Simmons First National Corporation — Q1 2024 Form 10-Q
Business context and reporting period. The Mid-South bank holding company reported unaudited results for the three months ended March 31, 2024, with balance-sheet comparisons to December 31, 2023 and income and cash-flow comparisons to Q1 2023. Simmons Bank operated approximately 233 financial centers across Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. The interim financial statements were reviewed by the independent accountant, not audited.
Financial performance and condition
- Earnings: Net income was $38.9 million, or $0.31 per diluted share, versus $45.6 million, or $0.36, in Q1 2023. Management reported adjusted earnings of $40.4 million and adjusted diluted EPS of $0.32; these are non-GAAP measures.
- Revenue and margin: Interest income rose to $322.6 million from $279.1 million, but interest expense increased to $170.7 million from $101.3 million. GAAP net interest income fell to $151.9 million from $177.8 million. Fully taxable-equivalent net interest income was $158.3 million, down 14.0% year over year; FTE net interest margin was 2.66%, versus 3.09% a year earlier and 2.68% in Q4 2023. Noninterest income was $43.2 million, down 5.8% year over year.
- Expenses and credit costs: Noninterest expense was $139.9 million, down 2.3% year over year. Provision for credit losses was $10.2 million, compared with $24.2 million, including $12.8 million of AFS securities provision, in Q1 2023.
- Cash flow: Operating activities provided $57.6 million, versus $98.7 million in Q1 2023. Cash and cash equivalents decreased $10.8 million during the quarter to $603.3 million. Investing activities used $39.7 million and financing activities used $28.7 million.
- Balance sheet and funding: Total assets were $27.37 billion. Loans were $17.00 billion, up $156.1 million from year-end; deposits were $22.35 billion, up $108.0 million. The loan-to-deposit ratio was 76%. Core deposits were 78.6% of deposits; brokered deposits were $3.02 billion.
- Liquidity and debt: Management cited $11.46 billion of additional liquidity sources and a 2.5x coverage ratio for uninsured, non-collateralized deposits of $4.64 billion. Total borrowings and subordinated debt were $1.24 billion, down from $1.34 billion at year-end, including $853.2 million of FHLB advances. The Bank had approximately $5.33 billion of additional FHLB borrowing availability.
- Capital: CET1 was 11.95%, Tier 1 leverage 9.44%, and total risk-based capital 14.43%; management said the Company and Bank met applicable capital requirements. Tangible common equity to tangible assets was 7.75% (non-GAAP).
- Shareholder returns: The quarterly dividend was $0.21 per share, versus $0.20 a year earlier. A new $175 million repurchase authorization runs through January 31, 2026; no shares were repurchased in Q1.
Material changes and notable items
- Year-over-year FTE net interest income declined as higher loan and securities yields did not offset sharply higher funding costs. Deposit interest expense increased $64.4 million year over year; management attributed pressure to rate competition and customers shifting to higher-yielding deposits.
- Nonperforming loans rose to $107.3 million from $84.5 million at year-end and $63.7 million a year earlier. Management attributed the quarterly increase mainly to two loans placed on nonaccrual, of approximately $11.0 million and $6.6 million. Nonperforming assets were 0.41% of assets; the allowance was 1.34% of loans and 212% of nonperforming loans. Annualized net charge-offs were 0.19% of average loans.
- Real estate loans made up 79.2% of loans; commercial real estate loans totaled $7.51 billion. Management said it monitors commercial real estate exposures and uses conservative underwriting.
- Available-for-sale securities had $367.6 million of gross unrealized losses at quarter-end; 98.2% of their fair value was in an unrealized loss position. Management attributed the losses primarily to market interest rates, considered them temporary, and said it did not expect to be required to sell before recovery. Held-to-maturity securities had estimated fair value of $3.05 billion versus net carrying value of $3.71 billion.
- Q1 results included a $1.5 million FDIC special assessment, $0.2 million in early-retirement costs and $0.2 million in branch right-sizing costs. Q1 2023 included a $4.0 million legal reserve recapture in other income; Q4 2023 included a $20.2 million securities-sale loss. These items affect comparisons and management’s adjusted, non-GAAP results.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management described a growing commercial loan pipeline of $1.01 billion, but also cited moderating loan demand, increased payoff activity and continued disciplined pricing and underwriting.
- The Company’s modeled interest-rate sensitivity indicates net interest income would decline 3.72% with a 100-basis-point increase and 7.64% with a 200-basis-point increase over 12 months; decreases of 100 and 200 basis points would produce modeled increases of 2.31% and 5.63%. Management cautioned that these estimates depend on assumptions and actual results may differ.
- Management identified economic conditions, deposit competition and mix, interest-rate movements, real estate collateral values, credit quality, liquidity, cyber and third-party risks, and legal and regulatory developments among the risks that could affect results. It reported no material change in risk factors from the 2023 Form 10-K.
- Ordinary-course legal proceedings remain outstanding. Management, after consulting counsel, did not expect their ultimate outcome to have a material adverse effect, while noting an unfavorable development could materially affect a particular period.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit pricing, brokered-deposit levels and funding costs stabilize, and how they affect net interest margin and earnings.
- Further changes in nonperforming loans, charge-offs, criticized commercial real estate credits and allowance adequacy.
- Liquidity availability and the Company’s capacity to retain deposits without relying more heavily on higher-cost funding.
- Whether unrealized securities losses remain manageable and whether any securities sales or funding actions become necessary.
- How Q1 special items and non-GAAP adjustments reconcile to GAAP results, and whether management’s stated pipeline translates into funded loan growth.