Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Our net income for the three months ended March 31, 2016 was $23.5 million and diluted
earnings per share were $0.77, compared to net income of $8.7 million and $0.39 diluted earnings per share for the same period
of 2015.
Net income for the quarter in both 2016 and 2015 included nonrecurring items that impacted
net income. The 2015 nonrecurring items were significant and all related to our acquisitions. Excluding all nonrecurring items,
core earnings for the three months ended March 31, 2016 were $23.2 million, or $0.76 diluted core earnings per share, compared
to $15.7 million, or $0.70 diluted core earnings per share for the same period in 2015. Diluted core earnings per share increased
by $0.06, or 8.6%. See Reconciliation of Non-GAAP Measures and Table 13 – Reconciliation of Core Earnings (non-GAAP) for
additional discussion of non-GAAP measures.
On February 19, 2016, we merged Simmons First Trust Company and Trust Company of the
Ozarks with and into Simmons First National Bank. We believe this will allow us to offer our trust services in an efficient and
consistent manner throughout our footprint.
On February 27, 2015, we closed the transactions to acquire Community First Bancshares, Inc. (“Community
First”) and Liberty Bancshares, Inc. (“Liberty”) and at March 31, 2015 Liberty Bank and First State Bank operated
as independently chartered banks. Liberty Bank was subsequently merged into our lead bank, Simmons First National Bank, on April
24, 2015 with a simultaneous systems conversion. First State Bank was subsequently merged into our lead bank, Simmons First National
Bank, on September 4, 2015 with a simultaneous systems conversion. As a result of these acquisitions, we recognized $7.0 million
in after tax merger related expenses during the quarter ended March 31, 2015.
We believe that our operating results reflect the successful integration of twelve separately
chartered banks and two trust companies in the last two years. As a result of acquisitions and efficiency initiatives in recent
reporting periods, we have and will continue to recognize one-time revenue and expense items which may skew our short-term core
business results but provide long-term performance benefits. We continue to pursue growth opportunities and focus on improvement
in our core operating income.
We are also pleased with the positive trends in our balance sheet, as reflected in our
organic loan growth as well as in our growth from acquisitions, which enabled us to produce a net interest margin of 4.41% for
the quarter.
Stockholders’ equity as of March 31, 2016 was $1.072 billion, book value per share
was $35.35 and tangible book value per share was $22.84. Our ratio of stockholders’ equity to total assets
was 14.2% and the ratio of tangible stockholders’ equity to tangible assets was 9.7% at March 31, 2016. The Company’s
Tier I leverage ratio of 11.1%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized”
levels (see Table 12 in the Capital section of this Item).
Total assets were $7.537 billion at March 31, 2016, compared to $7.560 billion at December 31, 2015 and $7.815
billion at March 31, 2015. Total loans, including loans acquired, were $4.931 billion at March 31, 2016, compared
to $4.919 billion at December 31, 2015 and $4.636 billion at March 31, 2015. We continue to have good asset quality.
Effective April 1, 2016, our wholly-owned subsidiary, Simmons First National Bank converted from a national banking
association to an Arkansas state-chartered bank. The bank’s name changed to Simmons Bank. Simmons Bank is a member bank of
the Federal Reserve System through the Federal Reserve Bank of St. Louis. The charter conversion was a strategic undertaking that
we believe will enhance our operations in the long term.
Simmons First National Corporation is a $7.5 billion Arkansas based financial holding
company conducting financial operations throughout Arkansas, Kansas, Missouri and Tennessee.
CRITICAL ACCOUNTING POLICIES
Overview
We follow accounting and reporting policies that conform, in all material respects, to
generally accepted accounting principles and to general practices within the financial services industry. The preparation
of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical
experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i)
the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different
estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting
estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
The accounting policies that we view as critical to us are those relating to estimates
and judgments regarding (a) the determination of the adequacy of the allowance for loan losses, (b) acquisition accounting
,
(c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of employee benefit plans and
(e) income taxes.
Allowance for Loan Losses on Loans Not Acquired
The allowance for loan losses is management’s estimate of probable losses in the
loan portfolio. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is calculated monthly based on management’s assessment
of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies
and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national,
state and local economic trends and conditions, (5) concentrations of credit within the loan portfolio, (6) the experience, ability
and depth of lending management and staff and (7) other factors and trends that will affect specific loans and categories of loans.
We establish general allocations for each major loan category. This category also includes allocations to loans which are collectively
evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.
General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories.
Allowances are accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the
fair value of loan collateral.
Our evaluation of the allowance for loan losses is inherently subjective as it requires
material estimates. The actual amounts of loan losses realized in the near term could differ from the amounts estimated in arriving
at the allowance for loan losses reported in the financial statements.
Acquisition Accounting, Acquired Loans
We account for our acquisitions under ASC Topic 805,
Business Combinations
, which
requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair
value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the
loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the
fair value methodology prescribed in ASC Topic 820. The fair value estimates associated with the loans include estimates related
to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.
We evaluate loans acquired in accordance with the provisions of ASC Topic 310-20,
Nonrefundable
Fees and Other Costs
. The fair value discount on these loans is accreted into interest income over the weighted average life
of the loans using a constant yield method. These loans are not considered to be impaired loans. We evaluate purchased impaired
loans accordance with the provisions of ASC Topic 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
.
Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that
not all contractually required payments will be collected. All loans acquired, whether or not previously covered by FDIC loss share
agreements, are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not
all contractually required payments will be collected.
For impaired loans accounted for under ASC Topic 310-30, we continue to estimate cash
flows expected to be collected on purchased credit impaired loans. We evaluate at each balance sheet date whether the present value
of our purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so, recognize
a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected
to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased
credit impaired loans.
Covered Loans and Related Indemnification Asset
In September 2015, the Bank entered into an agreement with the FDIC to terminate all
of its remaining loss-sharing agreements. As a result, all FDIC-acquired assets are now classified as non-covered. All acquired
loans 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. Under the early termination, all rights and obligations
of the Bank and the FDIC under the FDIC loss share agreements, including the clawback provisions and the settlement of loss share
and expense reimbursement claims, have been resolved and terminated.
Prior to the termination of the loss share agreements, deterioration in the credit quality
of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the basis of the
shared-loss agreements, with the offset recorded through the consolidated statement of income. Increases in the credit quality
or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease
the basis of the shared-loss agreements, with such decrease being accreted into income over 1) the same period or 2) the life of
the shared-loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with
the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates into the fair value of the indemnification
asset an element of the time value of money, which was accreted back into income over the life of the shared-loss agreements.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the
net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be
separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold
or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill
impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350,
Intangibles – Goodwill
and Other
, as amended by ASU 2011-08
– Testing Goodwill for Impairment
. ASC Topic 350 requires that
goodwill and intangible assets that have indefinite lives be reviewed for impairment annually, or more frequently if certain conditions
occur. Impairment losses, if any, will be recorded as operating expenses.
Employee Benefit Plans
We have adopted various stock-based compensation plans. The plans provide
for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, bonus stock awards and performance
stock awards. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding
of bonus shares granted to directors, officers and other key employees.
In accordance with ASC Topic 718,
Compensation – Stock Compensation
, the
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various
assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect
the fair value estimate. For additional information, see Note 14, Stock Based Compensation, in the accompanying Condensed
Notes to Consolidated Financial Statements included elsewhere in this report.
Income Taxes
We are subject to the federal income tax laws of the United States, and the tax laws
of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and
the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates
about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s
income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability
to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts
and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its
current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management
also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and
reserves for contingent tax liabilities.
NET INTEREST INCOME
Overview
Net interest income, our principal source of earnings, is the difference between the
interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors
that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned
and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net
interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to
convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal
and state income tax rate of 39.225%.
Our practice is to limit exposure to interest rate movements by maintaining a significant
portion of earning assets and interest bearing liabilities in short-term repricing. Historically, approximately 70% of
our loan portfolio and approximately 80% of our time deposits have repriced in one year or less. These historical percentages
are consistent with our current interest rate sensitivity.
Net Interest Income
For the three month period ended March 31, 2016, net interest income on a fully taxable
equivalent basis was $72.3 million, an increase of $17.5 million, or 31.9%, over the same period in 2015. The increase
in net interest income was the result of an $18.6 million increase in interest income and a $1.1 million increase in
interest expense.
The increase in interest income primarily resulted from a $15.7 million increase in interest income
on loans, consisting of legacy loans and acquired loans. The increase in loan volume during 2016 generated $20.9 million of additional
interest income, while a 62 basis point decline in yield resulted in a $5.2 million decrease in interest income. The interest
income increase from loan volume was primarily due to our 2015 acquisitions of Liberty and Community First; however, a portion
of the increase in loan interest income can be attributed to our legacy loan growth from the same period last year.
Included in interest income is the additional yield accretion recognized as a result
of updated estimates of the cash flows of our acquired loans, as discussed in Note 5, Loans Acquired, in the accompanying Notes
to Consolidated Financial Statements included elsewhere in this report. Each quarter, we estimate the cash flows expected
to be collected from the acquired loans, and adjustments may or may not be required. The cash flows estimate has increased
based on payment histories and reduced loss expectations of the loans. This resulted in increased interest income that
is spread on a level-yield basis over the remaining expected lives of the loans. For loans previously covered by FDIC
loss sharing agreements, any increases in expected cash flows also reduced the amount of expected reimbursements under the loss
sharing agreements, which were recorded as indemnification assets. The estimated adjustments to the indemnification
assets were amortized on a level-yield basis over the remainder of the loss sharing agreements or the remaining expected life of
the loans, whichever is shorter, and were recorded in non-interest expense.
For the three months ended March 31, 2016, interest income was less by $5.0 million and
non-interest income was greater by $2.7 million, compared to the same period in 2015, due to the adjustments discussed above. The
net effect lowered 2016 first quarter pre-tax income by $2.3 million from 2015. The accretable yield adjustments recorded in future
periods will change as we continue to evaluate expected cash flows from the acquired loans. With the termination of the loss sharing
agreements in 2015, there will be no future adjustments to non-interest income.
The $1.1 million increase in interest expense is primarily from the growth in deposit
accounts and other debt, primarily from Liberty and Community First acquisitions.
Net Interest Margin
Our net interest margin increased 7 basis points to 4.41% for the three month period
ended March 31, 2016, when compared to 4.34% for the same period in 2015. The most significant factor in the increasing
margin during the three month period ended March 31, 2016 is the impact of the lower accretable yield adjustments discussed above
offset by the impact of the loans acquired in the Liberty and Community First acquisitions. Normalized for all accretion on acquired
loans, our net interest margin at March 31, 2016 and 2015 was 3.92% and 3.86%, respectively.
Net Interest Income Tables
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three months ended March 31, 2016 and 2015, respectively, as well as changes in fully taxable equivalent net interest
margin for the three months ended March 31, 2016, versus March 31, 2015.
Table 1: Analysis of Net Interest Margin
(FTE = Fully Taxable Equivalent)
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Interest income
|
|
$
|
75,622
|
|
|
$
|
57,255
|
|
FTE adjustment
|
|
|
2,084
|
|
|
|
1,846
|
|
Interest income – FTE
|
|
|
77,706
|
|
|
|
59,101
|
|
Interest expense
|
|
|
5,390
|
|
|
|
4,293
|
|
Net interest income – FTE
|
|
$
|
72,316
|
|
|
$
|
54,808
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets – FTE
|
|
|
4.74
|
%
|
|
|
4.68
|
%
|
Cost of interest bearing liabilities
|
|
|
0.42
|
%
|
|
|
0.42
|
%
|
Net interest spread – FTE
|
|
|
4.32
|
%
|
|
|
4.26
|
%
|
Net interest margin – FTE
|
|
|
4.41
|
%
|
|
|
4.34
|
%
|
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
|
|
Three Months Ended
March 31,
2016 vs. 2015
|
|
|
|
Increase due to change in earning assets
|
|
$
|
22,438
|
|
Decrease due to change in earning asset yields
|
|
|
(3,833
|
)
|
Decrease due to change in interest bearing liabilities
|
|
|
(888
|
)
|
Decrease due to change in interest rates paid on interest bearing liabilities
|
|
|
(209
|
)
|
Increase in net interest income
|
|
$
|
17,508
|
|
Table 3 shows, for each major category of earning assets and interest bearing liabilities,
the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate
earned or expensed for the three months ended March 31, 2016 and 2015. The table also shows the average rate earned
on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest
margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans
were included in average loans for the purpose of calculating the rate earned on total loans.
Table 3: Average Balance Sheets and Net Interest Income Analysis
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
($ in thousands)
|
|
Average
Balance
|
|
Income/
Expense
|
|
Yield/
Rate (%)
|
|
Average
Balance
|
|
Income/
Expense
|
|
Yield/
Rate (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
167,381
|
|
|
$
|
144
|
|
|
|
0.35
|
|
|
$
|
371,195
|
|
|
$
|
210
|
|
|
|
0.23
|
|
Federal funds sold
|
|
|
1,839
|
|
|
|
10
|
|
|
|
2.19
|
|
|
|
56,846
|
|
|
|
29
|
|
|
|
0.21
|
|
Investment securities - taxable
|
|
|
1,076,855
|
|
|
|
5,311
|
|
|
|
1.98
|
|
|
|
946,932
|
|
|
|
2,011
|
|
|
|
0.86
|
|
Investment securities - non-taxable
|
|
|
429,817
|
|
|
|
5,249
|
|
|
|
4.91
|
|
|
|
338,575
|
|
|
|
5,714
|
|
|
|
6.84
|
|
Mortgage loans held for sale
|
|
|
26,616
|
|
|
|
278
|
|
|
|
4.20
|
|
|
|
14,655
|
|
|
|
148
|
|
|
|
4.10
|
|
Assets held in trading accounts
|
|
|
5,196
|
|
|
|
6
|
|
|
|
0.46
|
|
|
|
6,782
|
|
|
|
3
|
|
|
|
0.18
|
|
Loans
|
|
|
4,889,685
|
|
|
|
66,708
|
|
|
|
5.49
|
|
|
|
3,386,853
|
|
|
|
50,986
|
|
|
|
6.11
|
|
Total interest earning assets
|
|
|
6,597,389
|
|
|
|
77,706
|
|
|
|
4.74
|
|
|
|
5,121,838
|
|
|
|
59,101
|
|
|
|
4.68
|
|
Non-earning assets
|
|
|
901,796
|
|
|
|
|
|
|
|
|
|
|
|
648,896
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,499,185
|
|
|
|
|
|
|
|
|
|
|
$
|
5,770,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
$
|
3,484,571
|
|
|
$
|
2,018
|
|
|
|
0.23
|
|
|
$
|
2,601,046
|
|
|
$
|
1,348
|
|
|
|
0.21
|
|
Time deposits
|
|
|
1,303,614
|
|
|
|
1,636
|
|
|
|
0.50
|
|
|
|
1,154,492
|
|
|
|
1,596
|
|
|
|
0.56
|
|
Total interest bearing deposits
|
|
|
4,788,185
|
|
|
|
3,654
|
|
|
|
0.31
|
|
|
|
3,755,538
|
|
|
|
2,944
|
|
|
|
0.32
|
|
Federal funds purchased and securities sold under agreement to repurchase
|
|
|
113,551
|
|
|
|
65
|
|
|
|
0.23
|
|
|
|
121,568
|
|
|
|
64
|
|
|
|
0.21
|
|
Other borrowings
|
|
|
184,000
|
|
|
|
1,128
|
|
|
|
2.47
|
|
|
|
183,953
|
|
|
|
1,051
|
|
|
|
2.32
|
|
Subordinated debentures
|
|
|
60,109
|
|
|
|
543
|
|
|
|
3.63
|
|
|
|
35,686
|
|
|
|
234
|
|
|
|
2.66
|
|
Total interest bearing liabilities
|
|
|
5,145,845
|
|
|
|
5,390
|
|
|
|
0.42
|
|
|
|
4,096,745
|
|
|
|
4,293
|
|
|
|
0.42
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
1,225,311
|
|
|
|
|
|
|
|
|
|
|
|
946,979
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
53,240
|
|
|
|
|
|
|
|
|
|
|
|
43,825
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,424,396
|
|
|
|
|
|
|
|
|
|
|
|
5,087,549
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,074,789
|
|
|
|
|
|
|
|
|
|
|
|
683,185
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
7,499,185
|
|
|
|
|
|
|
|
|
|
|
$
|
5,770,734
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.32
|
|
|
|
|
|
|
|
|
|
|
|
4.26
|
|
Net interest margin
|
|
|
|
|
|
$
|
72,316
|
|
|
|
4.41
|
|
|
|
|
|
|
$
|
54,808
|
|
|
|
4.34
|
|
Table 4 shows changes in interest income and interest expense resulting from changes
in volume and changes in interest rates for the three month period ended March 31, 2016, as compared to the same period of the
prior year. The changes in interest rate and volume have been allocated to changes in average volume and changes in
average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/Rate Analysis
|
|
Three Months Ended
March 31,
2016 over 2015
|
(In thousands, on a fully
taxable equivalent basis)
|
|
Volume
|
|
Yield/
Rate
|
|
Total
|
|
|
|
|
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
(146
|
)
|
|
$
|
80
|
|
|
$
|
(66
|
)
|
Federal funds sold
|
|
|
(53
|
)
|
|
|
34
|
|
|
|
(19
|
)
|
Investment securities - taxable
|
|
|
310
|
|
|
|
2,990
|
|
|
|
3,300
|
|
Investment securities - non-taxable
|
|
|
1,330
|
|
|
|
(1,795
|
)
|
|
|
(465
|
)
|
Mortgage loans held for sale
|
|
|
125
|
|
|
|
5
|
|
|
|
130
|
|
Assets held in trading accounts
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
3
|
|
Loans
|
|
|
20,873
|
|
|
|
(5,151
|
)
|
|
|
15,722
|
|
Total
|
|
|
22,438
|
|
|
|
(3,833
|
)
|
|
|
18,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
|
498
|
|
|
|
172
|
|
|
|
670
|
|
Time deposits
|
|
|
195
|
|
|
|
(155
|
)
|
|
|
40
|
|
Federal funds purchased and securities sold under agreements to repurchase
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
1
|
|
Other borrowings
|
|
|
--
|
|
|
|
77
|
|
|
|
77
|
|
Subordinated debentures
|
|
|
199
|
|
|
|
110
|
|
|
|
309
|
|
Total
|
|
|
888
|
|
|
|
209
|
|
|
|
1,097
|
|
Increase (decrease) in net interest income
|
|
$
|
21,550
|
|
|
$
|
(4,042
|
)
|
|
$
|
17,508
|
|
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the amount necessary
to be charged against the current period's earnings in order to maintain the allowance for loan losses at a level considered appropriate
in relation to the estimated risk inherent in the loan portfolio. The level of provision to the allowance is based on management's
judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, historical
loan loss experience, assessment of current economic conditions, past due and non-performing loans and net loan loss experience.
It is management's practice to review the allowance on a monthly basis, and, after considering the factors previously noted, to
determine the level of provision made to the allowance.
The provision for loan losses for the three month period ended March 31, 2016, was $2.8
million, compared to $1.2 million for the three month period ended March 31, 2015, an increase of $1.6 million. See Allowance for
Loan Losses section for additional information.
The provision increase resulted from several reasons. Our increased organic legacy loan growth rate required
additional allowance. Significant loan growth in our Missouri and Tennessee markets, both from new loans and from acquired loans
migrating to legacy, required an allowance to be established for those loans through a provision. No provision was recorded on
acquired loans during the three months ended March 31, 2016 as our credit mark on purchased credit impaired loans was deemed sufficient.
NON-INTEREST INCOME
Total non-interest income was $29.5 million for the three month period ended March 31,
2016, an increase of $11.2 million, or 60.9%, compared to $18.3 million for the same period in 2015.
As previously discussed in the Net Interest Income section, there was a $2.7 million
increase in non-interest income from the three month period ended March 31, 2016 to the same period of 2015 due to the elimination
of the amortization of the indemnification asset expected to be collected from the FDIC covered loan portfolios. Excluding
the indemnification asset amortization adjustments, non-interest income increased $8.5 million, or 40.4%, due primarily to the
addition of Liberty and First State.
Non-interest income is principally derived from recurring fee income, which includes
service charges, trust fees and credit card fees. Non-interest income also includes income on the sale of mortgage loans,
investment banking income, income from the increase in cash surrender values of bank owned life insurance, gains (losses) from
sales of securities and gains (losses) related to FDIC-assisted transactions and covered assets.
Table 5 shows non-interest income for the three month periods ended March 31, 2016 and
2015, respectively, as well as changes in 2016 from 2015.
Table 5: Non-Interest Income
|
|
Three Months
Ended March 31
|
|
2016
Change from
|
(In thousands)
|
|
2016
|
|
2015
|
|
2015
|
Trust income
|
|
$
|
3,631
|
|
|
$
|
2,251
|
|
|
$
|
1,380
|
|
|
|
61.31
|
%
|
Service charges on deposit accounts
|
|
|
7,316
|
|
|
|
6,363
|
|
|
|
953
|
|
|
|
14.98
|
|
Other service charges and fees
|
|
|
1,909
|
|
|
|
1,666
|
|
|
|
243
|
|
|
|
14.59
|
|
Mortgage lending income
|
|
|
3,792
|
|
|
|
2,262
|
|
|
|
1,530
|
|
|
|
67.64
|
|
Investment banking income
|
|
|
687
|
|
|
|
894
|
|
|
|
(207
|
)
|
|
|
-23.15
|
|
Credit card fees
|
|
|
7,200
|
|
|
|
5,648
|
|
|
|
1,552
|
|
|
|
27.48
|
|
Bank owned life insurance income
|
|
|
997
|
|
|
|
572
|
|
|
|
425
|
|
|
|
74.3
|
|
Gain (loss) on sale of Sec, net
|
|
|
329
|
|
|
|
(38
|
)
|
|
|
367
|
|
|
|
965.79
|
|
Net (loss) gain on assets covered by FDIC loss share agreements
|
|
|
--
|
|
|
|
(2,671
|
)
|
|
|
2,671
|
|
|
|
100.00
|
|
Other income
|
|
|
3,642
|
|
|
|
1,390
|
|
|
|
2,252
|
|
|
|
162.01
|
|
Total non-interest income
|
|
$
|
29,503
|
|
|
$
|
18,337
|
|
|
$
|
11,166
|
|
|
|
60.89
|
%
|
Recurring fee income (service charges, trust fees and credit card fees) for the three
month period ended March 31, 2016, was $20.1 million, an increase of $4.1 million from the three month period ended March 31, 2015.
Trust income increased by $1.4 million or 61.31%, and service charges on deposit accounts increased by $953,000, or 14.98%. The
majority of the increase was due to the additions of accounts from the Community First and Liberty acquisitions and trust operations
due to the Ozark Trust acquisition.
Mortgage lending income increased by $1.5 million for the three months ended March 31,
2016 compared to last year, due primarily to additional lenders and customers as a result of the Community First and Liberty acquisitions.
Net loss on assets covered by FDIC loss share agreements decreased by $2.7 million due
to the termination of the FDIC loss share agreements and the related indemnification asset.
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and employee benefits, occupancy, equipment,
foreclosure losses and other expenses necessary for the operation of the Company. Management remains committed to controlling
the level of non-interest expense, through the continued use of expense control measures that have been installed. We
utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of
the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure
budgets. These profit plans are subject to extensive initial reviews and monitored by management on a monthly basis. Variances
from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are
met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with
existing workload requirements.
Non-interest expense for the three months ended March 31, 2016 was $61.8 million,
an increase of $4.6 million, or 8.0%, from the same period in 2015. The most significant impact to non-interest expense were the
following nonrecurring items.
First, we saw a $10.3 million decrease in merger related costs from last year. We only
had $93,000 of merger related costs in the first quarter of 2016 compared to $10.4 million in merger related costs from our
acquisitions of Liberty and Community First in the first quarter of 2015.
Branch right sizing expense for the first quarter of 2016 declined to $14,000 from $35,000
for the first quarter of 2015.
Normalizing for the nonrecurring merger related costs and branch right sizing expenses,
non-interest expense for the three months ended March 31, 2016 increased $14.9 million, or 31.9 %, from the same period in 2015,
primarily due to the incremental operating expenses of the acquired franchises.
Salaries and employee benefits increased by $8.2 million for the three months ended March
31, 2016 and occupancy expense increased by $914,000 for the same period, while furniture and equipment expense increased by $679,000
from the same period in 2015. These increases, along with the increases in several other operating expense categories, were a result
of the Community First and Liberty acquisitions. Professional services increased by $1.7 million for the three months ended March
31, 2016 from the same period in 2015 related to exam fees, auditing and accounting services and general consulting expenses.
Table 6 below shows non-interest expense for the three month periods ended March 31,
2016 and 2015, respectively, as well as changes in 2016 from 2015.
Table 6: Non-Interest Expense
|
|
Three Months
Ended March 31
|
|
2016
Change from
|
(In thousands)
|
|
2016
|
|
2015
|
|
2015
|
Salaries and employee benefits
|
|
$
|
34,773
|
|
|
$
|
26,610
|
|
|
$
|
8,163
|
|
|
|
30.68
|
%
|
Occupancy expense, net
|
|
|
4,471
|
|
|
|
3,557
|
|
|
|
914
|
|
|
|
25.70
|
|
Furniture and equipment expense
|
|
|
3,947
|
|
|
|
3,268
|
|
|
|
679
|
|
|
|
20.78
|
|
Other real estate and foreclosure expense
|
|
|
966
|
|
|
|
381
|
|
|
|
585
|
|
|
|
153.54
|
|
Deposit insurance
|
|
|
1,148
|
|
|
|
870
|
|
|
|
278
|
|
|
|
31.95
|
|
Merger related costs
|
|
|
93
|
|
|
|
10,419
|
|
|
|
(10,326
|
)
|
|
|
-99.11
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
3,501
|
|
|
|
1,804
|
|
|
|
1,697
|
|
|
|
94.07
|
|
Postage
|
|
|
1,235
|
|
|
|
933
|
|
|
|
302
|
|
|
|
32.37
|
|
Telephone
|
|
|
1,060
|
|
|
|
861
|
|
|
|
199
|
|
|
|
23.11
|
|
Credit card expenses
|
|
|
2,830
|
|
|
|
1,989
|
|
|
|
841
|
|
|
|
42.28
|
|
Operating supplies
|
|
|
358
|
|
|
|
454
|
|
|
|
(96
|
)
|
|
|
-21.15
|
|
Amortization of intangibles
|
|
|
1,455
|
|
|
|
899
|
|
|
|
556
|
|
|
|
61.85
|
|
Branch right sizing expense
|
|
|
14
|
|
|
|
35
|
|
|
|
(21
|
)
|
|
|
-60.00
|
|
Other expense
|
|
|
5,938
|
|
|
|
5,131
|
|
|
|
807
|
|
|
|
15.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
61,789
|
|
|
$
|
57,211
|
|
|
$
|
4,578
|
|
|
|
8.00
|
%
|
LOAN PORTFOLIO
Our legacy loan portfolio, excluding loans acquired, averaged $3.325 billion and $2.085
billion during the first three months of 2016 and 2015, respectively. As of March 31, 2016, total loans, excluding
loans acquired, were $3.473 billion, an increase of $226.2 million from December 31, 2015. The most significant
components of the loan portfolio were loans to businesses (commercial loans, commercial real estate loans and agricultural loans)
and individuals (consumer loans, credit card loans and single-family residential real estate loans).
When we make a credit decision on an acquired loan as a result of the loan maturing or
renewing, the outstanding balance of that loan migrates from loans acquired to legacy loans. Our legacy loan growth from December
31, 2015 to March 31, 2016 included $36.4 million in balances that migrated from acquired loans during the period. These migrated
loan balances are included in the legacy loan balances as of March 31, 2016.
We seek to manage our credit risk by diversifying our loan portfolio, determining that
borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral,
providing an appropriate allowance for loan losses and regularly reviewing loans through the internal loan review process. The
loan portfolio is diversified by borrower, purpose and industry and, in the case of credit card loans, which are unsecured, by
geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing
the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral
requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We
use the allowance for loan losses as a method to value the loan portfolio at its estimated collectible amount. Loans
are regularly reviewed to facilitate the identification and monitoring of deteriorating credits.
The balances of loans outstanding, excluding loans acquired, at the indicated dates are
reflected in Table 7, according to type of loan.
Table 7: Loan Portfolio
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
167,803
|
|
|
$
|
177,288
|
|
Other consumer
|
|
|
227,480
|
|
|
|
208,380
|
|
Total consumer
|
|
|
395,283
|
|
|
|
385,668
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
300,042
|
|
|
|
279,740
|
|
Single family residential
|
|
|
746,754
|
|
|
|
696,180
|
|
Other commercial
|
|
|
1,327,372
|
|
|
|
1,229,072
|
|
Total real estate
|
|
|
2,374,168
|
|
|
|
2,204,992
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
551,695
|
|
|
|
500,116
|
|
Agricultural
|
|
|
143,033
|
|
|
|
148,563
|
|
Total commercial
|
|
|
694,728
|
|
|
|
648,679
|
|
Other
|
|
|
8,512
|
|
|
|
7,115
|
|
Total loans, excluding loans acquired, before allowance for loan losses
|
|
$
|
3,472,691
|
|
|
$
|
3,246,454
|
|
Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $395.3 million
at March 31, 2016, or 11.3% of total loans, compared to $385.7 million, or 11.9% of total loans at December 31, 2015. The
increase in consumer loans from December 31, 2015, to March 31, 2016, was due to growth in direct and indirect consumer loans partially
offset by the expected seasonal decline in our credit card portfolio.
Real estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $2.374 billion at March 31, 2016, or 68.4% of total loans, compared
to the $2.205 billion, or 67.9%, of total loans at December 31, 2015, an increase of $169.2 million.
Commercial loans consist of non-agricultural commercial loans and agricultural loans. Commercial loans
were $694.7 million at March 31, 2016, or 20.0% of total loans, compared to $648.7 million, or 20.0% of total loans at
December 31, 2015, an increase of $46.0 million. Non-agricultural commercial loans increased to $551.7 million,
a $51.6 million, or 10.3%, growth from December 31, 2015. Agricultural loans decreased to $143.0 million, a $5.5 million, or 3.7%,
decline primarily due to seasonality of the portfolio, which normally peaks in the third quarter and is at its lowest point at
the end of the first quarter.
LOANS ACQUIRED
On February 27, 2015, we completed the acquisition of Liberty and issued 5,181,337 shares
of the Company’s common stock valued at approximately $212.2 million as of February 27, 2015 in exchange for all outstanding
shares of Liberty common stock. Included in the acquisition were loans with a fair value of $780.7 million.
On February 27, 2015, we also completed the acquisition of Community First and issued 6,552,915 shares of
the Company’s common stock valued at approximately $268.3 million as of February 27, 2015, plus $9,974 in cash in exchange
for all outstanding shares of Community First common stock. We also issued $30.9 million of preferred stock in exchange for all
outstanding shares of Community First preferred stock. Included in the acquisition were loans with a fair value of $1.1 billion.
On August 31, 2014, we completed the acquisition of Delta Trust & Banking Corporation (“Delta Trust”),
and issued 1,629,424 shares of the Company’s common stock valued at approximately $65.0 million as of August 29, 2014, plus
$2.4 million in cash in exchange for all outstanding shares of Delta Trust common stock. Included in the acquisition were loans
with a fair value of $311.7 million.
On November 25, 2013, we completed the acquisition of Metropolitan National Bank (“Metropolitan”),
in which the Company purchased all the stock of Metropolitan for $53.6 million in cash. The acquisition was conducted in accordance
with the provisions of Section 363 of the United States Bankruptcy Code. Included in the acquisition were loans with a fair value
of $457.4 million and foreclosed assets with a fair value of $42.9 million.
On September 15, 2015, we entered into an agreement with the FDIC to terminate all loss
share agreements. Under the early termination, all rights and obligations of the Company and the FDIC under the FDIC loss share
agreements, including the clawback provisions and the settlement of loss share and expense reimbursement claims, have been resolved
and terminated. As a result, we have reclassified loans previously covered by FDIC loss share to acquired loans not covered and
reclassified foreclosed assets previously covered by FDIC loss share to foreclosed assets not covered.
Table 8 reflects the carrying value of all acquired loans as of March 31, 2016 and December
31, 2015.
Table 8: Loans Acquired
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Other consumer
|
|
$
|
62,756
|
|
|
$
|
75,606
|
|
Total consumer
|
|
|
62,756
|
|
|
|
75,606
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
58,902
|
|
|
|
77,119
|
|
Single family residential
|
|
|
450,339
|
|
|
|
501,002
|
|
Other commercial
|
|
|
759,482
|
|
|
|
854,068
|
|
Total real estate
|
|
|
1,268,723
|
|
|
|
1,432,189
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
120,993
|
|
|
|
154,533
|
|
Agricultural
|
|
|
4,898
|
|
|
|
10,573
|
|
Total commercial
|
|
|
125,891
|
|
|
|
165,106
|
|
Total loans acquired
(1)
|
|
$
|
1,457,370
|
|
|
$
|
1,672,901
|
|
_____________________________________________________________
|
(1)
|
Loans acquired are reported net of a $954,000 allowance at March 31, 2016 and December 31, 2015.
|
Approximately $2.0 billion of the loans acquired in the Liberty, Community First, Metropolitan
and Delta Trust acquisitions were evaluated and are being accounted for in accordance with ASC Topic 310-20,
Nonrefundable Fees
and Other Costs
. The fair value discount is being accreted into interest income over the weighted average life of the loans
using a constant yield method. These loans are not considered to be impaired loans.
We evaluated the remaining loans purchased in conjunction with the acquisitions of Liberty,
Community First, Metropolitan and Delta Trust for impairment in accordance with the provisions of ASC Topic 310-30,
Loans and
Debt Securities Acquired with Deteriorated Credit Quality
. Purchased loans are considered impaired if there is evidence of
credit deterioration since origination and if it is probable that not all contractually required payments will be collected. Because
some loans we evaluated, previously covered by loss share agreements, were determined to have experienced impairment in the estimated
credit quality or cash flows during 2014, we recorded a provision to establish a $954,000 allowance for loan losses for covered
purchased impaired loans. With the termination of our FDIC loss share agreements, the $954,000 allowance has been reclassified
as allowance on acquired loans, not covered by loss share. See Note 2 and Note 5 of the Notes to Consolidated Financial Statements
for further discussion of loans acquired.
ASSET QUALITY
A loan is considered impaired when it is probable that we will not receive all amounts
due according to the contractual terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more
and nonaccrual loans) and certain other loans identified by management that are still performing.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually
past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the borrower. Simmons Bank recognizes income principally on the accrual basis
of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest
is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding
the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either
(i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the
portion of the loan determined to be uncollectible is then charged to the allowance for loan losses.
Credit card loans are classified as impaired when payment of interest or principal is
90 days past due. Litigation accounts are placed on nonaccrual until such time as deemed uncollectible. Credit card loans are generally
charged off when payment of interest or principal exceeds 180 days past due, but are turned over to the credit card recovery department,
to be pursued until such time as they are determined, on a case-by-case basis, to be uncollectible.
Total non-performing assets, excluding all loans acquired, increased by $12.6 million from December 31, 2015
to March 31, 2016. Foreclosed assets held for sale decreased by $3.7 million. Nonaccrual loans increased by $16.5 million
during the period, primarily CRE loans. Non-performing assets, including trouble debt restructurings (“TDRs”) and acquired
non-covered foreclosed assets, as a percent of total assets were 1.16% at March 31, 2016, compared to 0.89% at December 31, 2015.
The increase in the non-performing ratio from the fourth quarter is primarily the result of a single credit totaling $13.5 million.
We feel we are adequately reserved for the potential exposure related to this credit. Excluding this credit, the non-performing
ratio was relatively unchanged at 0.98% for March 31, 2016.
From time to time, certain borrowers of all types are experiencing declines in income
and cash flow. As a result, many borrowers are seeking to reduce contractual cash outlays, the most prominent being
debt payments. In an effort to preserve our net interest margin and earning assets, we are open to working with existing
customers in order to maximize the collectability of the debt.
When we restructure a loan to a borrower that is experiencing financial difficulty and
grant a concession that we would not otherwise consider, a “troubled debt restructuring” results and the Company classifies
the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment
modifications or extensions, with an occasional forgiveness of principal.
Under ASC Topic 310-10-35 –
Subsequent Measurement
, a TDR is considered
to be impaired, and an impairment analysis must be performed. We assess the exposure for each modification, either by
collateral discounting or by calculation of the present value of future cash flows, and determine if a specific allocation to the
allowance for loan losses is needed.
Once an obligation has been restructured because of such credit problems, it continues
to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession
regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year
in which the improvement takes place. Our TDR balance increased to $14.3 million at March 31, 2016, compared to $5.6
million at December 31, 2015. The majority of our TDRs remain in the CRE portfolio.
We return TDRs to accrual status only if (1) all contractual amounts due can reasonably
be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period,
typically at least six months.
We continue to maintain good asset quality, compared to the industry. The
allowance for loan losses as a percent of total loans was 0.94% as of March 31, 2016. Non-performing loans equaled 1.01%
of total loans. Non-performing assets were 1.02% of total assets, a 17 basis point increase from December 31, 2015. The
allowance for loan losses was 93% of non-performing loans. Our annualized net charge-offs to total loans for the first
three months of 2016 was 0.18%. Excluding credit cards, the annualized net charge-offs to total loans for the same period
was 0.11%. Annualized net credit card charge-offs to total credit card loans were 1.46%, compared to 1.28% during the
full year 2015, and more than 140 basis points better than the most recently published industry average charge-off ratio as reported
by the Federal Reserve for all banks.
Table 9 presents information concerning non-performing assets, including nonaccrual loans
and foreclosed assets held for sale (excluding all loans acquired and excluding foreclosed assets covered by FDIC loss share).
Table 9: Non-performing Assets
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Nonaccrual loans
(1)
|
|
$
|
34,244
|
|
|
$
|
17,714
|
|
Loans past due 90 days or more (principal or interest payments)
|
|
|
881
|
|
|
|
1,191
|
|
Total non-performing loans
|
|
|
35,125
|
|
|
|
18,905
|
|
Other non-performing assets:
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale
|
|
|
41,126
|
|
|
|
44,820
|
|
Other non-performing assets
|
|
|
256
|
|
|
|
211
|
|
Total other non-performing assets
|
|
|
41,382
|
|
|
|
45,031
|
|
Total non-performing assets
|
|
$
|
76,507
|
|
|
$
|
63,936
|
|
|
|
|
|
|
|
|
|
|
Performing TDRs
|
|
$
|
10,759
|
|
|
$
|
3,031
|
|
Allowance for loan losses to non-performing loans
|
|
|
93
|
%
|
|
|
166
|
%
|
Non-performing loans to total loans
|
|
|
1.01
|
%
|
|
|
0.58
|
%
|
Non-performing assets to total assets
(2)
|
|
|
1.02
|
%
|
|
|
0.85
|
%
|
________________________________________________
|
(1)
|
Includes nonaccrual TDRs of approximately $3.6 million at March 31, 2016 and $2.5 million at December 31, 2015.
|
|
(2)
|
Excludes all loans acquired, except for their inclusion in total assets.
|
There was no interest income on nonaccrual loans recorded for the three month periods
ended March 31, 2016 and 2015.
At March 31, 2016, impaired loans, net of government guarantees and loans acquired, were
$33.8 million compared to $18.2 million at December 31, 2015. On an ongoing basis, management evaluates the underlying
collateral on all impaired loans and allocates specific reserves, where appropriate, in order to absorb potential losses if the
collateral were ultimately foreclosed.
ALLOWANCE FOR LOAN LOSSES
Overview
The allowance for loan losses is a reserve established through a provision for loan losses
charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing
portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent
in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance
with ASC Topic 310-10,
Receivables
, and allowance allocations calculated in accordance with ASC Topic 450-20,
Loss Contingencies
.
Accordingly, the methodology is based on our internal grading system, specific impairment analysis, qualitative and quantitative
factors.
As mentioned above, allocations to the allowance for loan losses are categorized as either
specific allocations or general allocations.
Specific Allocations
A loan is considered impaired when it is probable that we will not receive all amounts
due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent
loan, our evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the
remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance
for loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference
between the expected and contractual future cash flows of the loan.
General Allocations
The general allocation is calculated monthly based on management’s assessment of
several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals,
(3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local
economic trends and conditions, (5) concentrations of credit within the loan portfolio, (6) the experience, ability and depth of
lending management and staff and (7) other factors and trends that will affect specific loans and categories of loans. We established
general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated
for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.
An analysis of the allowance for loan losses is shown in Table 10.
Table 10: Allowance for Loan Losses
(In thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
31,351
|
|
|
$
|
29,028
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
859
|
|
|
|
785
|
|
Other consumer
|
|
|
393
|
|
|
|
220
|
|
Real estate
|
|
|
229
|
|
|
|
293
|
|
Commercial
|
|
|
476
|
|
|
|
245
|
|
Total loans charged off
|
|
|
1,957
|
|
|
|
1,543
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
242
|
|
|
|
213
|
|
Other consumer
|
|
|
103
|
|
|
|
133
|
|
Real estate
|
|
|
112
|
|
|
|
12
|
|
Commercial
|
|
|
7
|
|
|
|
169
|
|
Total recoveries
|
|
|
464
|
|
|
|
527
|
|
Net loans charged off
|
|
|
1,493
|
|
|
|
1,016
|
|
Provision for loan losses
(1)
|
|
|
2,823
|
|
|
|
1,171
|
|
Balance, March 31
(2)
|
|
$
|
32,681
|
|
|
|
29,183
|
|
|
|
|
|
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
2,322
|
|
Other consumer
|
|
|
|
|
|
|
1,452
|
|
Real estate
|
|
|
|
|
|
|
1,287
|
|
Commercial
|
|
|
|
|
|
|
1,170
|
|
Total loans charged off
|
|
|
|
|
|
|
6,231
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
677
|
|
Other consumer
|
|
|
|
|
|
|
405
|
|
Real estate
|
|
|
|
|
|
|
191
|
|
Commercial
|
|
|
|
|
|
|
11
|
|
Total recoveries
|
|
|
|
|
|
|
1,284
|
|
Net loans charged off
|
|
|
|
|
|
|
4,947
|
|
Provision for loan losses
(1)
|
|
|
|
|
|
|
7,115
|
|
Balance, end of year
(2)
|
|
|
|
|
|
$
|
31,351
|
|
___________________________________________________________________________________
(1) Provision for loan losses of $736,000 attributable
to loans acquired, was excluded from this table for 2015 (total year-to-date provision for loan losses is $9,022,000). The $736,000
was subsequently charged-off, resulting in no increase in the allowance related to loans acquired.
(2) Allowance for loan losses at March 31, 2016 and
December 31, 2015 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses
at March 31, 2016 and December 31, 2015 was $33,635,000 and $32,305,000, respectively.
Provision for Loan Losses
The amount of provision to the allowance during the three months ended March 31, 2016
and 2015, and for the year ended December 31, 2015, was based on management's judgment, with consideration given to the composition
of the portfolio, historical loan loss experience, assessment of current economic conditions, past due and non-performing loans
and net loss experience. It is management's practice to review the allowance on a monthly basis, and after considering
the factors previously noted, to determine the level of provision made to the allowance.
Allowance for Loan Losses Allocation
As of March 31, 2016, the allowance for loan losses reflects an increase of approximately
$1.3 million from December 31, 2015, while total loans, excluding loans acquired, increased by $226.2 million over the same
three month period. The allocation in each category within the allowance generally reflects the overall changes in the
loan portfolio mix.
The following table sets forth the sum of the amounts of the allowance for loan losses
attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of
loans in each category to the total loan portfolio, excluding loans acquired, for each of the periods indicated. These allowance
amounts have been computed using the Company’s internal grading system, specific impairment analysis, qualitative and quantitative
factor allocations. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual
categories.
Table 11: Allocation of Allowance for Loan Losses
|
|
March 31, 2016
|
|
December 31, 2015
|
($ in thousands)
|
|
Allowance
Amount
|
|
% of
loans
(1)
|
|
Allowance
Amount
|
|
% of
loans
(1)
|
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
3,757
|
|
|
|
4.8
|
%
|
|
$
|
3,893
|
|
|
|
5.5
|
%
|
Other consumer
|
|
|
1,824
|
|
|
|
6.6
|
%
|
|
|
1,853
|
|
|
|
6.4
|
%
|
Real estate
|
|
|
19,925
|
|
|
|
68.4
|
%
|
|
|
19,522
|
|
|
|
67.9
|
%
|
Commercial
|
|
|
7,083
|
|
|
|
20.0
|
%
|
|
|
5,985
|
|
|
|
20.0
|
%
|
Other
|
|
|
92
|
|
|
|
0.2
|
%
|
|
|
98
|
|
|
|
0.2
|
%
|
Total
(2)
|
|
$
|
32,681
|
|
|
|
100.0
|
%
|
|
$
|
31,351
|
|
|
|
100.0
|
%
|
___________________________________________
(1) Percentage of loans in each category to total loans, excluding loans acquired.
(2) Allowance for loan losses at March 31, 2016 and December 31, 2015 includes $954,000
allowance for loans acquired (not shown in the table above). The total allowance for loan losses at March 31, 2016 and December
31, 2015 was $33,635,000 and $32,305,000, respectively
DEPOSITS
Deposits are our primary source of funding for earning assets and are primarily developed
through our network of over 100 financial centers. We offer a variety of products designed to attract and retain customers
with a continuing focus on developing core deposits. Our core deposits consist of all deposits excluding time deposits
of $100,000 or more and brokered deposits. As of March 31, 2016, core deposits comprised 90.0% of our total deposits.
We continually monitor the funding requirements along with competitive interest rates
in the markets we serve. Because of our community banking philosophy, our executives in the local markets establish
the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid
are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe
we are paying a competitive rate when compared with pricing in those markets.
We manage our interest expense through deposit pricing and do not anticipate a significant
change in total deposits. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit
pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an
additional source of funding to meet liquidity needs.
Our total deposits as of March 31, 2016, were $6.080 billion, a decrease of $6.3 million
from December 31, 2015. We have continued our strategy to move more volatile time deposits to less expensive, revenue
enhancing transaction accounts. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts
totaled $4.800 billion at March 31, 2016, compared to $4.766 billion at December 31, 2015, a $33.5 million increase. Total time
deposits decreased $40.0 million to $1.280 billion at March 31, 2016, from $1.320 billion at December 31, 2015. We had $4.9 million
and $1.5 million of brokered deposits at March 31, 2016, and December 31, 2015, respectively.
OTHER BORROWINGS AND SUBORDINATED DEBENTURES
Our total debt was $236.9 million and $222.9 million at March 31, 2016 and December 31,
2015, respectively. The outstanding balance for March 31, 2016 includes $70.0 million in FHLB short-term advances, $55.6 million
in FHLB long-term advances, $51.2 million in notes payable and $60.1 million of trust preferred securities. The outstanding balance
for December 31, 2015 included $40.0 million in FHLB short-term advances, $70.0 million in FHLB long-term advances, $52.3
million in notes payable and $60.6 million of trust preferred securities.
The $51.2 million notes payable is unsecured debt from correspondent banks at a rate
of 3.85% with quarterly principal and interest payments. The debt has a 10 year amortization with a 5 year balloon payment due
in October 2020.
During the three months ended March 31, 2015, we increased total debt by $14 million
from December 31, 2015 primarily due to the $30.0 million increase in FHLB short-term advances offset by the maturity of $14.4
million of FHLB long-term advances.
CAPITAL
Overview
At March 31, 2016, total capital was $1.072 billion. Capital represents shareholder
ownership in the Company – the book value of assets in excess of liabilities. At March 31, 2016, our common equity
to assets ratio was 14.2%, up 40 basis points from year-end 2015.
Capital Stock
On February 27, 2009, at a special meeting, our shareholders approved an amendment to
the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. The aggregate
liquidation preference of all shares of preferred stock cannot exceed $80,000,000.
On February 27, 2015, as part of the acquisition of Community First, the Company issued
30,852 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Simmons Series A Preferred Stock”) in
exchange for the outstanding shares of Community First Senior Non-Cumulative Perpetual Preferred Stock, Series C (“Community
First Series C Preferred Stock”). The preferred stock was held by the United States Department of the Treasury (“Treasury”)
as the Community First Series C Preferred Stock was issued when Community First entered into a Small Business Lending Fund Securities
Purchase Agreement with the Treasury. The Simmons Series A Preferred Stock qualifies as Tier 1 capital and paid quarterly
dividends. On January 29, 2016, the Company redeemed all of the Simmons Series A Preferred Stock, including accrued and unpaid
dividends.
On March 4, 2014 the Company filed a shelf registration statement with the Securities
and Exchange Commission (“SEC”). Subsequently, on June 18, 2014 the Company filed Amendment No. 1 to the shelf registration
statement. After becoming effective, the shelf registration statement allows us to raise capital from time to time, up to an aggregate
of $300 million, through the sale of common stock, preferred stock, stock warrants, stock rights or a combination thereof, subject
to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement
that we are required to file with the SEC at the time of the specific offering.
Stock Repurchase
During 2012, we announced the adoption by the Board of Directors of a new stock repurchase
program. The program authorizes the repurchase of up to 850,000 additional shares of Class A common stock, or approximately 5%
of the shares outstanding at that time. The shares are to be purchased from time to time at prevailing market prices, through open
market or unsolicited negotiated transactions, depending upon market conditions. Under the repurchase program, there is no time
limit for the stock repurchases, nor is there a minimum number of shares that the Company intends to repurchase. We intend to use
the repurchased shares to satisfy stock option exercises, payment of future stock awards and dividends and general corporate purposes.
We had no stock repurchases during the first quarter of 2015 or 2016.
Cash Dividends
We declared cash dividends on our common stock of $0.24 per share for the first three
months of 2016 compared to $0.23 per share for the first three months of 2015, an increase of $0.01, or 4.3%. The timing
and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings,
financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable
government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of Directors
anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However,
there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all.
Parent Company Liquidity
The primary liquidity needs of the Parent Company are the payment of dividends to shareholders,
the funding of debt obligations and the share repurchase plan. The primary sources for meeting these liquidity needs
are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends
by the subsidiary bank is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions
of Item 3 – Quantitative and Qualitative Disclosure About Market Risk for additional information regarding the
parent company’s liquidity.
Risk Based Capital
Our bank subsidiary is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines
that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us
to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined
in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management
believes that, as of March 31, 2016, we meet all capital adequacy requirements to which we are subject.
As of the most recent notification from regulatory agencies, the subsidiary was well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the
Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table. There are no conditions or events since that notification that management believes
have changed the institutions’ categories.
Our risk-based capital ratios at March 31, 2016 and December 31, 2015 are presented in
Table 12 below:
Table 12: Risk-Based Capital
($ in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Tier 1 capital:
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
$
|
1,071,984
|
|
|
$
|
1,076,855
|
|
Trust preferred securities
|
|
|
60,077
|
|
|
|
60,570
|
|
Goodwill and other intangible assets
|
|
|
(335,166
|
)
|
|
|
(331,931
|
)
|
Unrealized gain on available-for-sale securities, net of income taxes
|
|
|
(3,566
|
)
|
|
|
2,665
|
|
Total Tier 1 capital
|
|
|
793,329
|
|
|
|
808,159
|
|
Tier 2 capital:
|
|
|
|
|
|
|
|
|
Qualifying unrealized gain on available-for-sale equity securities
|
|
|
--
|
|
|
|
--
|
|
Qualifying allowance for loan losses
|
|
|
36,398
|
|
|
|
35,068
|
|
Total Tier 2 capital
|
|
|
36,398
|
|
|
|
35,068
|
|
Total risk-based capital
|
|
$
|
829,727
|
|
|
$
|
843,227
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
5,293,395
|
|
|
$
|
5,044,453
|
|
|
|
|
|
|
|
|
|
|
Assets for leverage ratio
|
|
$
|
7,167,839
|
|
|
$
|
7,218,559
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of period:
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio (CET1)
|
|
|
13.85
|
%
|
|
|
14.21
|
%
|
Tier 1 leverage ratio
|
|
|
11.07
|
%
|
|
|
11.20
|
%
|
Tier 1 risk-based capital ratio
|
|
|
14.99
|
%
|
|
|
16.02
|
%
|
Total risk-based capital ratio
|
|
|
15.67
|
%
|
|
|
16.72
|
%
|
Minimum guidelines:
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Tier 1 leverage ratio
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Tier 1 risk-based capital ratio
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Total risk-based capital ratio
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Well capitalized guidelines:
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio
|
|
|
6.50
|
%
|
|
|
6.50
|
%
|
Tier 1 leverage ratio
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Tier 1 risk-based capital ratio
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Total risk-based capital ratio
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
Regulatory Capital Changes
In July 2013, the Company’s primary federal regulator, the Federal Reserve, published
final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banks. The
rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international
capital standards. The Basel III Capital Rules substantially revised the risk-based capital requirements applicable to bank holding
companies and depository institutions compared to the then current U.S. risk-based capital rules.
The Basel III Capital Rules define the components of capital and address other issues
affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other
issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting
approach with a more risk-sensitive approach.
The Basel III Capital Rules expand the risk-weighting categories from the four Basel
I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature
of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting
in higher risk weights for a variety of asset categories, including many residential mortgages and certain commercial real estate.
The final rules include a new common equity Tier 1 capital to risk-weighted assets ratio
of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raise the minimum
ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The Basel III
Capital Rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance with all of the
final rule’s requirements phased in over a multi-year schedule.
The Company and Bank must hold a capital conservation buffer composed of CET1 capital
above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016,
at the 0.625% level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until it
reaches 2.5% on January 1, 2019). As of March 31, 2016, the Company and its subsidiary bank met all capital adequacy requirements
under the Basel III Capital Rules, and management believes the Company and subsidiary bank would meet all Capital Rules on a fully
phased-in basis if such requirements were currently effective.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See the section titled
Recently Issued Accounting Pronouncements
in Note 1, Basis
of Presentation, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for
details of recently issued accounting pronouncements and their expected impact on the Company’s ongoing financial position
and results of operation.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report may not be based on historical
facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified
by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “estimate,”
“expect,” “foresee,” “believe,” “may,” “might,” “will,”
“would,” “could” or “intend,” future or conditional verb tenses, and variations or negatives
of such terms. These forward-looking statements include, without limitation, those relating to the Company’s future
growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, net interest margin,
non-interest revenue, market conditions related to the Company’s stock repurchase program, allowance for loan losses, the
effect of certain new accounting standards on the Company’s financial statements, income tax deductions, credit quality,
the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity,
capital resources, market risk, earnings, effect of pending litigation, acquisition strategy, efficiency initiatives, legal and
regulatory limitations and compliance and competition.
These forward-looking statements involve risks and uncertainties, and may not be realized
due to a variety of factors, including, without limitation: the effects of future economic conditions, governmental monetary and
fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates and their effects on the
level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and
liabilities; the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; the effects of competition
from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere,
including institutions operating regionally, nationally and internationally, together with such competitors offering banking products
and services by mail, telephone, computer and the Internet; the failure of assumptions underlying the establishment of reserves
for possible loan losses; and those factors set forth under Item 1A. Risk-Factors of this report and other cautionary statements
set forth elsewhere in this report. Many of these factors are beyond our ability to predict or control. In
addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of
future performance.
We believe the expectations reflected in our forward-looking statements are reasonable,
based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot
guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events
or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by
this section.
RECONCILIATION OF NON-GAAP MEASURES
The table below presents computations of core earnings
(net income excluding nonrecurring items {
g
ain from early retirement of trust preferred securities,
merger related costs and branch right sizing expenses}) and diluted core earnings per share (non-GAAP). Nonrecurring items are
included in financial results presented in accordance with generally accepted accounting principles (“GAAP”).
The Company believes the exclusion of these nonrecurring items in expressing earnings
and certain other financial measures, including “core earnings”, provides a meaningful base for period-to-period and
company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures
of the Company and predicting future performance. This non-GAAP financial measure is also used by management to assess the performance
of the Company’s business, because management does not consider these nonrecurring items to be relevant to ongoing financial
performance. Management and the Board of Directors utilize “core earnings” (non-GAAP) for the following
purposes:
• Preparation of the Company’s
operating budgets
• Monthly financial performance
reporting
• Monthly “flash”
reporting of consolidated results (management only)
• Investor presentations
of Company performance
The Company believes the presentation of “core earnings” on a diluted per
share basis, “diluted core earnings per share” (non-GAAP), provides a meaningful base for period-to-period and company-to-company
comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company
and predicting future performance. This non-GAAP financial measure is also used by management to assess the performance
of the Company’s business, because management does not consider these nonrecurring items to be relevant to ongoing financial
performance on a per share basis. Management and the Board of Directors utilize “diluted core earnings per share”
(non-GAAP) for the following purposes:
• Calculation of annual
performance-based incentives for certain executives
• Calculation of long-term
performance-based incentives for certain executives
• Investor presentations
of Company performance
The Company believes that presenting these non-GAAP financial measures will permit investors
and analysts to assess the performance of the Company on the same basis as that applied by management and the Board of Directors.
“Core earnings” and “diluted core earnings per share” (non-GAAP)
have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations,
the Company has procedures in place to identify and approve each item that qualifies as nonrecurring to ensure that the Company’s
“core” results are properly reflected for period-to-period comparisons. Although these non-GAAP financial
measures are frequently used by stakeholders in the evaluation of a Company, they have limitations as analytical tools, and should
not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In particular, a
measure of earnings that excludes nonrecurring items does not represent the amount that effectively accrues directly to stockholders
(i.e., nonrecurring items are included in earnings and stockholders’ equity).
See Table 13 below for the reconciliation of non-GAAP financial measures, which exclude
nonrecurring items for the periods presented.
Table 13: Reconciliation of Core Earnings (non-GAAP)
|
|
Three Months Ended
March 31,
|
($ in thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
23,481
|
|
|
$
|
8,709
|
|
Nonrecurring items:
|
|
|
|
|
|
|
|
|
Gain form early retirement of trust preferred securities
|
|
|
(594
|
)
|
|
|
--
|
|
Merger related costs
|
|
|
93
|
|
|
|
10,419
|
|
Branch right sizing
|
|
|
14
|
|
|
|
35
|
|
Tax effect
(1)
|
|
|
191
|
|
|
|
(3,463
|
)
|
Net nonrecurring items
|
|
|
(296
|
)
|
|
|
6,991
|
|
Core earnings (non-GAAP)
|
|
$
|
23,185
|
|
|
$
|
15,700
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.77
|
|
|
$
|
0.39
|
|
Nonrecurring items:
|
|
|
|
|
|
|
|
|
Gain from early retirement of trust preferred securities
|
|
|
(0.02
|
)
|
|
|
--
|
|
Merger related costs
|
|
|
--
|
|
|
|
0.47
|
|
Branch right sizing
|
|
|
--
|
|
|
|
--
|
|
Tax effect
(1)
|
|
|
0.01
|
|
|
|
(0.16
|
)
|
Net nonrecurring items
|
|
|
(0.01
|
)
|
|
|
0.31
|
|
Diluted core earnings per share (non-GAAP)
|
|
$
|
0.76
|
|
|
$
|
0.70
|
|
________________________________________________________________
(1) Effective tax rate of 39.225%, adjusted for non-deductible merger related costs.