.

Ayres started at Simmons as an installment loan officer and worked his way through commercial lending, real estate loans and onto the board of directors in 1977.

May spent five years at First National Bank of Commerce in New Orleans after graduating from the University of Arkansas at Fayetteville. He then returned to his home of El Dorado to join The Exchange Bank & Trust Co. He served as president and CEO there before becoming president at Simmons.

The two guided the corporation and its three banks to their best year ever in 1992, with deposits growing by $27 million to $590 million. Assets were $683 million, and net income was $7.5 million.

Each of the three member banks -- Simmons First National Bank of Pine Bluff, Simmons First Bank of Jonesboro and Simmons First Bank of Lake Village -- also had its best year ever. All this followed a record year in 1991.

"We went by our goal last year like it wasn't there," Ayres says.

The net income goal had been $6 million-$6.5 million.

Simmons also underwent an almost total corporate reorganization last year.

The corporation consolidated its services into separate operating groups. Now there is a corporate accounting group, a human resources group, a special services group and a loan review and compliance group. Each bank has similar operating groups.

Glenn Rambin, who had been with May at El Dorado's Exchange Bank & Trust Co., was hired as a vice president to direct the commercial banking, operations and retail banking groups at Simmons First National Bank.

"People can now see the functions of the bank more easily, both internally and externally," Ayres says of the reorganization. "And it's also made potential advancement opportunities more easily identifiable."

The stock price increased from $13.06 at the close of 1991 to $22.50 at the close of 1992. The stock began trading on the NASDAQ national market last year.

"All this created some real enthusiasm and excitement among our staff," Ayres says.

Acquisitions Likely

About 300 new shareholders bought the 805,000 shares offered last month, generating about $16 million. The increased shares and shareholders improved the liquidity of the stock.

Frank Anderson, an analyst with Stephens Inc., says Simmons' stock was presented to analysts on the road show as a long-term investment, and it apparently succeeded.

In a research report released earlier this month, Peter Tuz, an analyst with Morgan Keegan & Co. in Memphis, says Simmons "has developed a unique business strategy that could result in significant earnings growth over the next few years."

Morgan Keegan rated Simmons' stock a near-term buy (from zero to six months) and a long-term buy (beyond six months), noting it is volatile because of limited liquidity.

About one-third of Simmons' revenues are from non-interest income, Anderson says. For most banks, only about 20 percent of revenues come from non-interest income.

Simmons doesn't try to conceal its desire to use the money raised from the stock offering to acquire banks in Arkansas.

"They don't want the credit card portion of their loan portfolio to exceed 50 percent of total loans," Anderson says. "So to do that, they have to grow. What they wanted to do was to raise additional capital and acquire some other banks."

Simmons' Pine Bluff bank has branch offices in Fort Smith, Springdale, Rogers and Bella Vista, as well as a student loan office in Fayetteville. But if the right bank could be found in northwest Arkansas, Ayres says, Simmons likely would buy it.

May says, "We're not interested in trying to be all things to all people, nor attempting to be the largest banking institution in Arkansas."

Instead, he says, Simmons seeks to establish itself as "an innovative leader of providing retail banking products and services in Arkansas.

"Through our growth strategy of acquiring other banks in Arkansas that have considerable liquidity, we want to take Simmons' expertise and acquire credit card loans," May says. "Then we'll be able to sell some of those credit card loans to our affiliates."

That would allow those new banks to get an 8 percent or higher return on their money, instead of 2.5 percent to 3 percent through a more common investment.

Anderson even believes Simmons could expand in areas less likely than northwest Arkansas. Banks in the slower growth areas of the state could help Simmons because their deposits would allow Simmons to increase its size and expand its credit card operation.

"What amazes most investors, and it amazes me, is that a bank their size has such an articulated and orchestrated game plan," Anderson says. "And they stick to it.

"That's something you don't see typically in a bank their size. The board and the community is so behind that bank."

So, too, are those 197,000 credit card holders paying just 8 percent interest.

A Money-Making Spigot

National Publicity Pulls In 9,000 Calls an Hour for Simmons' Low-interest Credit Cards

W.E. AYRES AND J. THOmas May have Simmons First National Bank's credit card pump fully primed, but only they know when it will flow again.

The Pine Bluff institution, lead bank for Simmons First National Corp., began drawing national publicity in 1991 because its Visa and MasterCard operation offered one of the lowest interest rates in the country. At a time when most credit cards had rates from 18-24 percent, Simmons' cards had a 10 percent interest rate.

But since May 1992, the spigot has been shut off. The bank now accepts applications only from Arkansas residents.

May, president and chief executive officer of the bank, says Simmons will return to a national market, but that decision will be made "when the time is right."

From December 1991 to February 1992, major newspapers such as The New York Times, the Washington Post and The Wall Street Journal published articles on the bank's credit cards. News teams from CBS, NBC, CNN and ABC's "PrimeTime Live" did reports mentioning the bank.

"They sent people down here to see what this little bank in Arkansas was doing with the lowest rates on credit cards in the country and how we could make money," recalls Ayres, chairman of the board of Simmons First National Corp.

All this was in addition to articles in magazines, including the publication for the American Association of Retired Persons, and 20 Arkansas newspapers.

Like a monsoon, nationwide requests began to flood Simmons.

During the five months in 1992 when Simmons accepted applications nationally, it received 121,000 requests for credit cards, up from 73,000 in 1991 when the bank resumed accepting applications outside Arkansas. For one other three-year span, 1985-1987, Simmons accepted national applications.

Tops Among Similar Banks

By the end of 1992, the bank had 197,000 active credit card holders, making it the 67th largest issuer of credit cards in the country. It had $162 million in credit card loan balances in 1992, up from $124 million in 1991.

Simmons issues more credit cards than any other bank its size in the country, May says.

"We were just deluged with phone calls," says May, also president of the corporation.

The most obvious indicator was that the bank received, at times, 9,000 telephone calls an hour with requests for credit card applications.

Actually, AT&T Co. informed Simmons it was receiving 9,000 attempted calls an hour. There was no way the bank could handle that many calls with just 23 incoming lines.

A phone bank was set up across from the bank's main downtown office, with operators taking applications nonstop. Every line would be busy, and as many as four calls per line were kept on hold.

Some callers became frustrated, hung up and chose to mail in requests for applications. It is impossible to determine how many people never made contact with the bank because of the logjam.

"We called AT&T to see if they could give us some help," Ayres says. "They said, 'We need to get some help from you. You're shutting down our whole system.'

"We knew we were having trouble when a live call-in show in Cincinnati or Columbus, Ohio, which was watched by a lot of retired persons, was broadcast. They put the bank's main number on the screen. For 45 minutes, we were out of business."

May says Simmons worked with AT&T, Southwestern Bell Telephone Co. and MCI Telecommunications Corp. to attempt to resolve the problems.

By March 1992, the rush slowed down and requests returned to a normal pace. The question remained, however: How does this little bank in Arkansas make money on credit cards that now have an 8 percent interest rate?

Intensive Investigation

Simmons does intensive investigation, including a credit report, on each credit card application. In 1992, the bank issued cards to only 31 percent, or about 37,500, of the applicants.

"We're very selective, and we probably have one of the cleanest portfolios of bank cards in the country," Ayres says. "We can only afford to deal with the very best. One of the best things about it is the wonderful potential |in the credit card holders~ for our other services."

At any one time, May says, Simmons' delinquency average for the credit cards -- meaning payments past due -- is 0.42 percent, one-tenth of the national average of 4.2 percent.

Fifty percent of the credit card business comes from interest and another 50 percent comes from fees. The fees include annual charges to credit card holders and merchants' fees.

"So, in essence, last year we weren't making 8 percent |on the credit cards~; we were making in excess of 15 percent," Ayres says.

Additionally, as Simmons' loan balances have risen because of its selectivity of card holders, the delinquency ratio as a percentage of the total balance has fallen.

Simmons' $162 million in credit card loan balances is distributed evenly throughout the country. There are owners of Simmons' credit cards in all 50 states. About 30 percent, or $48 million, of the loan balances are in Arkansas, Ayres says. The next highest state has less than 10 percent of the total.

"It's amazing when you go across the country and pull out your card," Ayres says. "They recognize it."

There are a few financial institutions offering 7.9 percent interest on their credit cards, but none approach the volume of Simmons' business.

"The wonderful thing about all this is that the advertising we received cannot be valued," Ayres says. "And it didn't cost us a dime, except a bunch of weary people."
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Article Details
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Title Annotation:includes related article; Simmons First National Corp.
Author:Smith, David (American novelist)
Publication:Arkansas Business
Article Type:Company Profile
Date:Jun 28, 1993
Previous Article:Desert storm: businessman envisions eastern Arkansas region becoming industrial oasis.
Next Article:A well-kept secret.

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