Tuesday, 26 January 2021 20:49

SIMMONS FIRST NATIONAL CORPORATION REPORTS 2020 EARNINGS Featured

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Press Release

Pine Bluff, AR – Simmons First National Corporation (NASDAQ: SFNC) (the “Company” or “Simmons”), parent company of Simmons Bank, today announced net income of $254.9 million for the year ended December 31, 2020, compared to $237.8 million for 2019, an increase of $17.0 million, or 7.2%. Diluted earnings per share were $2.31 for 2020, a decrease of $0.10 or 4.2%, compared to the prior year. Included in the 2020 results were $9.4 million in net after-tax merger-related, early retirement program and net branch right-sizing costs and the gains on the sales of branches in Texas and Colorado. Excluding the impact of these items, core earnings were $264.3 million for the year ended December 31, 2020, compared to $269.6 million for 2019, a decrease of $5.3 million, or 2.0%. Core diluted earnings per share were $2.40, a decrease of $0.33 or 12.1%, from 2019.

Fourth quarter 2020 net income was $53.0 million compared to $52.7 million for the same period in 2019.  Diluted earnings per share were $0.49 for the fourth quarters of both 2020 and 2019. Excluding $9.0 million in net after-tax merger-related, early retirement program and net branch right-sizing costs, fourth quarter 2020 core earnings were $62.0 million, a decrease of $9.1 million, or 12.8%, compared to the fourth quarter of 2019. Core diluted earnings per share were $0.57, a decrease of $0.09, or 13.6%, from the same period in 2019.

“As we look back on a very challenging year, we are very proud of the teamwork and results we achieved,” said George A. Makris, Jr., chairman and CEO of Simmons First National Corporation. “We mobilized over 1,500 associates to work from home at times during the year while maintaining our ability to serve our customers.  We provided over 8,000 PPP loans totaling almost $1 billion to businesses that faced extraordinary uncertainty and helped support over 100,000 jobs. We integrated Landmark Bank into Simmons Bank, not without some obstacles due to COVID-19 restrictions, but our associates persevered to get the job done. We contributed $3 million to the Simmons First Foundation to support conservation projects throughout our service area. We enhanced our digital banking offerings, and our customers have benefitted from their ability to conduct their business when they want, where they want. We worked diligently to position ourselves with less risk and with the capacity to help the economy recover from the economic crisis caused by COVID-19. We increased our dividend to our shareholders, and our profitability was excellent, especially under the circumstances. Also during 2020, we successfully completed our regulatory exam cycle, including our first CFPB exam. I, personally, could not be prouder of our team.”

 Selected Highlights:

FY 2020

FY 2019

4th Qtr 2020

4th Qtr 2019

Net income

$254.9 million

$237.8 million

$53.0 million

$52.7 million

Diluted earnings per share

$2.31

$2.41

$0.49

$0.49

Return on avg assets

1.18%

1.33%

0.96%

1.04%

Return on avg common equity

8.72%

9.93%

7.13%

8.01%

Return on tangible common equity (1)

15.25%

17.99%

12.48%

14.62%

         

Core earnings (2)

$264.3 million

$269.6 million

$62.0 million

$71.1 million

Core diluted earnings per share (2)

$2.40

$2.73

$0.57

$0.66

Core return on avg assets (2)

1.22%

1.51%

1.13%

1.41%

Core return on avg common equity (2)

9.05%

11.25%

8.34%

10.80%

Core return on tangible common equity (1)(2)

15.79%

20.31%

14.51%

19.49%

Efficiency ratio (3)

54.66%

50.33%

55.27%

52.63%

Adjusted pre-tax, pre-provision earnings (2)

$352.7 million

$375.0 million

$83.1 million

$95.1 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. Adjusted pre-tax, pre-provision earnings excludes provision for income taxes, provisions for credit losses and unfunded commitments, gains on sales of securities, and other pre-tax, non-core items, and is also a non-GAAP measurement. 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)

4th Qtr 2020

3rd Qtr 2020

4th Qtr 2019

Total loans

$12.90

$14.02

$14.43

 

 Total loans were $12.9 billion at December 31, 2020, a decrease of $1.5 billion, or 10.6%, compared to December 31, 2019. On a linked-quarter basis (December 31, 2020 compared to September 30, 2020), total loans decreased $1.1 billion, or 8.0%. “The decline in the loan balance reflects the tepid loan demand during 2020. Approximately $375 million of the decrease was due to the sale of loans associated with branch sales in South Texas and Colorado during the year. Our total loan pipeline consisting of all loan opportunities, which was a robust $1.7 billion at December 31, 2019 fell to $374 million at September 30, 2020. The pipeline is starting to rebuild and ended 2020 at $674 million, including $177 million in loans approved and ready to close. On a positive note, our concentration levels in commercial real estate are now well below regulatory guidelines and we have substantial capacity to make additional loans, help borrowers in our markets and help the economy recover,” said Makris.

Through December 31, 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 $119,000 per loan. Approximately 93% of the PPP loans had a balance less than $350,000 as of December 31, 2020.

PPP Loans

Balance as of December 31, 2020

# of

Loans

 

Original Balance

($ in millions)

 

Balance

December 31, 2020

($ in millions)

 

Less than $50,000

5,220

63%

$94.5

10%

$90.8

10%

$50,000 to $350,000

2,445

30%

$305.2

31%

$285.2

31%

More than $350,000 to less than $2 million

481

6%

$357.9

37%

$315.4

35%

$2 million to $10 million

62

1%

$217.9

22%

$213.3

24%

Total

8,208

100%

$975.6

100%

$904.7

100%

Deposits

 

($ in billions)

4th Qtr 2020

3rd Qtr 2020

4th Qtr 2019

Total deposits

$17.0

$16.2

$16.1

Non-interest bearing deposits

$4.5

$4.4

$3.7

Interest bearing deposits

$9.7

$9.0

$9.1

Time deposits

$2.8

$2.8

$3.3

Total deposits were $17.0 billion at December 31, 2020, an increase of $878.1 million, or 5.5%, since December 31, 2019. On a linked-quarter basis, total deposits increased $740.4 million, or 4.6%, primarily due to increases in interest bearing accounts. Both consumer and commercial deposit balances have grown since the economic stimulus legislation, including legislation that established the PPP program, was implemented in mid-2020.  Trends affected by the increasing cash balances are paydowns on loans, reduced credit card balances and fewer overdraft activities.

Net Interest Income

 

4th Qtr
2020

3rd Qtr
2020

2nd Qtr
2020

1st Qtr
2020

4th Qtr
2019

Loan yield (1)

4.74%

4.54%

4.84%

5.19%

5.43%

Core loan yield (1) (2)

4.47%

4.29%

4.52%

4.86%

5.00%

Security yield (1)

2.48%

2.60%

2.50%

2.63%

2.73%

Cost of interest bearing deposits

0.47%

0.54%

0.59%

1.03%

1.22%

Cost of deposits (3)

0.34%

0.39%

0.44%

0.80%

0.94%

Cost of borrowed funds

1.88%

1.85%

1.84%

2.06%

2.30%

Net interest margin (1)

3.22%

3.21%

3.42%

3.68%

3.78%

Core net interest margin (1) (2)

3.04%

3.02%

3.18%

3.42%

3.44%

 

(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 fourth quarter of 2020 was $155.0 million, a decrease of $12.1 million, or 7.3%, from the same period in 2019. The decrease in net interest income was primarily due to the decline in the loan yield of 69 basis points and the lower average loan balance during the period. Included in interest income was the yield accretion recognized on loans acquired of $9.0 million and $15.1 million for the fourth quarters of 2020 and 2019, respectively.

The loan yield was 4.74% for the quarter ended December 31, 2020, a 20 basis point increase from the third quarter of 2020. The core loan yield, which excludes the accretion, was 4.47% for the same period. The PPP loan yield was approximately 2.42% during the fourth quarter of 2020 (including accretion of net fees), which decreased the Company’s overall loan yield by approximately 13 basis points.

Net interest margin (FTE) was 3.22% for the quarter ended December 31, 2020, while the core net interest margin, which excludes the accretion, was 3.04% for the same period. The net interest margin during the fourth quarter of 2020 was affected by additional liquidity and the lower yielding PPP loans originated during the second and third quarters of 2020, which decreased the net interest margin by approximately 38 basis points.

 

Non-Interest Income

 Non-interest income for 2020 was $248.5 million, an increase of $43.5 million compared to the previous year. The increase was primarily due to a $19.5 million increase in mortgage lending income and a $41.5 million increase in gains on sale of securities recognized on the rebalancing of the investment portfolio during 2020. These increases were partially offset by the one-time gain on sale of the Visa Inc. class B common stock of $42.9 million that was completed during the third quarter of 2019.

Non-interest income for the fourth quarter of 2020 was $44.1 million, a decrease of $1.6 million compared to the same period in the previous year.

Selected Non-Interest Income Items

($ in millions)

 

FY 2020

 

FY 2019

 

4th Qtr 2020

 

4th Qtr 2019

Service charges on deposit accounts

$43.1

$44.8

$10.8

$13.3

Mortgage lending income

$34.5

$15.0

$3.0

$4.0

SBA lending income

$1.3

$2.7

$0.5

$0.3

Debit and credit card fees

$33.5

$29.3

$8.7

$8.9

Gain on sale of securities

$54.8

$13.3

-

$0.4

Other income

$38.5

$62.0

$10.6

$7.1

         

Core other income (1)(2)

$29.8

$62.0

$10.3

$7.1

 

(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 in 2019.

 

Non-Interest Expense

Non-interest expense for 2020 was $493.5 million, an increase of $32.4 million compared to the previous year. Included in 2020 were $21.5 million of pre-tax non-core items, which mostly consisted of branch right sizing costs. Excluding these expenses, core non-interest expense for 2020 was $472.0 million, an increase of $53.8 million compared to 2019 core non-interest expense. The increase was primarily due to the incremental costs associated with the 2019 mergers and the Next Generation Banking (“NGB”) technology initiative. The Company recognized an additional $14.8 million in software and technology expense related to its NGB initiative in 2020.

Non-interest expense for the fourth quarter of 2020 was $128.1 million, a decrease of $14.0 million compared to the fourth quarter of 2019. Included in this quarter were $12.5 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 $115.6 million for the fourth quarter of 2020, a decrease of $1.6 million compared to the same period in 2019.

Also included during the fourth quarter of 2020 was a $3 million contribution to the Simmons First Foundation for grants to support conservation projects throughout the Simmons Bank footprint.

The efficiency ratio for 2020 was 54.66% while the efficiency ratio for the fourth quarter of 2020 was 55.27%.


Selected Non-Interest Expense Items

($ in millions)

 

FY 2020

 

FY 2019

 

4th Qtr 2020

 

4th Qtr 2019

Salaries and employee benefits

$242.5

$227.8

$55.8

$63.2

Merger related costs

$4.5

$36.4

$0.7

$24.8

Other operating expenses

$174.0

$138.9

$54.3

$38.0

         

Core salaries and employee benefits (1)

$239.4

$224.3

$55.6

$63.2

Core merger related costs (1)

-

-

-

-

Core other operating expenses (1)

$161.8

$135.9

$44.1

$38.0

 

(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 $2.9 million of non-core expense during 2020. 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 23 branch locations on October 9, 2020, with an expected net annual cost savings of approximately $6.7 million. Also during 2020, nine branches were sold in South Texas and Colorado.

 

Asset Quality

 

 

4th Qtr
2020

3rd Qtr
2020

2nd Qtr
2020

1st Qtr
2020

4th Qtr
2019

Allowance for credit losses on loans to total loans

1.85%

1.77%

1.59%

1.69%

0.47%

Allowance for credit losses on loans to non-performing loans

193%

147%

175%

154%

74%

Non-performing loans to total loans

0.96%

1.20%

0.91%

1.10%

0.64%

Net charge-off ratio (annualized)

0.52%

0.16%

1.04%

0.07%

0.09%

Net charge-off ratio YTD (annualized)

0.45%

0.43%

0.56%

0.07%

0.24%

At December 31, 2020, the allowance for credit losses on loans was $238.1 million. Included in total loans was $904.7 million of government guaranteed PPP loans. Non-performing loans decreased $45.2 million during the fourth quarter of 2020, which contributed to the decrease in provision for credit losses for the quarter when compared to the third quarter of 2020.

Provision for credit losses for 2020 was $75.0 million, an increase of $31.7 million from 2019. Provision for credit losses for the fourth quarter of 2020 was $6.9 million, an increase of $2.0 million when compared to the same period of 2019. Makris stated, “Due to the uncertainty in the economy during 2020, we were quick to offer loan modifications to our customers to help them through the uncertain times. The majority of modified loans are projected to return to regular payments prior to the end of the third quarter of 2021. We feel we have made adequate provision for potential risk in our credit portfolio and have reviewed and adjusted the risk rating of all modified loans.” Makris continued, “The hospitality industry, particularly hotels, continues to struggle with a return to normal.”

Foreclosed Assets and Other Real Estate Owned

At December 31, 2020, foreclosed assets and other real estate owned were $18.4 million, a decrease of $728,000, or 3.8%, compared to the same period in 2019. The composition of these assets is divided into three types:            

 

($ in millions)

4th Qtr
2020

3rd Qtr
2020

2nd Qtr
2020

1st Qtr
2020

4th Qtr
2019

Closed bank branches and branch sites

$0.6

$0.6

$2.7

$8.8

$5.7

Foreclosed assets – acquired

$15.3

$9.3

$9.2

$9.2

$10.3

Foreclosed assets – legacy

$2.5

$2.7

$2.2

$2.8

$3.1

 

 

Capital

 

4th Qtr
2020

3rd Qtr
2020

2nd Qtr
2020

1st Qtr
2020

4th Qtr
2019

Stockholders’ equity to total assets

13.3%

13.7%

13.3%

13.7%

14.1%

Tangible common equity to tangible assets (1)

8.5%

8.7%

8.3%

8.4%

9.0%

Regulatory common equity tier 1 ratio

13.4%

12.6%

11.9%

11.1%

10.9%

Regulatory tier 1 leverage ratio

9.1%

9.1%

8.8%

9.0%

9.6%

Regulatory tier 1 risk-based capital ratio

13.4%

12.6%

11.9%

11.1%

10.9%

Regulatory total risk-based capital ratio

16.8%

15.8%

14.9%

14.1%

13.7%

(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 December 31, 2020, common stockholders' equity was $3.0 billion. Book value per share was $27.53 and tangible book value per share was $16.56 at December 31, 2020. The ratio of stockholders’ equity to total assets was 13.3% at December 31, 2020, while the ratio of tangible common equity to tangible assets was 8.5%. As of December 31, 2020, PPP loans totaled $904.7 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 13.9%, tangible common equity to tangible assets was 8.8% 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 $22.4 billion as of December 31, 2020. The Company, through its subsidiaries, conducts financial operations in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas and 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. CST today, Tuesday, January 26, 2021. 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 3994603. 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 U.S. 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, non-interest income, and non-interest expense certain income and 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, tangible assets and tangible book value, which exclude goodwill and other intangible assets. The Company further presents certain figures that are exclusive of the impact of PPP loans. The Company’s management believes that these non-GAAP financial measures are useful to investors because they, among other things, 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 normalize 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, branch closures and branch sales, the adequacy of the allowance for credit losses, the ability of the Company to manage the impact of the COVID-19 pandemic, expectations and projections regarding the Company’s COVID-19 loan modification program, and the impacts of the Company’s and its customers participation in the PPP. 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 and has taken in response to COVID-19; the severity and duration of the pandemic, including the effectiveness of vaccination efforts; 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; government legislation; 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 the Company’s 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.