January 30, 2023

Simmons First National Corp. on Tuesday reported record quarterly results for the fourth quarter with net income of $88.3 million and earnings per share of 65 cents.

Net income grew nearly 84% from $48.2 million in the fourth quarter of 2021. Earnings per share rose about 55% from 42 cents a year ago, beating the analyst consensus of 63 cents compiled by Zacks Investment Research.

“Throughout 2022, we completed a number of strategic initiatives, including the successful merger and integration of Spirit of Texas Inc., and delivered solid financial results while navigating a challenging interest rate environment,” said George Makris, Executive Chairman .

Simmons delivered record revenue growth of $887.4 million in 2022, up 13% year over year.

“Solid balance sheet growth helped us achieve the highest level of revenue in Simmons history,” Makris said in a statement announcing fourth-quarter results. “This growth was not at the expense of maintaining our conservative underwriting standards as credit quality metrics remain at historically low levels.”

2021 results did not include Spirit of Texas results as the acquisitions were completed that year. Overall, 2022 earnings declined to $256.4 million from $271.1 million in 2021, which included gains on the recovery of loan loss provisions and increases on the sale of securities and lower closing costs.

Loans and deposits grew during the quarter, contributing to revenue growth. Spending was essentially kept under control, increasing only about $1 million from the third quarter. “We’ve had really strong top-line growth with not a lot of growth in expenses, and those are obviously good patterns for us,” Jay Brogdon, chief financial officer and treasurer, said in an interview Tuesday.

Loans were up 34% — $4.1 billion — to $16.1 billion at the end of 2022 compared to 2021. Deposits were up 16% to reach $22.5 million in the quarter compared to $19.4 million in the same period last year.

Credit growth is solid across the bank’s six-state service arm, Matt Reddin, chief banking officer, said in a conference call with the investment community on Tuesday. “We’ve had good, diversified loan growth across our footprint,” he added.

Economic conditions this year — rising interest rates and inflation — will slow but not halt credit demand, Reddin said. “We’re still seeing modest credit growth, and much of that is due to our unfunded commitments,” he said. “There is a demand, but it will be moderated.”

At the end of the quarter, Simmons had approximately $5 billion in unfunded commitments, approved loans, although the funds were undrawn by borrowers. That was flat from the third quarter.

Simmons’ loan pipeline — potential loans at a stage of the approval process — fell to $1.1 billion from $1.5 billion in the third quarter, a decline that bank officials attribute to economic conditions. The pipeline peaked at $3 billion in the second quarter.

“For the most part, the trend in this pipeline reflects Fed policy,” Brogdon said, noting that interest rates have risen a full point quarter over quarter, reflecting rate hikes by the Federal Reserve Bank. “They have a lot of economic uncertainty, which means borrowers will be more cautious about borrowing. And for anyone looking to borrow, interest rates have risen dramatically.”

Net interest margin was 3.31% in the fourth quarter, compared to 2.86% in the fourth quarter of 2021.

Deposits were supported by an infusion of about $924 million in the wholesale business, primarily through brokered certificates of deposit outside of the bank’s footprint. Wholesale deposits are locked in at rates that provide a hedge against the expected further rise in interest rates this year.

“That drove deposit growth in the quarter,” Brogdon said. “That better positions us for rising interest rates through 2023.”

When interest rates settle down, the bank will move from a shift to an increase in wholesale deposits, Brogdon said. “Our reliance on wholesale financing should decrease over time,” he said.

Core deposits in the market decreased by approximately $342 million.

“We’re not losing customers; that means balances are going down,” Brogdon said, emphasizing again that the decline is mainly due to customers’ concerns about the economy.

Despite repurchasing $111 million of stock last year, the bank did not repurchase stock in the fourth quarter and has $80 million in approval. President and Chief Executive Officer Bob Fehlman said the bank will evaluate the buyback strategy as market conditions evolve.

Simmons, he said Tuesday, is focused on growing tangible book value per share and earnings per share. “We’re really focused on building our capital position through ’23,” he said. “We’re going to be very selective in this environment.”

Makris also highlighted the bank’s focus on strengthening its capital position.

“We truly believe this will increase shareholder value going forward,” he said on the conference call.

That focus is also reducing interest in merger and acquisition activity, Makris said. “We would never say we would never seek another acquisition,” he added. “We’re just not concentrating on that today.”

Simmons Bank operates 230 branches in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Shares of the bank fell $2.09, or 9%, on Tuesday to close at $20.91.

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