Simmons First National Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are against December 31, 2021. The filing is unaudited. Simmons is a Mid-South bank holding company operating across six states, with 197 financial centers at quarter-end.
Financial results and position
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Net interest income | $145.6 million | $146.7 million in Q1 2021; down 0.7% |
| Net interest margin, fully taxable equivalent | 2.76% | 2.99% in Q1 2021; 2.86% in Q4 2021 |
| Provision for credit losses | $(19.9) million, a recapture | $1.4 million expense in Q1 2021 |
| Non-interest income | $42.2 million | $49.5 million in Q1 2021; down 14.8% |
| Non-interest expense | $128.4 million | $113.0 million in Q1 2021; up 13.6% |
| Net income / diluted EPS | $65.1 million / $0.58 | $67.4 million / $0.62 in Q1 2021 |
| Core earnings / core diluted EPS (non-GAAP) | $67.2 million / $0.59 | $64.0 million / $0.59 in Q1 2021 |
Q1 net interest income on a fully taxable equivalent basis was $151.2 million, up 0.2% year over year but down 4.7% sequentially. Core net interest margin was 2.70%. Management attributed margin pressure mainly to lower loan yields, partly offset by lower deposit costs.
- Balance sheet: Assets were $24.48 billion; loans $12.03 billion; deposits $19.39 billion. Loans were nearly flat from year-end. Deposits rose $25.9 million, as transaction and savings balances increased while time deposits fell $389.8 million.
- Cash flow: Operating activities provided $60.5 million, versus $75.8 million in Q1 2021. Investing activities used $20.9 million, versus $837.3 million used in the prior-year quarter; financing activities used $3.3 million, versus $1.19 billion provided. Cash and equivalents increased $36.4 million to $1.69 billion.
- Debt and funding: Total other borrowings and subordinated debt were $1.72 billion, essentially unchanged from year-end. FHLB advances were $1.31 billion. The company reported approximately $3.6 billion of additional FHLB borrowing capacity and $415 million of correspondent-bank federal funds lines.
- Capital and liquidity: CET1 was 13.52%, Tier 1 leverage 9.00%, and total risk-based capital 16.42%; management reported compliance with capital requirements. Common equity to assets was 12.10%, down from 13.14% at year-end. The bank had $176.5 million available for dividends to the parent without prior regulatory approval.
- Credit quality: Non-performing loans were 0.53% of loans; non-performing assets, including performing TDRs, were 0.30% of assets. The allowance was $178.9 million, or 1.49% of loans and 278% of non-performing loans. Annualized net charge-offs were 0.22% of average loans.
Material changes and notable items
- Year-over-year net income declined 3.4%, while core earnings increased 4.9%. Results included a $19.9 million credit-loss recapture, compared with a $1.4 million provision in Q1 2021. Management cited improved credit metrics, improved economic model scenarios, and planned exits from several large oil-and-gas relationships.
- Non-interest expense increased year over year, including higher salaries and benefits, marketing, and merger costs. Q1 merger-related costs were $1.9 million; Q1 2021 included a $5.3 million gain on sale of Illinois branches and $5.5 million of net securities-sale gains, contributing to lower prior-year net income comparisons in certain revenue lines.
- Rising market rates materially reduced the fair value of available-for-sale securities. Gross unrealized losses were $435.9 million at March 31, versus $61.3 million at year-end; accumulated other comprehensive loss grew to $327.0 million from $10.5 million. Management attributed the decline principally to interest rates, stated it did not consider the securities credit-impaired, and said it had no intent to sell and expected to hold them until recovery.
- Landmark Community Bank and Triumph Bancshares, acquired in October 2021, contributed to year-over-year balance-sheet and operating comparisons. The Spirit of Texas Bancshares acquisition closed April 8, 2022, after quarter-end; Spirit had approximately $3.22 billion of assets, $2.38 billion of loans, and $2.74 billion of deposits at March 31. Consideration included 18.3 million Simmons shares and approximately $1.4 million cash.
- The company repurchased 513,725 shares under its prior program during Q1. A new program authorizes up to $175 million of repurchases through January 2024; no repurchases had been made under it by March 31. The quarterly common dividend was $0.19 per share.
Outlook, risks, and contingencies
- Management reported a commercial loan pipeline of $2.36 billion, up for a sixth consecutive quarter, and $775.7 million of approved loans ready to close. Unfunded commitments were reported at $3.43 billion. Management said loan demand appeared to be returning to more normalized levels and planned to continue recruiting loan producers.
- Interest-rate simulations estimated net interest income increases of 3.05% and 5.62% under immediate, sustained rate increases of 100 and 200 basis points, respectively, and a 1.14% decrease under a 25-basis-point decline. Management cautioned that model assumptions are uncertain and actual outcomes may differ materially.
- Key disclosed risks include interest-rate and inflation changes, credit and collateral deterioration, commercial real estate and energy exposures, deposit competition and liquidity, acquisition integration, cybersecurity and third-party service risks, LIBOR transition, and litigation. The filing provides no specific earnings or revenue guidance.
- Several overdraft-fee class actions remain pending or subject to settlement or court approval. Management said the matters were not expected to have a material adverse effect based on information available, while acknowledging future developments could produce a material period-specific outcome.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The independent accountant’s interim review found no material modifications needed; it was not an audit opinion.
Investor verification priorities
- Track the large AFS securities valuation losses, AOCI, interest-rate exposure, and whether liquidity needs could require securities sales.
- Assess sustainability of the credit-loss recapture and monitor allowance coverage, charge-offs, criticized loans, and energy portfolio exits.
- Verify post-close Spirit integration, final purchase accounting, realized synergies, and the effect of the 18.3 million shares issued on per-share results and capital.
- Monitor net interest margin, loan yields and production, deposit mix, brokered deposits, and funding costs as rates and competition change.
- Reconcile GAAP earnings with management’s non-GAAP core measures and monitor elevated operating costs and the new share-repurchase program.