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SIMMONS REPORTS THIRD QUARTER 2020 EARNINGS

Pine Bluff, AR – Simmons First National Corporation (NASDAQ: SFNC) (the “Company” or “Simmons”) today announced net income of $65.9 million for the quarter ended September 30, 2020, compared to $81.8 million for the same period in 2019, a decrease of $15.9 million, or 19.5%. Diluted earnings per share were $0.60, a decrease of $0.24, or 28.6%, compared to the same period in the prior year. Included in the third quarter of 2019 results was a one-time after-tax gain on the sale of Visa Inc. class B common stock of $31.7 million.

Included in third quarter 2020 results were $2.5 million in net after-tax merger-related, early retirement program and net branch right-sizing costs. Excluding the impact of these items, core earnings were $68.3 million for the quarter ended September 30, 2020, compared to $84.0 million for the quarter ended September 30, 2019, a decrease of $15.6 million, or 18.6%. Core diluted earnings per share were $0.63, a decrease of $0.24, or 27.6%, from the same period in 2019.

Year-to-date net income for the first nine months of 2020 was $201.9 million, or $1.83 diluted earnings per share, compared to $185.1 million, or $1.94 diluted earnings per share, for the same period in 2019. Excluding $426,000 in net after-tax merger-related, early retirement program and net branch right-sizing costs and the gains on the sales of branches in south Texas and Colorado, year-to-date core earnings for 2020 were $202.3 million, an increase of $3.8 million compared to the same period last year. Core diluted earnings per share for the first nine months of 2020 were $1.83, a decrease of $0.25, or 12.0%, from the same period in 2019.

“We are very proud of our results under these trying conditions. We have experienced very meaningful shifts in consumer habits which we believe will impact our delivery of products and services as well as the retail delivery of everyday amenities. Our investment in digital channels will continue to position our company for these changes and our associates are ready for the new normal,” said George A. Makris, Jr., chairman and CEO of Simmons First National Corporation.

Selected Highlights:
3rd Qtr 2020
2nd Qtr 2020
3rd Qtr 2019
Net income
$65.9 million
$58.8 million
$81.8 million
Diluted earnings per share
$0.60
$0.54
$0.84
Return on avg assets
1.20%
1.08%
1.83%
Return on avg common equity
8.91%
8.21%
13.70%
Return on tangible common equity (1)
15.45%
14.55%
24.89%

Core earnings (2)
$68.3 million
$60.1 million
$84.0 million
Core diluted earnings per share (2)
$0.63
$0.55
$0.87
Core return on avg assets (2)
1.25%
1.11%
1.88%
Core return on avg common equity (2)
9.24%
8.40%
14.06%
Core return on tangible common equity (1)(2)
16.00%
14.87%
25.52%
Efficiency ratio (3)
54.12%
51.46%
43.77%
Pre-tax, pre-provision (PTPP) earnings (2)
$87.5 million
$97.7 million
$122.6 million

(1) Return on tangible common equity excludes goodwill and other intangible assets and is a non-GAAP measurement. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.
(2) Core figures exclude non-core items and are non-GAAP measurements. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.
(3) Efficiency ratio is core non-interest expense before foreclosed property expense and amortization of intangibles, as a percent of net interest income (fully taxable equivalent) and non-interest revenues, excluding gains and losses from securities transactions and non-core items, and is a non-GAAP measurement. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.
Loans

($ in billions)
3rd Qtr 2020
2nd Qtr 2020
3rd Qtr 2019
Total loans
$14.02
$14.61
$13.00

Total loans were $14.0 billion at September 30, 2020, an increase of $1.0 billion, or 7.8%, compared to September 30, 2019, primarily due to The Landrum Company (“Landrum”) merger completed during the fourth quarter of 2019. On a linked-quarter basis (September 30, 2020 compared to June 30, 2020), total loans decreased $589.5 million, or 4.0%. The decrease was across most loan categories with the largest decrease in the real estate loan portfolios. Makris stated, “Loan demand is very weak in almost every aspect of our commercial economy.”

Through September 30, 2020, the Company originated approximately 8,200 loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, with an average balance of $118,000 per loan. Approximately 93% of the PPP loans had a balance less than $350,000 as of September 30, 2020.

PPP Loans
Balance as of September 30, 2020
# of
Loans

Balance
($ in millions)

Less than $50,000
5,216
63%
$94.4
10%
$50,000 to $350,000
2,441
30%
$304.8
31%
More than $350,000 to less than $2 million
481
6%
$358.0
37%
$2 million to $10 million
61
1%
$213.3
22%
Total
8,199
100%
$970.5
100%

Deposits

($ in billions)
3rd Qtr 2020
2nd Qtr 2020
3rd Qtr 2019
Total deposits
$16.2
$16.6
$13.5
Non-interest bearing deposits
$4.4
$4.6
$3.1
Interest bearing deposits
$9.0
$9.0
$7.3
Time deposits
$2.8
$3.0
$3.1

Total deposits were $16.2 billion at September 30, 2020, an increase of $2.8 billion, or 20.6%, since September 30, 2019, primarily due to the Landrum merger. On a linked-quarter basis, total deposits decreased $369.5 million, or 2.2%, primarily due to decreases in non-interest bearing and large public fund time deposits.

Net Interest Income

3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Loan yield (1)
4.54%
4.84%
5.19%
5.43%
5.47%
Core loan yield (1) (2)
4.29%
4.52%
4.86%
5.00%
5.19%
Security yield (1)
2.60%
2.50%
2.63%
2.73%
2.87%
Cost of interest bearing deposits
0.54%
0.59%
1.03%
1.22%
1.40%
Cost of deposits (3)
0.39%
0.44%
0.80%
0.94%
1.09%
Cost of borrowed funds
1.85%
1.84%
2.06%
2.30%
2.52%
Net interest margin (1)
3.21%
3.42%
3.68%
3.78%
3.82%
Core net interest margin (1) (2)
3.02%
3.18%
3.42%
3.44%
3.59%

(1) Fully tax equivalent using an effective tax rate of 26.135%.
(2) Core loan yield and core net interest margin exclude accretion and are non-GAAP measurements. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.
(3) Includes non-interest bearing deposits.

The Company’s net interest income for the third quarter of 2020 was $153.6 million, an increase of $4.3 million, or 2.9%, from the same period of 2019. The increase in net interest income was primarily due to the decline in the cost of interest-bearing deposits of 86 basis points, which was partially offset by a reduction in the loan yield of 93 basis points. Included in interest income was the yield accretion recognized on loans acquired of $8.9 million and $9.3 million for the third quarters of 2020 and 2019, respectively.

The loan yield was 4.54% for the quarter ended September 30, 2020, while the core loan yield, which excludes the accretion, was 4.29% for the same period. The decrease in the loan yield during the third quarter of 2020 was primarily driven by the lower yielding PPP loans originated during the second and third quarters of 2020. The PPP loan yield was approximately 2.37% during the third quarter of 2020 (including accretion of net fees), which decreased the loan yield by approximately 16 basis points.

Net interest margin (FTE) was 3.21% for the quarter ended September 30, 2020, while the core net interest margin, which excludes the accretion, was 3.02% for the same period. The decrease in the net interest margin during the third quarter of 2020 was primarily driven by additional liquidity created in response to the COVID-19 pandemic and the lower yielding PPP loans originated during the second and third quarters of 2020, which decreased the net interest margin by approximately 30 basis points.

Non-Interest Income

Non-interest income for the third quarter of 2020 was $71.9 million, a decrease of $12.8 million compared to the same period in the previous year, primarily due to the gain on sale of Visa Inc. class B common stock recognized during the prior year period. During the third quarter of 2020, the Company benefited from additional gains on the sale of securities and incremental mortgage lending income driven by the current low mortgage interest rate environment.

Selected Non-Interest Income Items
($ in millions)
3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Service charges on deposit accounts
$10.4
$8.6
$13.3
$13.3
$10.8
Mortgage lending income
$14.0
$12.5
$5.0
$4.0
$4.5
SBA lending income
$0.3
$0.2
$0.3
$0.3
$1.0
Debit and credit card fees
$8.9
$8.0
$7.9
$8.9
$7.1
Gain on sale of securities
$22.3
$0.4
$32.1
$0.4
$7.4
Gain on sale of Visa Inc. class B stock




$42.9
Other income
$5.4
$9.8
$12.8
$7.1
$1.8

Core other income (1)(2)
$5.0
$7.6
$6.9
$7.1
$44.7

(1) Core figures exclude non-core items and are non-GAAP measurements. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.
(2) Core other income includes the gain on sale of Visa Inc. class B common stock.

Non-Interest Expense

Non-interest expense for the third quarter of 2020 was $118.9 million, an increase of $12.1 million compared to the third quarter of 2019. Included in this quarter were $3.3 million of pre-tax non-core items for merger-related, early retirement program and branch right-sizing costs. Excluding these expenses, core non-interest expense was $115.3 million for the third quarter of 2020, an increase of $11.3 million compared to the same period in 2019, primarily the result of the Landrum merger and additional software and technology costs related to the Company’s Next Generation Banking (“NGB”) initiative.

The efficiency ratio for the third quarter of 2020 was 54.12%.

Selected Non-Interest Expense Items
($ in millions)
3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Salaries and employee benefits
$61.1
$57.6
$67.9
$63.2
$52.1
Merger related costs
$0.9
$1.8
$1.1
$24.8
$2.6
Other operating expenses
$38.2
$39.7
$41.8
$38.0
$37.9

Core salaries and employee benefits (1)
$58.7
$57.2
$67.9
$63.2
$51.9
Core merger related costs (1)





Core other operating expenses (1)
$38.2
$38.0
$41.6
$38.0
$37.8

(1) Core figures exclude non-core items and are non-GAAP measurements. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.

Early in 2020, the Company offered qualifying associates an early retirement option resulting in $2.3 million of non-core expense during the third quarter. The Company expects ongoing net annualized savings of approximately $2.9 million.

Management continuously evaluates the Company’s branch network as part of its analysis of the profitability of the Company’s operations and the efficiency with which it delivers banking services to its markets. As a result of this ongoing evaluation, the Company closed 11 branch locations during the second quarter of 2020, with estimated net annual cost savings of approximately $2.4 million related to these locations. The Company closed an additional 23 branch locations on October 9, 2020, with an expected net annual cost savings of approximately $6.7 million.

Asset Quality

3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Allowance for credit losses on loans to total loans
1.77%
1.59%
1.69%
0.47%
0.51%
Allowance for credit losses on loans to non-performing loans
147%
175%
154%
74%
78%
Non-performing loans to total loans
1.20%
0.91%
1.10%
0.64%
0.65%
Net charge-off ratio (annualized)
0.16%
1.04%
0.07%
0.09%
0.59%
Net charge-off ratio YTD (annualized)
0.43%
0.56%
0.07%
0.24%
0.30%

At September 30, 2020, the allowance for credit losses on loans was $248.3 million. Provision for credit losses on loans for the third quarter of 2020 was $22.3 million. Included in total loans was $970.5 million of government guaranteed PPP loans. Excluding the PPP loans, the allowance for credit losses on loans to total loans was 1.90%.

Foreclosed Assets and Other Real Estate Owned

At September 30, 2020, foreclosed assets and other real estate owned were $12.6 million, a decrease of $7.0 million, or 35.7%, compared to the same period in 2019. The composition of these assets is divided into three types:

($ in millions)
3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Closed bank branches and branch sites
$0.6
$2.7
$8.8
$5.7
$5.9
Foreclosed assets – acquired
$9.3
$9.2
$9.2
$10.3
$10.1
Foreclosed assets – legacy
$2.7
$2.2
$2.8
$3.1
$3.6

Capital

3rd Qtr
2020
2nd Qtr
2020
1st Qtr
2020
4th Qtr
2019
3rd Qtr
2019
Stockholders’ equity to total assets
13.7%
13.3%
13.7%
14.1%
14.3%
Tangible common equity to tangible assets (1)
8.7%
8.3%
8.4%
9.0%
9.1%
Regulatory common equity tier 1 ratio
12.6%
11.9%
11.1%
10.9%
10.3%
Regulatory tier 1 leverage ratio
9.1%
8.8%
9.0%
9.6%
9.1%
Regulatory tier 1 risk-based capital ratio
12.6%
11.9%
11.1%
10.9%
10.3%
Regulatory total risk-based capital ratio
15.8%
14.9%
14.1%
13.7%
13.2%

(1) Tangible common equity to tangible assets is a non-GAAP measurement. Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below.

At September 30, 2020, common stockholders’ equity was $2.9 billion. Book value per share was $26.98 and tangible book value per share was $16.07 at September 30, 2020. The ratio of stockholders’ equity to total assets was 13.7% at September 30, 2020, while the ratio of tangible common equity to tangible assets was 8.7%. As of September 30, 2020, PPP loans totaled $970.5 million, which are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. Excluding PPP loans from total assets, equity to total assets was 14.4%, tangible common equity to tangible assets was 9.1% and the regulatory tier 1 leverage ratio was 9.5%.

Simmons First National Corporation

Simmons First National Corporation is a financial holding company headquartered in Pine Bluff, Arkansas, with total consolidated assets of approximately $21.4 billion as of September 30, 2020, conducting financial operations in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Company, through its subsidiaries, offers comprehensive financial solutions delivered with a client-centric approach. The Company’s common stock is listed on the NASDAQ Global Select Market under the symbol “SFNC.”

Conference Call

Management will conduct a live conference call to review this information beginning at 9:00 a.m. CDT today, Monday, October 19, 2020. Interested persons can listen to this call by dialing toll-free 1-866-298-7926 (United States and Canada only) and asking for the Simmons First National Corporation conference call, conference ID 6533868. In addition, the call will be available live or in recorded version on the Company’s website at www.simmonsbank.com for at least 60 days.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). The Company’s management uses these non-GAAP financial measures in their analysis of the Company’s performance. These measures adjust GAAP performance measures to, among other things, include the tax benefit associated with revenue items that are tax-exempt, as well as exclude from income available to common shareholders certain expenses related to significant non-core activities, including merger-related expenses, gain on sale of branches, early retirement program expenses and net branch right-sizing expenses. In addition, the Company also presents certain figures based on tangible common stockholders’ equity and tangible book value, which exclude goodwill and other intangible assets. The Company further presents certain figures that are exclusive of PPP loans. The Company’s management believes that these non-GAAP financial measures are useful to investors because they present the results of the Company’s ongoing operations without the effect of mergers or other items not central to the Company’s ongoing business, as well as normalizing for tax effects. Management, therefore, believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

Forward-Looking Statements

Some of the statements in this news release may not be based on historical facts and should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including, without limitation, statements made in Mr. Makris’s quotes, may be identified by reference to future periods or by the use of forward-looking terminology, such as “believe,” “budget,” “expect,” “foresee,” “anticipate,” “intend,” “indicate,” “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,” “prospects,” “predict,” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could,” “might” or “may,” or by variations of such words or by similar expressions. These forward-looking statements include, without limitation, statements relating to Simmons’ future growth, revenue, assets, asset quality, profitability, net interest margin, non-interest revenue, share repurchase program, acquisition strategy, NGB and other digital banking initiatives, the Company’s ability to recruit and retain key employees, the benefits associated with the Company’s early retirement program and completed and future branch closures, the adequacy of the allowance for credit losses, and the ability of the Company to manage the impact of the COVID-19 pandemic. Any forward-looking statement speaks only as of the date of this news release, and Simmons undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this news release. By nature, forward-looking statements are based on various assumptions and involve inherent risk and uncertainties. Various factors, including, but not limited to, changes in economic conditions, credit quality, interest rates, loan demand, deposit flows, real estate values, the assumptions used in making the forward-looking statements, the securities markets generally or the price of Simmons common stock specifically, and information technology affecting the financial industry; the effect of steps the Company takes in response to COVID-19, the severity and duration of the pandemic, including whether there is a widespread resurgence in COVID-19 infections combined with the seasonal flu, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein; the effects of the COVID-19 pandemic on, among other things, the Company’s operations, liquidity, and credit quality; general economic and market conditions; unemployment; claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the PPP loan program authorized by the CARES Act); changes in accounting principles relating to loan loss recognition (current expected credit losses, or CECL); the Company’s ability to manage and successfully integrate its mergers and acquisitions; cyber threats, attacks or events; reliance on third parties for key services; and other factors, many of which are beyond the control of the Company, could cause actual results to differ materially from those contemplated by the forward-looking statements. Additional information on factors that might affect the Company’s financial results is included in its Form 10-K for the year ended December 31, 2019, and its Form 10-Q for the quarter ended June 30, 2020, which have been filed with, and are available from, the U.S. Securities and Exchange Commission.

Wesley is the owner of South Ark Weather, LLC which owns and operates searkweather.com You may contact him at wesley@searkweather.com

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