Simmons First National Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter earnings report. Unless otherwise noted, amounts below are in U.S. dollars.
Business context
Simmons is an Arkansas-based financial holding company operating Simmons Bank across Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. At year-end, it reported $24.7 billion in assets, $12.0 billion in loans, $19.4 billion in deposits and $3.25 billion in shareholders’ equity. The bank operated approximately 199 financial centers.
Financial performance and position
| Metric | FY2021 / year-end | FY2020 / year-end | Change or context |
|---|---|---|---|
| Net income available to common shareholders | $271.1 million | $254.9 million | Up 6.4% |
| Diluted EPS | $2.46 | $2.31 | Up 6.5% |
| Core earnings and core diluted EPS (non-GAAP) | $278.3 million; $2.53 | $264.3 million; $2.40 | Up 5.3% and 5.4%, respectively |
| Net interest income, GAAP | $591.5 million | $639.7 million | Down 7.5% |
| Net interest income, fully taxable equivalent (FTE) | $610.8 million | $650.7 million | Down 6.1% |
| Net interest margin, FTE | 2.89% | 3.38% | Down 49 basis points |
| Non-interest income | $191.8 million | $239.8 million | Down 20.0% |
| Non-interest expense | $483.6 million | $484.7 million | Down 0.2%; core expense rose 1.1% (non-GAAP) |
| Operating cash flow | $277.8 million | $202.5 million | Investing cash outflow was $2.54 billion; financing cash inflow was $438.5 million |
| Total loans | $12.01 billion | $12.90 billion | Down $888.4 million, or 6.9% |
| Total deposits | $19.37 billion | $16.99 billion | Up $2.38 billion; acquisitions contributed $1.52 billion |
| Cash and cash equivalents | $1.65 billion | $3.47 billion | Down $1.82 billion as excess liquidity was redeployed |
| Total debt | $1.72 billion | $1.72 billion | Substantially unchanged; includes $1.31 billion of FHLB advances |
| Allowance for credit losses on loans | $205.3 million; 1.71% of loans | $238.1 million; 1.85% of loans | 2021 included a $32.7 million provision recapture |
| Net charge-offs / non-performing loans | 0.13% / 0.57% of loans | 0.45% / 0.96% of loans | Asset quality improved |
| Regulatory capital | CET1 13.82%; Tier 1 leverage 9.08%; total risk-based 16.75% | CET1 13.41%; Tier 1 leverage 9.08%; total risk-based 16.78% | Bank reported as well capitalized |
Material changes versus 2020
- Lower loan balances and yields, including PPP forgiveness and subdued loan demand, reduced loan interest income. Lower deposit costs partly offset the decline; investment securities income increased as Simmons expanded its securities portfolio.
- The company purchased $5.27 billion of securities during 2021. Available-for-sale securities rose to $7.11 billion from $3.47 billion, while held-to-maturity securities rose to $1.53 billion from $333.0 million.
- Non-interest income fell mainly because securities-sale gains declined to $15.5 million from $54.8 million and mortgage lending income decreased by $12.7 million. Recurring fee income increased 5.3%.
- Landmark Community Bank and Triumph Bancshares were acquired in October, adding approximately $1.82 billion of assets in aggregate. The acquisitions added $70.7 million of goodwill; purchase accounting remained preliminary at year-end.
- Digital banking transactions as a share of total transactions increased 23% year over year. The company closed 15 branches and opened three.
Outlook, risks and unusual items
- Management outlook: Simmons expected slight improvement in net interest margin and modest organic loan growth during 2022, citing a rebuilding commercial pipeline. The filing provides no quantified earnings or revenue guidance.
- Interest rates and securities: Management’s model projected net interest income 1.86% higher under a 100-basis-point rate increase and 5.20% higher under a 200-basis-point increase; a 25-basis-point decrease was projected to reduce it by 1.53%. These are model estimates with significant assumptions, not guarantees. AFS securities had $61.3 million of gross unrealized losses at year-end, which management attributed primarily to market-rate increases and considered temporary and not credit-related.
- Funding and debt: Core deposits were 93.5% of deposits; uninsured deposits were $7.48 billion. Approximately $1.30 billion of FHLB advances are FOTO advances, which the FHLB may terminate before stated maturity. The $330 million subordinated notes and certain trust preferred securities reference LIBOR; the company was transitioning relevant contracts to replacement rates.
- Credit and pandemic exposure: Management cited improved credit metrics but continued uncertainty around COVID-19 recovery, variants and borrowers in sectors such as restaurants, retail and hotels. Outstanding COVID-related modifications fell to 51 loans totaling $8.6 million from 3,729 loans totaling $2.99 billion at the prior year-end.
- Non-core items: 2021 results included $15.9 million of merger-related costs, a $5.3 million branch-sale gain and net branch-right-sizing gains. The company reported $271.1 million GAAP common earnings versus $278.3 million core earnings; core measures are non-GAAP.
- Capital returns and pending acquisition: Simmons repurchased 4.56 million shares for $132.5 million in 2021 and paid $0.72 per share in common dividends. A new $175 million repurchase authorization was announced in January 2022. The announced Spirit of Texas Bancshares acquisition, valued at approximately $581 million based on the cited share price, was expected to close in the second quarter of 2022, subject to approvals and other conditions.
- Legal matters: The filing describes several overdraft-fee putative class actions. Two had settlements in principle subject to final agreements and court approval; another was being defended, and a related case was ordered to arbitration in January 2022. Management did not expect the matters, individually or in aggregate, to have a material adverse effect, but noted outcomes remain uncertain.
Most important facts for investors to verify
- Whether the expected 2022 loan growth and margin improvement materialized, and how rate changes affected funding costs and securities values.
- Final purchase accounting and integration results for Landmark and Triumph, and closing, consideration and integration outcomes for the Spirit transaction.
- Credit quality, loss provisioning and performance in commercial real estate and pandemic-sensitive sectors, including the adequacy of the allowance.
- Liquidity concentration and funding risks, particularly uninsured deposits, FHLB FOTO advances and LIBOR-linked debt or contracts.
- Resolution and financial consequences of overdraft-fee litigation, and the effects of repurchases and dividends on capital and liquidity.