Simmons 1Q net sinks 12.7%
Per-share gain also down, but bank still beats forecasts
Simmons First National Corp. suffered a double-digit drop in net income and falling earnings per share in the first quarter, the bank reported Tuesday.
Net income was $67.4 million for the quarter ended March 31, down 12.7% from the $77.2 million in earnings for the same period last year. Earnings per share was 62 cents, dropping 8.8% from 68 cents in 2020.
“We are very pleased with our solid performance in the first quarter,” Chairman and Chief Executive Officer George Makris said in a news release. “It reflects the benefit of our diverse operating model.”
Results included two onetime items: $634,000 in net after-tax merger-related and branch right-sizing costs as well as a $4 million after-tax gain primarily from the sale of branches in Illinois.
Excluding those items, first-quarter net income was $64 million and earnings per share reached 59 cents.
The Pine Bluff bank topped Zacks analysts’ consensus estimate of 52 cents per share and soared above the 51 cents per share projected by Stephens Inc. of Little Rock. Simmons has beaten Zacks’ consensus estimates for each of the past four quarters.
Total assets as of March 31 were up 12% to $23.3 million, compared with $20.8 million in the same period a year ago.
While noting the pandemic economy is still lingering,
Makris told financial analysts on a call Thursday morning that recovery seems to be ahead. “We are encouraged by the current activity in the economy,” Makris said, noting that consumer spending is up while balances on credit cards are dropping.
Like most financial institutions nationwide, the pandemic has stirred two issues that Simmons and other banks continue to confront.
The combination of excess liquidity — fueled by federal stimulus payments to consumers — has increased deposits while loan demand has softened. Excess liquidity and declining loans choke a bank’s ability to grow its net interest income and, in turn, its net interest margin. Both metrics have continued to decline for banks during the pandemic.
Deposits in the quarter increased to $18.2 billion from $15.6 year over year, a nearly 17% jump.
Loans were $12.2 billion at the end of the first quarter, falling from $14.37 billion in the first three months of 2020.
“Excess liquidity generated by the stimulus programs, and development activities taking a pause, have contributed to continuing decline in loan growth,” Makris told the analysts Thursday. “However, we are starting to see the light at the end of the tunnel.”
Heading into the second quarter, Simmons has a loan pipeline of $1.2 billion, up from $674 million at the end of the year, and includes $284 million in ready-to-close loans. “That pipeline growth is reflected throughout our footprint in both rural and metro markets, indicating a back-to-business trend,” Makris added.
Net interest income in the first quarter decreased by 12.4% to $146.7 million, compared with $167.5 million in 2020. Net interest margin fell to 2.99% from 3.68% a year ago.
“Our net interest margins are getting killed because of the liquidity,” Makris said. “To the extent that liquidity keeps coming into the bank, our margins and net interest income are going to be challenged.”
Simmons has $3.9 billion in cash and its stock has been trading at nearly two times the bank’s tangible book value, stockpiles that provide significant ammunition to buy other banks. Simmons shares closed Thursday down 5% at $27.60. The Dow Jones Industrial Average was down just under 1% on the day.
Moving into the year, the bank will continue stock repurchases as the company also scouts for merger-and-acquisition (M&A) opportunities, Makris said. Since the fourth quarter of 2019, the bank has repurchased $127 million in shares and has about $53.5 million remaining available under its reauthorization plan.
“From an M&A perspective, I would say our dance card is filled up,” he added. “We’re very active in discussions today. We think that is a great opportunity for us with the value of our currency today.”
Simmons is not keen on a merger of equals, where it would partner with another large institution to combine operations, Makris said, indicating the bank prefers the outright purchase of another institution.
“We expect Simmons to be a real survivor going forward,” he added. “We see great opportunity, particularly in the footprint that we’re in, to continue to build share in key markets.”
Major metropolitan areas such as Dallas-Fort Worth, Kansas City, Memphis, Nashville, Oklahoma City and Tulsa are primary targets for expansion. “All of those are great opportunities for us either through organic growth or M&A,” Makris said.
Meanwhile, Simmons will continue to consolidate metro-area branches into larger, full-service regional offices that drive greater efficiency, according to Makris.
“We will reduce the number of locations but we will also establish corporate office in those markets,” he said, adding that the bank plans to hire new lenders and wealthmanagement specialists.
“We’ll still have branches but we won’t need as many from the transactional perspective,” Makris told the analysts. “That’s going to translate into fewer locations but I’m not sure it’s going to translate into cost savings.”
In a shifting economy, Makris said Simmons has the flexibility to adjust as needed.
“Flexibility in our system is extremely important and I think we’ve set ourselves up to be extremely successful. Not only for the bank, but for the communities we serve as we come out of covid and this artificial economy,” he said.