Simmons First National (SFNC) - 2022 Q2 - Quarterly Report

Part I: Financial Information Financial Statements (Unaudited) Unaudited Q2 2022 financial statements show $27.2 billion in assets from acquisitions, with net income at $27.5 million impacted by credit provisions and merger costs Consolidated Balance Sheets Total assets grew to $27.2 billion by June 30, 2022, driven by loan growth and acquisitions, with equity stable despite increased comprehensive loss Consolidated Balance Sheet Highlights (in thousands of dollars) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $27,218,609 | $24,724,759 | | Net Loans | $14,897,733 | $11,807,171 | | Goodwill | $1,310,528 | $1,146,007 | | Total Investments | $8,161,329 | $8,642,766 | | Total Liabilities | $23,958,714 | $21,475,918 | | Total Deposits | $22,035,863 | $19,366,548 | | Total Stockholders' Equity | $3,259,895 | $3,248,841 | | Accumulated other comprehensive loss | ($450,428) | ($10,545) | Consolidated Statements of Income Q2 2022 net income decreased to $27.5 million from $74.9 million in Q2 2021, primarily due to a $33.9 million credit loss provision and merger costs Key Income Statement Data (in thousands of dollars, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $185,099 | $146,533 | $330,705 | $293,214 | | Provision for credit losses | $33,859 | ($12,951) | $13,945 | ($11,506) | | Non-Interest Income | $40,178 | $47,115 | $82,396 | $96,664 | | Non-Interest Expense | $156,813 | $114,657 | $285,230 | $227,659 | | Merger related costs | $19,133 | $686 | $21,019 | $919 | | Net Income | $27,454 | $74,924 | $92,549 | $142,344 | | Diluted EPS | $0.21 | $0.69 | $0.77 | $1.31 | Consolidated Statements of Comprehensive Income (Loss) Q2 2022 saw a comprehensive loss of $96.0 million, a significant shift from $124.2 million comprehensive income in Q2 2021, driven by unrealized losses on securities Comprehensive Income (Loss) Summary (in thousands of dollars) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $27,454 | $74,924 | $92,549 | $142,344 | | Total Other Comprehensive Income (Loss) | ($123,467) | $49,249 | ($439,883) | ($47,653) | | Comprehensive Income (Loss) | ($96,013) | $124,173 | ($347,334) | $94,691 | Consolidated Statements of Cash Flows H1 2022 operating cash flow was $177.9 million, with $353.2 million used in investing and $510.5 million in financing, resulting in a $685.8 million decrease in cash Six-Month Cash Flow Summary (in thousands of dollars) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $177,857 | $176,310 | | Net cash used in investing activities | ($353,188) | ($2,462,960) | | Net cash (used in) provided by financing activities | ($510,475) | $1,153,622 | | Decrease in Cash and Cash Equivalents | ($685,806) | ($1,133,028) | Consolidated Statements of Stockholders' Equity H1 2022 stockholders' equity slightly increased to $3.26 billion, with $464.9 million stock issuance for acquisition offset by $439.9 million comprehensive loss and repurchases - Stock issued for the Spirit acquisition totaled 18,275,074 shares, valued at $464.9 million[22] - The company repurchased 2,549,049 shares for $66.1 million during the first six months of 2022[22] - Accumulated other comprehensive loss increased significantly from $10.5 million at year-end 2021 to $450.4 million at June 30, 2022, primarily due to unrealized losses on available-for-sale securities[22] Condensed Notes to Consolidated Financial Statements Notes detail accounting policies, the $464.9 million Spirit merger, a $1.99 billion securities transfer to held-to-maturity, and loan portfolio growth to $15.1 billion with increased allowance Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 2022 net income was impacted by merger costs, with adjusted earnings at $66.8 million, driven by strong loan growth, expanded net interest margin, and improved asset quality - Q2 2022 net income was $27.5 million, or $0.21 diluted EPS; adjusted earnings, excluding merger costs and Day 2 provisions, were $66.8 million, or $0.52 adjusted diluted EPS[234] - The acquisition of Spirit of Texas Bancshares, Inc. was completed on April 8, 2022, strengthening the company's position in the Texas market[237] - Asset quality improved, with non-performing assets as a percent of total assets decreasing to 0.27% at June 30, 2022, from 0.33% at year-end 2021[239] - The commercial loan pipeline increased by 28% from the prior quarter to $3.02 billion[242] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk, projecting a 2.88% net interest income increase for a 100 basis point rate hike, and maintains diverse liquidity sources including $3.7 billion in FHLB advances - The company's primary sources of liquidity include federal funds lines of credit ($415 million), FHLB lines of credit ($3.7 billion available), wholesale and retail deposits, and a laddered investment portfolio[381][382] Net Interest Income Sensitivity Analysis (as of June 30, 2022, % Change from Base) | Interest Rate Scenario | % Change from Base | | :--- | :--- | | Up 200 basis points | 5.33% | | Up 100 basis points | 2.88% | | Down 25 basis points | (0.82)% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[393] - No material changes to internal controls over financial reporting occurred during the second quarter of 2022[394] Part II: Other Information Legal Proceedings The company is involved in class action lawsuits regarding overdraft fees, with settlements pending or in principle, and expects no material adverse financial impact - The company is party to several putative class action complaints regarding the assessment of overdraft and insufficient funds fees[160][162] - Management has entered into a settlement agreement in one case and reached a settlement in principle in another, and does not expect these matters to have a material adverse effect on the company's financials[160][161][164] Risk Factors No material changes to the company's risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported since the 2021 Form 10-K[396] Unregistered Sales of Equity Securities and Use of Proceeds A new $175.0 million stock repurchase program was authorized in January 2022, under which 2,035,324 shares were repurchased in Q2 2022 at an average price of $24.59 per share - A new stock repurchase program for up to $175.0 million was authorized in January 2022, terminating on January 31, 2024[397] Share Repurchases for Q2 2022 (in dollars, except shares) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining | | :--- | :--- | :--- | :--- | | April 2022 | 0 | $0.00 | - | | May 2022 | 2,035,324 | $24.59 | $124,959,000 | | June 2022 | 0 | $0.00 | - | | Total | 2,035,324 | $24.59 | - | Exhibits Exhibits filed with the Form 10-Q include merger agreements, corporate governance documents, and Sarbanes-Oxley certifications from the CEO, CFO, and CAO - Exhibits filed include certifications from the CEO, CFO, and CAO as required by Sarbanes-Oxley, along with merger agreements and corporate governance documents[401]