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Simmons Reports Third Quarter 2017 Earnings

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PINE BLUFF, Ark., Oct. 22, 2017 (GLOBE NEWSWIRE) -- Simmons First National Corp. (NASDAQ:SFNC) today announced net income available to common shareholders of $28.9 million, or $0.89 per diluted share, for the quarter ended September 30, 2017, compared to $23.4 million, or $0.76 per diluted share, for the same period in 2016, a 17.1% increase.  Included in third quarter 2017 results was $721,000 in net after-tax merger-related and branch right-sizing costs as well as a $1.8 million gain on the sale of insurance lines.

Excluding the impact of these items, core earnings were $27.7 million, or $0.86 per diluted share, for the quarter ended September 30, 2017, compared to $24.4 million, or $0.79 per diluted share, for the quarter ended September 30, 2016, an 8.9% increase.

Year-to-date net income was $74.0 million, or $2.31 diluted earnings per share. Excluding the net after-tax merger-related and branch right-sizing costs and the insurance gain, year-to-date core earnings were $77.0 million, or $2.41 diluted core earnings per share.

On October 19, 2017, Simmons First National Corp. completed the acquisitions of Southwest Bancorp, Inc. (NASDAQ:OKSB), headquartered in Stillwater, OK., including its wholly-owned bank subsidiary, Bank SNB, and First Texas BHC, Inc., headquartered in Ft. Worth, TX, including its wholly-owned subsidiary, Southwest Bank. With the completion of these acquisitions, the proforma combined total assets of the company are approximately $14.2 billion. The systems conversions are planned during the first half of 2018, at which time the subsidiary banks will be merged into Simmons Bank.

Simmons Bank was the successful bidder at a public auction held to discharge certain indebtedness owed to the Bank and became the sole shareholder of Heartland Bank in Little Rock, AR, on August 28, 2017. Heartland Bank remains a separately chartered state bank. Simmons is evaluating the next steps with respect to the institution.

On September 1, 2017, the insurance affiliates of the Company completed the sale of their property and casualty insurance business lines and an after-tax gain of $1.8 million was recognized on the transaction.  Tangible common equity was positively impacted by $7.2 million due to a reduction in intangible assets related to the sold business.

Additionally, during the quarter, the Company completed its conversion and integration of First South Bank with and into its subsidiary, Simmons Bank.

"The third quarter was certainly an exciting and eventful quarter for us," said George A. Makris, Jr., chairman and CEO.  "We are pleased with the operating results from the third quarter and I am extremely proud of our associates' ability to manage the significant transactions during the quarter while producing outstanding results.  We are also excited to welcome the associates of Bank SNB and Southwest Bank to the Simmons family.  We look forward to a great partnership."

Selected Highlights: 3rd Qtr 2017 2nd Qtr 2017          3rd Qtr 2016  
         
Net income $28.9 million $23.1 million $23.4 million  
Diluted earnings per share $0.89   $0.72   $0.76    
Return on avg assets  1.25%    1.05%    1.21%    
Return on avg common equity  9.12%    7.65%    8.36%    
Return on tangible common equity  14.47%    12.13%    13.26%    
Net interest margin(1)  3.91%    4.04%    4.08%    
         
Core earnings(2) $27.7 million $26.8 million $24.4 million  
Diluted core earnings per share(2) $0.86   $0.84   $0.79    
Core return on avg assets(2)  1.20%    1.22%    1.26%    
Core return on avg common equity(2)  8.77%    8.87%    8.71%    
Core return on tangible common equity(2)  13.93%    13.99%    13.78%    
Core net interest margin(1)(2)  3.77%    3.79%    3.79%    
         
Efficiency ratio  55.06%    56.04%    53.94%    
(1)  Fully tax equivalent.      
(2)  Core earnings excludes non-core items, which is a non-GAAP measurement.      
 

 

Loans

  3rd Qtr 2017              2nd Qtr 2017          3rd Qtr 2016  
 
Total loans $6.3 billion $6.2 billion $5.4 billion  
Legacy loans (all loans excluding loans acquired)                          $5.2 billion $5.0 billion $3.9 billion  
Loans acquired $1.1 billion $1.2 billion $1.5 billion   
 

Total loans, including those acquired, were $6.3 billion at September 30, 2017, an increase of $902.1 million, or 16.7% from September 30, 2016. 

On a linked-quarter basis (September 30, 2017 compared to June 30, 2017), total loans increased $78.0 million, or 1.3%.  The increase was due to:

  • $30 million decrease in liquidating portfolio (indirect lending and consumer finance)
  • $13 million increase from participations purchased from Southwest Bank
  • $228 million in net legacy loan growth including $36 million of migrated loans (acquired to legacy)
  • $133 million decrease in the existing acquired loan portfolio including migration

Deposits

  3rd Qtr 2017              2nd Qtr 2017          3rd Qtr 2016  
 
Total deposits $7.3 billion $7.1 billion $6.6 billion  
Non-time deposits                                                                            $6.0 billion $5.8 billion $5.3 billion  
Time deposits $1.3 billion $1.3 billion $1.3 billion   

At September 30, 2017, total deposits were $7.3 billion, an increase of 10.7%, compared to the same period in 2016. The increase is from recent acquisitions and growth in core deposits.  Total non-time deposits increased 13.7% compared to the same period in 2016, and comprised 82% of total deposits.

Net Interest Income

The Company's net interest income for the third quarter of 2017 was $78.8 million, an increase of $10.8 million, or 15.8%, from the same period of 2016. Included in interest income was the yield accretion recognized on loans acquired of $2.9 million and $4.9 million for the third quarter of 2017 and 2016, respectively. Net interest margin was 3.91% for the quarter ended September 30, 2017, a 17 basis point decline from the same quarter of 2016. The Company's core net interest margin, excluding the accretion, was 3.77% for the third quarter of 2017, a 2 basis point decline from September 30, 2016 and a 2 basis point decrease from June 30, 2017.  Cost of interest bearing deposits were 0.43% for the third quarter of 2017, a 12 basis point increase from September 30, 2016 and a 7 basis point increase from June 30, 2017.

Non-Interest Income

Non-interest income for the third quarter was $36.3 million, a decrease of $544,000 compared with the third quarter of 2016. Included in non-interest income were the following items:

  • $3.7 million gain on sale of property and casualty insurance business lines
  • $325,000 loss on the sale of fixed assets
  • $1.2 million decrease in mortgage revenue due to decline in demand in the industry
  • $451,000 decrease in investment banking revenue, due to the exit from the institutional division of the broker dealer line of business in the third quarter of 2016
  • $312,000 decrease in gain on sale of securities
  • $2.0 million decrease in other income due to recovery of charged off loans acquired in third quarter of 2016

Non-Interest Expense

Non-interest expense for the third quarter of 2017 was $66.2 million, an increase of $3.7 million compared to the third quarter of 2016. Included in this quarter were $862,000 of merger-related expenses and branch rightsizing costs.   Excluding these expenses, core non-interest expense was $65.3 million.

The increases during the quarter were driven by incremental increases in operating expenses related to the additions of First South Bank which closed during 2017 and Citizens Bank which closed in September 2016. These increases were partially offset by a $716,000 decrease in other real estate and foreclosure expense. The efficiency ratio for the third quarter was 55.06%.

Asset Quality

  3rd Qtr 2017                2nd Qtr 2017              3rd Qtr 2016
 
Allowance for loan losses on loans to total loans 0.82%   0.83%   0.86%
Allowance for loan losses on loans to non-performing loans                      78%   72% 91%
Non-performing loans to total loans 1.05%   1.15%   0.95%
Net charge-off ratio (annualized) 0.32%   0.23%   0.82%
Net charge-off ratio excluding credit cards  0.27%   0.19%   0.81%
   

All loans acquired are recorded at their discounted net present value; therefore, they are excluded from the computations of the asset quality ratios for the legacy loan portfolio, except for their inclusion in total assets.

At September 30, 2017, the allowance for loan losses for legacy loans was $42.7 million. The allowance for loan losses for loans acquired was $391,000 and the acquired loan discount credit mark was $25.0 million. The allowances for loan losses and credit marks provide a total of $68.1 million of coverage, which equates to a total coverage ratio of 1.1% of gross loans. The ratio of credit mark and related allowance to loans acquired was 2.3%.

Provision for loan losses for the third quarter of 2017 was $5.5 million, a decrease of $2.8 million compared to September 30, 2016.

Foreclosed Assets and Other Real Estate Owned

At September 30, 2017, foreclosed assets and other real estate owned were $31.5 million, an increase of $1.1 million, or 3.6%, compared to the same period in 2016. The composition of these assets is divided in to three types:  

  3rd Qtr 2017                2nd Qtr 2017                3rd Qtr 2016
 
Closed bank branches, branch sites & associate relocation                        $12.8 million $8.7 million $6.1 million
Foreclosed assets - acquired $11.1 million $12.0 million $15.2 million
Foreclosed assets - legacy $7.6 million $5.3 million $9.1 million
   

Arkansas State banking laws require that former bank branches and vacant land that was previously held for potential bank branches be classified as foreclosed assets and other real estate owned at the time they are no longer used for bank operations. Due to this requirement, foreclosed assets and other real estate owned increased during the quarter by $4.1 million as a result of branch closures during the conversion of First South Bank in to Simmons Bank.

Capital

  3rd Qtr 2017                  2nd Qtr 2017                3rd Qtr 2016
 
Stockholders' equity to total assets 13.2%   13.6%   13.9%
Tangible common equity to tangible assets                                                  9.1%   9.2%   9.5%
Regulatory tier 1 leverage ratio 10.6%
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