Simmons First National Corporation (NASDAQ: SFNC) today announced record net income of $215.7 million for the year ended December 31, 2018, compared to $92.9 million for 2017, an increase of $122.8 million, or 132.1%. Diluted earnings per share were $2.32 for 2018, an increase of $0.99, or 74.4%, compared to prior year. Included in the 2018 results were $4.5 million in net after-tax merger-related and branch right-sizing costs. Excluding the impact of these items, core earnings were $220.2 million for the year ended December 31, 2018, compared to $119.0 million for 2017, an increase of $101.2 million, or 85.0%. Core diluted earnings per share were $2.37, an increase of $0.67, or 39.4%, from the same period in 2017.
Fourth quarter 2018 net income was $55.6 million, or $0.60 diluted earnings per share, compared to $18.9 million, or $0.22 diluted earnings per share, for the same period in 2017. Excluding $805,000 in net after-tax merger-related and branch right sizing costs, fourth quarter 2018 core earnings were $56.5 million, an increase of $14.4 million compared to the same period in 2017.
“We had a remarkable year,” said George A. Makris, Jr., chairman and CEO.
Makris continued, “In addition to producing record financial results, we completed two successful system conversions for the banks acquired in late 2017 and a 2-for-1 stock split. We also announced yet another acquisition that will be completed this year. Throughout 2018, we experienced excellent organic growth in all our markets and balanced year-to-date loan yields with deposit costs in a rising-rate environment, all the while sustaining our reputable asset quality.
“This past year, we focused on improving our delivery of products and services to our customers throughout our existing footprint. We will carry this momentum into 2019 as we continue to focus on improving our business processes, expanding our customer relationships and closing our acquisition of Reliance Bancshares.”
| Selected Highlights: | YTD 2018 | YTD 2017 | 4th Qtr 2018 | 3rd Qtr 2018 | 4th Qtr 2017 |
| Net income | $215.7 million | $92.9 million | $55.6 million | $55.2 million | $18.9 million |
| Diluted earnings per share | $2.32 | $1.33 | $0.60 | $0.59 | $0.22 |
| Return on avg assets | 1.37% | 0.92% | 1.35% | 1.37% | 0.54% |
| Return on avg common equity | 10.00% | 6.68% | 9.98% | 10.06% | 3.88% |
| Return on tangible common equity | 18.44% | 11.26% | 17.96% | 18.38% | 7.53% |
| Core earnings(1) | $220.2 million | $119.0 million | $56.5 million | $56.5 million | $42.0 million |
| Diluted core earnings per share(1) | $2.37 | $1.70 | $0.61 | $0.61 | $0.48 |
| Core return on avg assets(1) | 1.40% | 1.18% | 1.37% | 1.40% | 1.20% |
| Core return on avg common equity(1) | 10.21% | 8.56% | 10.13% | 10.30% | 8.63% |
| Core return on tangible common equity(1) | 18.81% | 14.28% | 18.21% | 18.80% | 15.97% |
| Efficiency ratio | 52.85% | 55.27% | 51.99% | 53.47% | 51.36% |
- Core earnings excludes non-core items, and is a non-GAAP measurement.
Loans
| ($ in billions) | 4th Qtr 2018 | 3rd Qtr 2018 | 4th Qtr 2017 |
| Total loans | $11.7 | $11.9 | $10.8 |
| Legacy loans (excludes loans acquired) | $8.4 | $8.1 | $5.7 |
| Loans acquired | $3.3 | $3.8 | $5.1 |
Total loans, including those acquired, were $11.7 billion at December 31, 2018 an increase of $943.5 million, or 8.8%, compared to $10.8 billion at December 31, 2017. On a linked-quarter basis (December 31, 2018 compared to September 30, 2018), total loans decreased $135.0 million, or 1.1%. The seasonal decrease in our agricultural portfolios and mortgage warehouse lines of credit was $85.9 million and the continuing decrease in our liquidating portfolios was $18.6 million. The remaining decline was due to loan payoffs greater than new loan fundings during the quarter. “Based on our current loan pipeline, we estimate loan growth in the 7% to 7.5% range for 2019,” said Makris.
Deposits
| ($ in billions) | 4th Qtr 2018 | 3rd Qtr 2018 | 4th Qtr 2017 |
| Total deposits | $12.4 | $12.1 | $11.1 |
| Non-time deposits | $9.5 | $9.6 | $9.2 |
| Time deposits | $2.9 | $2.5 | $1.9 |
Total deposits were $12.4 billion at December 31, 2018, an increase of $1.3 billion, or 11.8%, since December 31, 2017. Total deposits increased $310.2 million, or 2.6%, compared to the previous quarter.
Net Interest Income
| 4th Qtr 2018 | 3rd Qtr 2018 | 2nd Qtr 2018 | 1st Qtr 2018 | 4th Qtr 2017 | |
| Loan yield (1) | 5.39% | 5.54% | 5.40% | 5.38% | 5.39% |
| Core loan yield (1) (2) | 5.25% | 5.19% | 5.04% | 4.95% | 4.75% |
| Security yield (1) | 2.87% | 2.74% | 2.75% | 2.67% | 2.62% |
| Cost of interest bearing deposits | 1.20% | 1.05% | 0.84% | 0.74% | 0.63% |
| Cost of deposits (3) | 0.93% | 0.81% | 0.64% | 0.56% | 0.48% |
| Cost of borrowed funds | 2.64% | 2.48% | 2.38% | 1.70% | 1.78% |
| Net interest margin (1) | 3.76% | 3.98% | 3.99% | 4.17% | 4.21% |
| Core net interest margin (1) (2) | 3.66% | 3.71% | 3.70% | 3.82% | 3.70% |
- Fully tax equivalent.
- Core loan yield and core net interest margin exclude accretion, and are non-GAAP measurements.
- Includes non-interest bearing deposits.
The Company’s net interest income for the fourth quarter of 2018 was $137.8 million, an increase of $10.9 million, or 8.6%, from the same period of 2017. Included in interest income was the yield accretion recognized on loans acquired of $3.9 million and $15.7 million for the fourth quarters of 2018 and 2017, respectively.
Net interest margin was 3.76% for the quarter ended December 31, 2018, a 22 basis point decrease from the third quarter. The Company’s core net interest margin, excluding the accretion, was 3.66% for the fourth quarter of 2018, a 5 basis point decrease from September 30, 2018. Cost of interest bearing deposits was 1.20% for the fourth quarter of 2018, a 15 basis point increase from September 30, 2018.
Makris stated, “Since December 2017, the Federal Reserve Board has increased the Fed Funds target rate by 100 basis points. During this same period, loan yield has remained even and core loan yield has increased 50 basis points while cost of deposits has risen 45 basis points. In addition, the cost of borrowed funds increased 86 basis points during this period.”
Non-Interest Income
Non-interest income for 2018 was $143.9 million, an increase of $5.1 million compared to the previous year. The increase was primarily due to additional trust income and service charges on deposit accounts from our 2017 acquisitions. These increases were partially offset by reductions in debit card fees and SBA lending income. The interchange rate cap as established by the Durbin amendment became effective for the Company July 1, 2018, resulting in a $5.9 million reduction in debit card fees for the last six months of 2018.
SBA lending premium income decreased $1.8 million when compared to 2017 as a result of management remaining selective in its decisions regarding loan sales as premium rates have continued to be lower in recent months compared to the first quarter of 2018.
For the fourth quarter 2018, non-interest income was $34.6 million, a decrease of $2.0 million compared to $36.6 million during the same period of 2017 primarily the result of the interchange rate cap.
Non-Interest Expense
Non-interest expense for 2018 was $392.2 million, an increase of $79.9 million compared to the previous year. Included in 2018 were $6.1 million of pre-tax merger-related expenses and branch rightsizing expenses. Excluding these expenses, core non-interest expense was $386.1 million, an increase of $101.1 million compared to 2017 core non-interest expense. Incremental increases in non-interest expense categories over previous year are primarily the result of our acquisitions in the fourth quarter of 2017.
Non-interest expense for the fourth quarter of 2018 was $95.4 million, a decrease of $4.9 million compared to the previous quarter. Included in this quarter were $1.1 million of pre-tax merger-related expenses and branch rightsizing expenses. Excluding these expenses, core non-interest expense was $94.3 million, a decrease of $4.2 million compared to the previous quarter. The fourth quarter results include the positive impact of the true-up of year to date accruals on incentive plans.
The efficiency ratio for 2018 was 52.85% compared to 55.27% for 2017.
Asset Quality
| 4th Qtr 2018 | 3rd Qtr 2018 | 2nd Qtr 2018 | 1st Qtr 2018 | 4th Qtr 2017 | |
| Allowance for loan losses to total loans | 0.67% | 0.68% | 0.73% | 0.75% | 0.73% |
| Allowance for loan losses to non-performing loans | 164% | 136% | 115% | 99% | 90% |
| Non-performing loans to total loans | 0.41% | 0.50% | 0.63% | 0.76% | 0.81% |
| Net charge-off ratio (annualized) | 0.35% | 0.36% | 0.17% | 0.24% | 0.53% |
| – Net charge-off ratio excluding loan sale | 0.12% |
All loans acquired are recorded at their discounted net present value; therefore, they are excluded from the computations of the asset quality ratios for the legacy loan portfolio, except for their inclusion in total assets.
At December 31, 2018, the allowance for loan losses for legacy loans was $56.6 million. The allowance for loan losses for loans acquired was $95,000 and the acquired loan discount credit mark was $49.3 million. The allowances for loan losses and credit marks provide a total of $106.0 million of coverage, which equates to a total coverage ratio of 0.90% of gross loans. The ratio of credit mark and related allowance to loans acquired was 1.48%.Provision for loan losses for 2018 was $38.1 million, an increase of $11.8 million from 2017. The increases are primarily due to strong legacy loan growth as well as increased migration from loans acquired to legacy loans resulting from new credit decisions being made on those loans during 2018. Provision for loan losses for the fourth quarter 2018 was $9.6 million, a decrease of $725,000 from the third quarter 2018 and an increase of $19,000 from the same period in 2017.
Foreclosed Assets and Other Real Estate Owned
At December 31, 2018, foreclosed assets and other real estate owned were $25.6 million, a decrease of $6.6 million, or 20.4%, compared to the same period in 2017 and an increase of $2.9 million, or 12.8% from September 30, 2018. The composition of these assets is divided into three types:
| ($ in millions) | 4th Qtr 2018 | 3rd Qtr 2018 | 2nd Qtr 2018 | 1st Qtr 2018 | 4th Qtr 2017 |
| Closed bank branches, branch sites & associate relocation | $8.0 | $9.6 | $7.2 | $8.1 | $9.8 |
| Foreclosed assets – acquired | $11.5 | $8.0 | $13.2 | $14.9 | $16.0 |
| Foreclosed assets – legacy | $6.1 | $5.1 | $10.1 | $6.1 | $6.3 |
Capital
| 4th Qtr 2018 | 3rd Qtr 2018 | 2nd Qtr 2018 | 1st Qtr 2018 | 4th Qtr 2017 | |
| Stockholders’ equity to total assets | 13.6% | 13.4% | 13.3% | 13.5% | 13.9% |
| Tangible common equity to tangible assets | 8.4% | 8.1% | 7.9% | 7.9% | 8.1% |
| Regulatory tier 1 leverage ratio | 8.8% | 8.7% | 8.6% | 8.6% | 9.2% |
| Regulatory total risk-based capital ratio | 13.3% | 13.1% | 13.7% | 14.1% | 11.4% |
At December 31, 2018, common stockholders’ equity was $2.2 billion. Book value per share was $24.33 and tangible book value per share was $14.18 at December 31, 2018, compared to $22.65 and $12.34, respectively, at December 31, 2017.
Simmons First National Corporation
Simmons First National Corporation is a financial holding company headquartered in Pine Bluff, Arkansas, with total assets of approximately $16.5 billion as of December 31, 2018, conducting financial operations in Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Company, through its subsidiaries, offers comprehensive financial solutions delivered with a client-centric approach. The Company’s common stock trades on the NASDAQ Market under the symbol “SFNC.”
READ MORE: Bank OZK Releases 2018 Earnings
