Simmons First National (US:SFNC)2024-11-07 20:54Part I: Financial Information Financial Statements (Unaudited) The unaudited financial statements show decreased total assets and net income, driven by a loss on securities sale Consolidated Balance Sheets Total assets slightly decreased to $27.27 billion, with loan growth offset by reduced deposits and investments Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $27,269,404 | $27,345,674 | | Net Loans | $17,102,817 | $16,620,439 | | Total Investments | $6,349,794 | $6,878,441 | | Goodwill | $1,320,799 | $1,320,799 | | Total Liabilities | $23,740,571 | $23,919,186 | | Total Deposits | $21,935,434 | $22,244,978 | | Total Stockholders' Equity | $3,528,833 | $3,426,488 | Consolidated Statements of Income Net income declined significantly in Q3 and the nine-month period, primarily due to a loss on securities sale Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $157,712 | $153,433 | $463,523 | $494,498 | | Provision for Credit Losses | $12,148 | $7,722 | $33,453 | $31,999 | | Total Noninterest Income | $17,130 | $42,777 | $103,613 | $133,592 | | Net Income | $24,740 | $47,247 | $104,374 | $151,150 | | Diluted EPS | $0.20 | $0.37 | $0.83 | $1.19 | - A significant loss on the sale of securities of $28.4 million was recognized in Q3 2024, which was the primary driver for the sharp decline in noninterest income and net income for the quarter7 Condensed Notes to Consolidated Financial Statements The notes detail accounting policies, portfolio compositions, and capital adequacy, with loan growth to $17.3 billion Management's Discussion and Analysis (MD&A) Management highlights solid nine-month results, stable capital, and strong asset quality despite a strategic securities sale - The company executed a strategic sale of approximately $251.5 million of available-for-sale (AFS) investment securities with a weighted average yield of 1.29%, resulting in an after-tax loss of $21.0 million219 - Proceeds from the AFS securities sale were used to pay off higher-rate wholesale funding, specifically Federal Home Loan Bank (FHLB) advances219 - As of September 30, 2024, the company maintained strong capital and liquidity, with a common equity to total assets ratio of 12.94%, a tangible common equity to tangible assets ratio of 8.15%, and a Tier 1 leverage ratio of 9.57%218 Q3 2024 Performance vs. Q2 2024 | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $24.7M | $40.8M | | Diluted EPS | $0.20 | $0.32 | | Adjusted Net Income (Non-GAAP) | $46.0M | $41.9M | | Adjusted Diluted EPS (Non-GAAP) | $0.37 | $0.33 | Net Interest Income Net interest income and margin increased sequentially in Q3 2024 but decreased on a year-over-year nine-month basis - The sequential increase in net interest income was primarily due to a $6.9 million increase in interest income on loans, reflecting both higher volume and a 5 basis point increase in loan yield to 6.44%242 Net Interest Margin (FTE) Analysis | Period | Net Interest Income (FTE) | Net Interest Margin (FTE) | | :--- | :--- | :--- | | Q3 2024 | $164.1M | 2.74% | | Q2 2024 | $160.5M | 2.69% | | 9 Months 2024 | $482.9M | 2.70% | | 9 Months 2023 | $513.4M | 2.82% | Provision for Credit Losses The provision for credit losses increased slightly quarter-over-quarter and year-over-year, driven by loan growth Provision for Credit Losses (in millions) | Period | Provision Amount | | :--- | :--- | | Q3 2024 | $12.1 | | Q2 2024 | $11.1 | | 9 Months 2024 | $33.5 | | 9 Months 2023 | $32.0 | Noninterest Income Noninterest income declined significantly due to a one-time loss on the sale of AFS securities, while recurring fee income remained stable - The primary driver of the 60.4% sequential decrease in noninterest income was a $28.4 million loss on the sale of securities263 - Recurring fee income, including service charges, wealth management, and card fees, was stable at $31.5 million for Q3 2024267 Noninterest Expense Noninterest expense decreased sequentially due to lower incentive compensation accruals and remained flat year-over-year Noninterest Expense (in millions) | Period | Total Noninterest Expense | Adjusted Noninterest Expense (Non-GAAP) | | :--- | :--- | :--- | | Q3 2024 | $137.2 | $136.8 | | Q2 2024 | $139.4 | $137.8 | | 9 Months 2024 | $416.4 | $412.5 | | 9 Months 2023 | $414.9 | $406.7 | Financial Condition The company's financial condition remains strong with continued loan growth, solid asset quality, and robust capital ratios - Total loans increased by $490.4 million to $17.34 billion at September 30, 2024, from December 31, 2023, with notable growth in commercial real estate, single-family residential, agricultural, and municipal loans283287 - Total deposits decreased by $309.5 million to $21.94 billion from year-end 2023, with a shift from noninterest-bearing and savings accounts into higher-yielding time deposits318 Key Asset Quality Metrics (as of Sep 30, 2024) | Metric | Value | | :--- | :--- | | Non-performing Assets to Total Assets | 0.38% | | Allowance for Credit Losses to Total Loans | 1.35% | | Allowance for Credit Losses to Non-performing Loans | 229% | Regulatory Capital Ratios (as of Sep 30, 2024) | Ratio | Company | Minimum Guideline | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 12.06% | 4.50% | | Tier 1 Leverage | 9.57% | 4.00% | | Total Risk-Based Capital | 14.25% | 8.00% | Quantitative and Qualitative Disclosures About Market Risk The company actively manages its liability-sensitive balance sheet and maintains diverse liquidity sources to mitigate interest rate risk - The company maintains multiple sources of liquidity, including $435.0 million in federal funds lines, $4.96 billion in available FHLB lines of credit, and access to wholesale and retail deposit markets362363 Net Interest Income Sensitivity (as of Sep 30, 2024) | Interest Rate Scenario | % Change from Base (12-month) | | :--- | :--- | | Up 200 bps | (3.82)% | | Up 100 bps | (1.83)% | | Down 100 bps | 1.59% | | Down 200 bps | 2.62% | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO, CFO, and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period374 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls375 Part II: Other Information Legal Proceedings The company's ongoing legal proceedings are not expected to have a material adverse financial impact - The company is involved in various legal proceedings in the ordinary course of business, but management does not expect them to have a material adverse effect146375 Risk Factors No material changes to the company's previously disclosed risk factors were reported during the period - No material changes in risk factors were reported since the company's 2023 Form 10-K376 Unregistered Sales of Equity Securities and Use of Proceeds A new $175.0 million stock repurchase program was authorized, with no shares repurchased in the third quarter - A new stock repurchase program for up to $175.0 million was authorized in January 2024, replacing the previous program377 - No shares of common stock were repurchased during the three months ended September 30, 2024379380