Simmons First National Corporation (SFNC) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. Simmons is an Arkansas-based financial holding company operating through Simmons Bank in six states, with approximately 234 financial centers. Figures below are in U.S. dollars.
Financial performance and position
| Metric | 2023 | 2022 / change |
|---|---|---|
| Net income available to common shareholders | $175.1 million; diluted EPS $1.38 | $256.4 million; diluted EPS $2.06 |
| Adjusted earnings and adjusted diluted EPS (non-GAAP) | $207.7 million; $1.64 | $298.8 million; $2.40 |
| Net interest income (GAAP) | $650.1 million | $717.3 million |
| Net interest income (fully taxable equivalent) | $675.6 million, down 9.0% | $742.0 million |
| Net interest margin (fully taxable equivalent) | 2.78% | 3.17% |
| Noninterest income | $155.6 million | $170.1 million |
| Noninterest expense | $563.1 million | $566.7 million |
| Provision for credit losses | $42.0 million expense | $14.1 million expense |
| Total assets / loans / deposits | $27.35 billion / $16.85 billion / $22.24 billion | Assets $27.46 billion; loans $16.14 billion; deposits $22.55 billion |
| Total debt | $1.34 billion | $1.23 billion |
| Cash and cash equivalents | $614.1 million | $682.1 million |
- Net income fell 31.7% year over year. Management attributed the decline chiefly to sharply higher deposit and borrowing costs, increased credit-loss provision, and one-time charges.
- Interest income increased $349.2 million, but interest expense rose $415.6 million. Average loan yield increased to 5.96% from 4.83%, while the cost of interest-bearing liabilities rose to 2.99% from 0.84%.
- 2023 non-GAAP adjusted earnings exclude $32.7 million after tax of specified items, principally a securities-sale loss, early-retirement costs, branch-right-sizing costs, and the FDIC special assessment. These adjusted measures are not GAAP results.
- Operating cash flow was $541.0 million; investing activities used $183.6 million and financing activities used $425.4 million. Cash and equivalents declined $68.0 million during the year.
- Book value per share was $27.37 and tangible book value per share (non-GAAP) was $15.92. The company repurchased 2.26 million shares at an average $17.72 and declared $0.80 per share in dividends.
Material changes and asset quality
- Loans grew 4.4% to $16.85 billion. Real estate loans were 79.2% of the portfolio; construction and development loans increased 22.5% to $3.14 billion.
- Deposits declined $303 million overall, while time deposits rose $1.68 billion to $6.45 billion and noninterest-bearing, interest-bearing transaction, and savings deposits fell $1.98 billion. Uninsured deposits, excluding collateralized and intercompany balances, were approximately $4.75 billion, or 21% of total deposits.
- Nonperforming loans rose to $84.5 million from $58.9 million; nonperforming loans were 0.50% of loans. Nonperforming assets were $90.3 million, or 0.33% of assets, excluding performing financial-difficulty modifications; the ratio including those modifications was 0.45%. The allowance was $225.2 million, or 1.34% of loans, and covered nonperforming loans by 267%.
- Annualized net charge-offs were 0.12% of average loans. Credit-card charge-offs increased to 2.20% from 1.49%, although management said the rate remained below the cited industry average.
- Operating cash flow improved from $322.2 million in 2022. Financing cash use included $101.0 million of common dividends and $40.3 million of repurchases.
Liquidity, capital, securities, and debt
- Management reported a 76% loan-to-deposit ratio, $11.22 billion of additional liquidity sources, and 2.4x coverage of uninsured, non-collateralized deposits. Available sources include FHLB capacity, unpledged securities, and Federal Reserve and correspondent-bank facilities.
- FHLB advances were $953.2 million at year-end, primarily short-term fixed-rate advances; the year-end weighted-average rate on short-term borrowings was 5.40%. Total debt included $366.1 million of subordinated notes and debentures.
- The Bank was categorized as well capitalized. Its CET1 ratio was 13.0%, total risk-based capital ratio 13.8%, and Tier 1 leverage ratio 10.0%. The parent company’s corresponding ratios were 12.1%, 14.4%, and 9.4%.
- AFS securities had $357.8 million of gross unrealized losses at year-end; HTM securities had $591.6 million. Management attributed most valuation declines to higher market rates, said it did not believe the securities were credit-impaired, and stated it did not expect to be required to sell AFS securities before cost recovery. The company nevertheless sold about $247.9 million of securities in 2023, recognizing a $20.6 million loss, and used proceeds to repay higher-cost wholesale funding.
Outlook, commentary, and risks
- Management expects modest organic loan growth in 2024, subject to economic uncertainty, and anticipates moderating pressure on net interest margin. It expects flat-to-modest noninterest income growth and marginal noninterest expense growth. No numerical earnings or margin guidance is provided in the filing.
- The Better Bank initiative was completed in 2023. Management reported $18 million in annualized cost savings, above its original $15 million estimate.
- Interest-rate sensitivity modeling indicates that a sustained 100- or 200-basis-point rate increase would reduce next-12-month net interest income by 2.72% or 5.57%, respectively, versus the base case; equivalent decreases would increase it by 2.18% or 5.36%. Management cautions that these are model estimates based on assumptions, not forecasts.
- Key risks include deposit competition and funding costs, liquidity and market disruptions, interest-rate exposure, deterioration in commercial real estate or other credit quality, inflation and regional economic weakness, cybersecurity and third-party disruptions, regulation, and litigation. The FDIC special assessment resulted in a $10.5 million 2023 accrual; the amount of any further adjustments is uncertain.
- One modified commercial real estate loan resulted in a $9.6 million charge-off. Management said the ultimate outcomes of ordinary-course legal proceedings could not be determined, but did not expect them, individually or collectively, to materially adversely affect the company based on information then available.
- The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- Whether deposit mix, deposit pricing, and wholesale borrowing needs improve or continue to pressure net interest margin.
- Trends in criticized and nonperforming loans, especially commercial real estate and construction and development exposures, and whether the allowance remains adequate.
- The duration and economic impact of the securities portfolio’s unrealized losses, including any further AFS sales or realized losses.
- Whether management achieves its 2024 growth and expense expectations and sustains the reported Better Bank savings; review the reconciliation and recurring nature of non-GAAP adjustments.
- Current liquidity capacity, uninsured-deposit exposure, capital levels, and the Bank’s ability to upstream dividends to the parent without regulatory approval.
- Potential changes in FDIC assessments, consumer-finance rules, litigation exposure, or other regulatory requirements that could affect expenses or operations.