PR Newswire
PINE BLUFF, Ark., July 25, 2023
PINE BLUFF, Ark., July 25, 2023 /PRNewswire/ --
Bob Fehlman, Simmons' Chief Executive Officer, commented on second quarter 2023 results:
Simmons posted net income of $58.3 million and diluted earnings per share of $0.46 for the quarter. Adjusted earnings1 were $61.1 million and adjusted diluted earnings per share1 were $0.48. Balance sheet growth was steady, with total loans ending the quarter at $16.8 billion, up 2 percent, and total deposits at $22.5 billion, up slightly, both on a linked quarter basis.
Our Better Bank Initiative, which is focused on programs designed to optimize operational processes and increase capacity to capitalize on organic growth opportunities, achieved continued success across multiple fronts. During the quarter, we substantially completed our early retirement program, which is expected to result in approximately $5.1 million in annual cost savings. Extensive progress was also completed on other identified opportunities related to process improvements and streamlining or upgrading systems; and, as a result, we are on track to meet or exceed the estimated $15 million in annual cost savings we have identified to date by the end of 2023.
While we continue to navigate the challenging economic environment, like many in our industry we have experienced an increase in funding costs given the rapid rise in interest rates and resulting steps taken to defend our core customer deposit base. Given our strong liquidity and capital positions, our focus on maintaining prudent underwriting standards and our 120-year history, we believe we are in a position to continue to serve our customers and expand market share across our attractive footprint.
Financial Highlights | 2Q23 | 1Q23 | 2Q22 | Q2 23 Highlights | |
Balance Sheet (in millions) | Metrics as of quarter end:
| ||||
Total deposits | $22,489 | $22,452 | $22,036 | ||
Total loans | 16,834 | 16,555 | 15,110 | ||
Total investment securities | 7,337 | 7,521 | 8,161 | ||
Total shareholders' equity | 3,356 | 3,340 | 3,260 | ||
Asset Quality | |||||
Net charge-off ratio | 0.04 % | 0.03 % | 0.02 % | ||
Nonperforming loan ratio | 0.43 | 0.38 | 0.42 | ||
Nonperforming assets to total assets | 0.28 | 0.26 | 0.26 | ||
Allowance for credit losses to total loans | 1.25 | 1.25 | 1.41 | ||
Nonperforming loan coverage ratio | 292 | 324 | 334 | ||
Capital Ratios | |||||
Equity to assets | 12.00 % | 12.11 % | 11.98 % | ||
Tangible common equity (TCE) ratio 1 | 7.22 | 7.25 | 7.03 | ||
Common equity tier 1 (CET1) ratio | 11.92 | 11.87 | 12.10 | ||
Total risk-based capital ratio | 14.17 | 14.47 | 14.83 | ||
Liquidity ($ in millions) | |||||
Loan to deposit ratio | 74.85 % | 73.74 % | 68.57 % | ||
Borrowed funds to total liabilities | 7.49 % | 6.32 % | 6.83 % | ||
Uninsured deposits | $ 4,817 | $ 5,268 | $6,516 | ||
Additional liquidity sources | $11,096 | $10,780 | $7,808 | ||
Coverage ratio of uninsured deposits | 2.3x | 2.0x | 1.2x | ||
Performance Measures (in millions) | |||||
Total revenue | $208.2 | $223.7 | $225.3 | ||
Pre-provision net revenue1 | 68.9 | 80.4 | 68.6 | ||
Adjusted pre-provision net revenue1 | 72.6 | 82.8 | 89.9 | ||
Provision for credit losses on loans | 0.1 | 10.9 | 33.9 | ||
Provision for credit losses on securities | - | 13.3 | - | ||
Noninterest income | 45.0 | 45.8 | 40.2 | ||
Noninterest expense | 139.7 | 143.2 | 156.8 |
Simmons First National Corporation (NASDAQ: SFNC) (Simmons or Company) today reported net income of $58.3 million for the second quarter of 2023, compared to $45.6 million in the first quarter of 2023 and $27.5 million in the second quarter of 2022. Diluted earnings per share were $0.46 for the second quarter of 2023, compared to $0.36 in the first quarter of 2023 and $0.21 in the second quarter of 2022. Adjusted earnings1 for the second quarter of 2023 were $61.1 million, compared to $47.3 million in the first quarter of 2023 and $68.1 million in the second quarter of 2022. A summary of certain items, consisting primarily of merger related costs, branch right-sizing costs and early retirement program costs are described in the "Reconciliation of Non-GAAP Financial Measures" tables below.
Net Interest Income
Net interest income for the second quarter of 2023 totaled $163.2 million, compared to $177.8 million in the first quarter of 2023 and $185.1 million for the second quarter of 2022. Included in net interest income is accretion recognized on assets acquired, which totaled $2.3 million in the second quarter of 2023, $2.6 million in the first quarter of 2023 and $9.9 million in the second quarter of 2022. On a linked quarter basis, interest income increased $18.1 million, while interest expense increased $32.7 million reflecting the competitive interest rate environment and resulting pricing measures to defend the core deposit base, continued customer migration to higher rate deposit products and a strategic decision to utilize short-term borrowings to elevate our liquidity position given the macroeconomic environment and the debt ceiling debate. On April 1, 2023, approximately $330.0 million of the Company's outstanding subordinated debt converted from fixed rate to floating rate, resulting in a $2.1 million increase in interest expense during the quarter.
The yield on loans for the second quarter of 2023 was 5.89 percent, compared to 5.67 percent in the first quarter of 2023 and 4.54 percent in the second quarter of 2022. The yield on investment securities for the second quarter of 2023 was 2.91 percent, compared to 2.92 percent in the first quarter of 2023 and 2.08 percent in the second quarter of 2022. Cost of deposits for the second quarter of 2023 was 1.96 percent, compared to 1.58 percent in the first quarter of 2023 and 0.18 percent in the second quarter of 2022. The increase in the cost of deposits reflected the dramatic increase in interest rates, customer migration to higher rate deposit products and increased competition for deposits. The net interest margin on a fully taxable equivalent basis for the second quarter of 2023 was 2.76 percent, compared to 3.09 percent in the first quarter of 2023 and 3.24 percent in the second quarter of 2022.
Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 | |
Loan yield (FTE)2 | 5.89 % | 5.67 % | 5.40 % | 4.86 % | 4.54 % |
Investment securities yield (FTE)2 | 2.91 | 2.92 | 2.68 | 2.29 | 2.08 |
Cost of interest bearing deposits | 2.57 | 2.10 | 1.41 | 0.65 | 0.25 |
Cost of deposits | 1.96 | 1.58 | 1.02 | 0.47 | 0.18 |
Cost of borrowed funds | 5.31 | 4.29 | 3.92 | 2.66 | 2.13 |
Net interest spread (FTE)2 | 2.10 | 2.52 | 2.87 | 3.11 | 3.11 |
Net interest margin (FTE)2 | 2.76 | 3.09 | 3.31 | 3.34 | 3.24 |
Noninterest Income
Noninterest income for the second quarter of 2023 was $45.0 million, compared to $45.8 million in the first quarter of 2023 and $40.2 million in the second quarter of 2022. Included in first quarter 2023 results is a $4.0 million legal reserve recapture associated with previously disclosed legal matters. On a linked quarter and year-over-year basis, most fee-based businesses posted positive gains, led by service charges on deposits accounts, wealth management fees and mortgage lending income, offset in part by a decline in bank owned life insurance. Other noninterest income increased on a year-over year basis, primarily as a result of fair value adjustments associated with certain equity investments and death benefits from bank owned life insurance.
Noninterest Income $ in millions | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 |
Service charges on deposit accounts | $ 12.9 | $ 12.4 | $ 11.9 | $ 12.6 | $ 11.4 |
Wealth management fees | 7.4 | 7.4 | 8.2 | 8.6 | 7.2 |
Debit and credit card fees | 8.0 | 8.0 | 7.8 | 7.7 | 8.2 |
Mortgage lending income | 2.4 | 1.6 | 1.1 | 2.6 | 2.2 |
Other service charges and fees | 2.3 | 2.3 | 2.0 | 2.1 | 1.9 |
Bank owned life insurance | 2.6 | 3.0 | 3.0 | 2.9 | 2.6 |
Gain (loss) on sale of securities | (0.4) | - | (0.1) | - | (0.2) |
Gain on insurance settlement | - | - | 4.1 | - | - |
Other income | 9.8 | 11.3 | 6.6 | 6.7 | 6.8 |
Adjusted other income1 | 9.8 | 11.3 | 6.6 | 6.3 | 6.9 |
Noninterest Expense
Noninterest expense for the second quarter of 2023 was $139.7 million, compared to $143.2 million in the first quarter of 2023 and $156.8 million in the second quarter of 2022. Included in noninterest expense are certain items consisting primarily of merger related costs, branch right sizing costs and early retirement program costs, totaling $3.7 million in the second quarter of 2023, $2.4 million in the first quarter of 2023 and $21.2 million in the second quarter of 2022. Excluding these items (which are described in the "Reconciliation of Non-GAAP Financial Measures" tables below), adjusted noninterest expense1 was $136.0 million in the second quarter of 2023, $140.9 million in the first quarter of 2023 and $135.7 million in the second quarter of 2022. The decrease in adjusted noninterest expense on a linked quarter basis was primarily attributable to successful execution of our Better Bank Initiative as well as a $3.0 million incentive accrual adjustment recorded in the second quarter of 2023.
Noninterest Expense $ in millions | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 |
Salaries and employee benefits | $74.7 | $77.0 | $73.0 | $71.9 | $74.1 |
Occupancy expense, net | 11.4 | 11.6 | 11.6 | 11.7 | 11.0 |
Furniture and equipment | 5.1 | 5.1 | 5.4 | 5.4 | 5.1 |
Deposit insurance | 5.2 | 4.9 | 3.7 | 3.3 | 2.8 |
Other real estate and foreclosure expense | 0.3 | 0.2 | 0.4 | 0.2 | 0.1 |
Merger related costs | - | 1.4 | - | 1.4 | 19.1 |
Other operating expenses | 42.9 | 43.1 | 48.5 | 45.1 | 44.5 |
Adjusted salaries and employee benefits1 | 71.1 | 77.0 | 73.0 | 71.9 | 74.1 |
Adjusted other operating expenses1 | 43.0 | 42.3 | 47.5 | 44.1 | 42.7 |
Efficiency ratio | 65.18 % | 62.28 % | 58.33 % | 57.22 % | 67.77 % |
Adjusted efficiency ratio1 | 61.29 % | 59.38 % | 56.97 % | 54.41 % | 56.74 % |
Loans and Unfunded Loan Commitments
Total loans at the end of the second quarter of 2023 were $16.8 billion, an increase of $279 million, or 2 percent, compared to $16.6 billion at the end of the first quarter of 2023. On a year-over year basis, total loans were up $1.7 billion, or 11 percent. While loan growth has moderated as expected, the increase in total loans on a linked quarter basis was broad-based, both in terms of industry type and geographic market. Unfunded commitments at the end of the second quarter of 2023 were $4.4 million, compared to $4.7 billion at the end of the first quarter of 2023 and $4.5 billion at the end of the second quarter of 2022. While unfunded commitments are considered a key indicator of future loan growth, the rapid increase in interest rates, coupled with softer economic conditions, have resulted in lower activity in our commercial loan pipeline. Commercial loans approved and ready to close at the end of the second quarter of 2023 totaled $274 million, and the rate on ready to close commercial loans was 7.94 percent, up 62 basis points on a linked quarter basis.
$ in millions | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 |
Total loans | $16,834 | $16,555 | $16,142 | $15,607 | $15,110 |
Unfunded loan commitments | $4,443 | $4,725 | $5,000 | $5,138 | $4,473 |
Deposits
Total deposits at the end of the second quarter of 2023 were $22.5 billion, up slightly from the end of the first quarter of 2023, and up $453 million compared to the second quarter of 2022. Noninterest bearing deposits totaled $5.3 billion at the end of the second quarter of 2023, compared to $5.5 billion at the end of the first quarter of 2023 and $6.1 billion at the end of the second quarter of 2022. Interest bearing transaction accounts totaled $10.9 billion at the end of the second quarter of 2023, compared to $11.3 billion at the end of the first quarter of 2023 and $12.8 billion at the end of the second quarter of 2022. Time deposits totaled $6.4 billion at the end of the second quarter of 2023, compared to $5.7 billion at the end of the first quarter of 2023 and $3.2 billion at the end of the second quarter of 2022. The change in mix of deposits, both on a linked quarter and year-over-year basis, reflects continued customer migration into higher rate deposits, principally certificates of deposits, given the rapid rise in interest rates, as well as increased market competition. The loan to deposit ratio ended the second quarter of 2023 at 75 percent, compared to 74 percent at the end of the first quarter of 2023 and 69 percent at the end of the second quarter of 2022.
$ in millions | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 |
Noninterest bearing deposits | $ 5,265 | $ 5,489 | $ 6,017 | $ 6,218 | $ 6,057 |
Interest bearing transaction accounts | 10,866 | 11,284 | 11,763 | 12,104 | 12,816 |
Time deposits | 6,358 | 5,679 | 4,768 | 3,827 | 3,163 |
Total deposits | $22,489 | $22,452 | $22,548 | $22,149 | $22,036 |
Noninterest bearing deposits to total deposits | 23 % | 24 % | 27 % | 28 % | 27 % |
Total loans to total deposits | 75 | 74 | 72 | 70 | 69 |
Asset Quality
Total nonperforming loans at the end of the second quarter of 2023 were $72.0 million, compared to $63.7 million at the end of the first quarter of 2023 and $63.6 million at the end of the second quarter of 2022. Total nonperforming assets as a percentage of total assets were 0.28 percent at the end of the second quarter of 2023, compared to 0.26 percent at the end of both the first quarter of 2023 and the second quarter of 2022. The increase in nonperforming assets on a linked quarter basis was primarily due to a single, commercial relationship totaling $9.6 million, offset, in part, by a $2.8 million decrease in other nonperforming assets. Shortly after the end of the quarter, an initial payment of $2.9 million was received on the commercial relationship previously noted. Net charge-offs as a percentage of average loans for the second quarter of 2023 were 4 basis points, compared to 3 basis points in the first quarter of 2023 and 2 basis points in the second quarter of 2022. Net charge-offs as a percentage of average total loans, excluding credit cards, were 1 basis point for the second quarter of 2023.
Provision for credit losses totaled $0.1 million in the second quarter of 2023, compared to $33.9 million in the second quarter of 2022. Included in the year ago period was $30.3 million of Day 2 CECL provision recorded in connection with the Company's acquisition of Spirt of Texas Bancshares, Inc. The allowance for credit losses on loans at the end of the second quarter of 2023 was $210.0 million compared to $206.6 million at the end of the first quarter of 2023 and $212.6 million at the end of the second quarter of 2022. The allowance for credit losses as a percentage of total loans at the end of the second quarter of 2023 was 1.25 percent, unchanged on a linked quarter basis. The nonperforming loan coverage ratio ended the quarter at 292 percent, compared to 324 percent at the end of the first quarter of 2023 and 334 percent at the end of the second quarter of 2022. The reserve for unfunded commitments totaled $36.9 million at the end of the second quarter of 2023, compared to $41.9 million at the end of the first quarter of 2023 and $25.9 million at the end of the second quarter of 2022. The decrease in the reserve for unfunded commitments on a linked quarter basis was primarily due to a decline in unfunded commitments resulting from customers utilizing lines of credit.
$ in millions | Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 |
Allowance for credit losses on loans to total | 1.25 % | 1.25 % | 1.22 % | 1.27 % | 1.41 % |
Allowance for credit losses on loans to | 292 | 324 | 334 | 342 | 334 |
Nonperforming loans to total loans | 0.43 | 0.38 | 0.37 | 0.37 | 0.42 |
Net charge-off ratio (annualized) | 0.04 | 0.03 | 0.13 | - | 0.02 |
Net charge-off ratio YTD (annualized) | 0.04 | 0.03 | 0.09 | 0.07 | 0.11 |
Total nonperforming loans | $72.0 | $63.7 | $58.9 | $57.8 | $63.6 |
Total other nonperforming assets | 4.9 | 7.7 | 3.6 | 4.7 | 6.4 |
Total nonperforming assets | $76.9 | $71.4 | $62.5 | $62.5 | $70.0 |
Reserve for unfunded commitments | $36.9 | $41.9 | $41.9 | $41.9 | $25.9 |
Capital
Total common stockholders' equity at the end of the second quarter of 2023 was $3.4 billion, compared to $3.3 billion at the end of both the first quarter of 2023 and the second quarter of 2022. Book value per share at the end of the second quarter of 2023 was $26.59, compared to $26.24 at the end of the first quarter of 2023 and $25.31 at the end of the second quarter of 2022. Tangible book value per share1 was $15.17 at the end of the second quarter of 2023, compared to $14.88 per share at the end of the first quarter of 2023 and $14.07 at the end of the second quarter of 2022. Stockholders' equity to total assets at June 30, 2023, was 12.0 percent, compared to 12.1 percent at the end of the first quarter of 2023 and unchanged from the levels reported at the end of the second quarter of 2022. Tangible common equity to tangible assets1 was 7.2 percent at June 30, 2023, compared to 7.3 percent at the end of the first quarter of 2023 and 7.0 percent at the end of the second quarter of 2022. All of Simmons' regulatory capital ratios continue to significantly exceed "well capitalized" guidelines.
Q2 23 | Q1 23 | Q4 22 | Q3 22 | Q2 22 | |
Stockholders' equity to total assets | 12.0 % | 12.1 % | 11.9 % | 11.7 % |
