Simmons First National Corporation Reports Third Quarter 2023 Results

PINE BLUFF, Ark., Oct. 24, 2023 /PRNewswire/ --

Bob Fehlman, Simmons' Chief Executive Officer, commented on third quarter 2023 results:

Simmons reported net income of $47.2 million and diluted earnings per share of $0.37 for the third quarter of 2023. Adjusted earnings¹ were $48.8 million and adjusted earnings per share¹ were $0.39. While the current economic and interest rate environment continues to pose challenges to the financial services industry, we remain resolute on serving our customers' financial needs while diligently focusing on maintaining strong asset quality, capital and liquidity positions.

Our results also reflect our efforts aimed at optimizing our balance sheet and our Better Bank Initiative. On a year-over-year basis, average loans were up 9 percent and average deposits were up 3 percent as we continued to reinvest cash flows from our securities portfolio to fund loan growth and reduce wholesale borrowings. With respect to our Better Bank Initiative, we were able to achieve all of the original $15 million of annual cost savings we previously estimated one quarter sooner than anticipated.

Simmons First National Corporation (NASDAQ: SFNC) (Simmons or Company) today reported net income of $47.2 million for the third quarter of 2023, compared to $58.3 million for the second quarter of 2023 and $80.6 million for the third quarter of 2022. Diluted earnings per share were $0.37 for the third quarter of 2023, compared to $0.46 in the second quarter of 2023 and $0.63 in the third quarter of 2022. Adjusted earnings¹ for the third quarter of 2023 were $48.8 million, compared to $61.1 million for the second quarter of 2023 and $82.3 million in the third 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 third quarter of 2023 totaled $153.4 million, compared to $163.2 million in the second quarter of 2023 and $193.6 million for the third quarter of 2022. Included in net interest income is accretion recognized on assets acquired, which totaled $2.1 million in the third quarter of 2023, $2.3 million in the second quarter of 2023 and $5.8 million in the third quarter of 2022. On a linked quarter basis, interest income increased $13.1 million and interest expense increased $22.9 million. While the higher interest rate environment positively impacted interest income, the corresponding increase in interest expense was driven by an increase in deposit costs, continued customer migration to higher rate deposit products and pricing measures instituted to defend market share, offset in part by a decrease in other wholesale borrowings costs, primarily Federal Home Loan Bank advances.

The yield on loans on a fully taxable equivalent (FTE) basis for the third quarter of 2023 was 6.08 percent, compared to 5.89 percent in the second quarter of 2023 and 4.86 percent in the third quarter of 2022. The yield on investment securities on an FTE basis for the third quarter of 2023 was 3.08 percent, compared to 2.91 percent in the second quarter of 2023 and 2.29 percent in the third quarter of 2022. Cost of deposits for the third quarter of 2023 was 2.37 percent, compared to 1.96 percent in the second quarter of 2023 and 0.47 percent in the third quarter of 2022. The net interest margin on an FTE basis for the third quarter of 2023 was 2.61 percent, compared to 2.76 percent in the second quarter of 2023 and 3.34 percent in the third quarter of 2022.

Noninterest Income
Noninterest income for the third quarter of 2023 was $42.8 million, compared to $45.0 million in the second quarter of 2023 and $43.0 million in the third quarter of 2022. The decline in service charges on deposits accounts, both on a linked quarter and a year-over-year basis, was primarily due to certain insufficient funds fee structure changes for consumer deposit accounts that were implemented during the third quarter of 2023. The decrease in other income on a linked quarter basis was primarily due to the positive impact of fair value adjustments associated with certain equity investments recorded in the second quarter of 2023.

Noninterest Expense
Noninterest expense for the third quarter of 2023 was $132.0 million, compared to $139.7 million in the second quarter of 2023 and $138.9 million in the third quarter of 2022. Included in noninterest expense are certain items consisting primarily of early retirement program, branch right sizing and merger related costs, totaling $2.1 million in the third quarter of 2023, $3.7 million in the second quarter of 2023 and $2.6 million in the third quarter of 2022. Excluding these items (which are described in the "Reconciliation of Non-GAAP Financial Measures" tables below), adjusted noninterest expense¹ was $129.9 million in the third quarter of 2023, $136.0 million in the second quarter of 2023 and $136.4 million in the third quarter of 2022. The decrease in noninterest expense was primarily due to a decrease in salaries and employee benefits. The decrease in adjusted noninterest expense on a linked quarter basis was primarily attributable to a $5.3 million decrease in salaries and employee benefits, reflecting the successful execution of programs as part of our Better Bank Initiative, as well as a $4.0 million accrual adjustment recorded in the third quarter of 2023 related to incentive plans.

Loans and Unfunded Loan Commitments
Total loans at the end of the third quarter of 2023 were $16.8 billion, up $1.2 billion, or 7 percent, compared to $15.6 billion at the end of the third quarter of 2022. Total loans on a linked quarter basis were relatively unchanged, reflecting moderating demand and increased payoff activity in the quarter, as well as our focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment. Unfunded commitments at the end of the third quarter of 2023 were $4.0 billion, compared to $4.4 billion at the end of the second quarter of 2023 and $5.1 billion at the end of the third quarter of 2022. Conversely, during the third quarter of 2023 our commercial loan pipeline saw increased activity compared to the second quarter of 2023. Commercial loans approved and ready to close at the end of the third quarter of 2023 were $433 million compared to $274 million at the end of the second quarter of 2023, and the rate on ready to close commercial loans was 8.43 percent, up 49 basis points on a linked quarter basis.

Deposits
Total deposits at the end of the third quarter of 2023 were $22.2 billion, compared to $22.5 billion at the end of the second quarter of 2023 and $22.1 billion at the end of the third quarter of 2022. While the overall level of deposits has been relatively stable, the change in mix of deposits, both on a linked quarter and year-over-year basis, reflected continued customer migration into higher rate deposits, principally certificates of deposit, given the rapid rise in interest rates, as well as increased market competition. Noninterest bearing deposits totaled $5.0 billion, compared to $5.3 billion at the end of the second quarter of 2023 and $6.2 billion at the end of the third quarter of 2022. Interest bearing transaction accounts (including savings accounts) totaled $10.6 billion at the end of the third quarter of 2023, compared to $10.9 billion at the end of the second quarter of 2023 and $12.1 billion at the end of the third quarter of 2022. Time deposits totaled $6.7 billion at the end of the third quarter of 2023, compared to $6.4 billion at the end of the second quarter of 2023 and $3.8 billion at the end of the third quarter of 2022.

Asset Quality
Total nonperforming loans at the end of the third quarter of 2023 were $81.9 million, compared to $72.0 million at the end of the second quarter of 2023 and $57.8 million at the end of the third quarter of 2022. Total nonperforming assets as a percentage of total assets were 0.32 percent at the end of the third quarter of 2023, compared to 0.28 percent at the end of the second quarter of 2023 and 0.23 percent at the end of the third quarter of 2022. The increase in nonperforming assets on a linked quarter basis reflected a commercial credit totaling approximately $8.0 million that was classified as nonperforming during the third quarter, offset in part by payoffs received on previously identified nonaccrual commercial and agricultural loans. Net charge-offs as a percentage of average loans for the third quarter of 2023 were 28 basis points, compared to 4 basis points for the second quarter of 2023 and less than 1 basis point in the third quarter of 2022. The increase in net charge-offs was primarily due to a $9.6 million charge-off on a nursing/extended care related credit following a comprehensive review of this portfolio during the quarter. This charge-off accounted for 23 basis points of the 28 basis points of total net charge-offs recorded in the third quarter of 2023.

Provision for credit losses totaled $7.7 million in the third quarter of 2023, compared to $0.1 million in both the second quarter of 2023 and the third quarter of 2022. The increase in provision for credit losses on a sequential and year-over-year basis reflected portfolio activity and changes in macroeconomic variables. The allowance for credit losses at the end of the third quarter of 2023 was $218.5 million, compared to $210.0 million at the end of the second quarter of 2023 and $197.6 million at the end of the third quarter of 2022. The allowance for credit losses as a percentage of total loans at the end of the third quarter of 2023 was 1.30 percent, compared to 1.25 percent at the end of the second quarter of 2023 and 1.27 percent at the end of the third quarter of 2022. The nonperforming loan coverage ratio ended the quarter at 267 percent, compared to 292 percent at the end of the second quarter of 2023 and 342 percent at the end of the third quarter of 2022. The reserve for unfunded commitments totaled $25.6 million at the end of the third quarter of 2023, compared to $36.9 million at the end of the second quarter of 2023 and $41.9 million at the end of the third quarter of 2022. The decrease in the reserve for unfunded commitments reflects a lower level of unfunded commitments as customers continue to utilize available lines of credit.