Item 2.
|
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
Our net income for the three months ended September 30, 2016 was $23.4 million and
diluted earnings per share were $0.76, compared to net income of $21.6 million and $0.72 diluted earnings per share for the same
period of 2015. Diluted earnings per share increased by $0.04, or 5.6%. Net income for the nine months ended September 30, 2016,
was $69.8 million and diluted earnings per share were $2.28, compared to net income of $50.3 million and $1.83 diluted earnings
per share for the same period in 2015. Year-to-date diluted earnings per share increased by $0.45, or 24.6%.
Net income for each quarter in both 2016 and 2015 included nonrecurring items that impacted
net income. The 2016 nonrecurring items primarily related to merger related costs and branch right sizing initiatives. The 2015
nonrecurring items were significant and related mainly to our acquisitions. Excluding all nonrecurring items, core earnings for
the three months ended September 30, 2016 were $24.4 million, or $0.79 diluted core earnings per share, compared to $25.6
million, or $0.85 diluted core earnings per share for the same period in 2015. Diluted core earnings per share decreased by
$0.06, or 7.1%. Year-to-date core earnings were $72.7 million, an increase of $8.9 million, or 14.1%, compared with the same period
in 2015. Year-to-date diluted core earnings per share were $2.37, an increase of $0.05, or 2.2%. 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 September 9, 2016, we closed the transaction to acquire Citizens National Bank (“Citizens”),
headquartered in Athens, Tennessee. At September 30, 2016, Citizens operated as an independently chartered bank. Citizens was
subsequently merged into our lead bank on October 21, 2016 with simultaneous systems conversion. As a result of this acquisition,
we recognized $2.0 million in after tax merger related expenses during the nine month period ended September 30, 2016.
During the first nine months of 2016 we opened our third retail banking office in Fayetteville,
Arkansas, and closed 10 branches in various locations around our footprint. We intend to continue to review our branching strategy
in future years based on market conditions, changes in economic or competitive conditions as well as various other factors.
On February 27, 2015, we closed the transactions to acquire Community First Bancshares,
Inc. (“Community First”) and Liberty Bancshares, Inc. (“Liberty”). 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 $7.7 million in after tax merger related expenses during the nine month
period ended September 30, 2015.
Our operating performance continues to produce good results. We are pleased with the
results from the third quarter as we continue to absorb our most recent acquisition as well as the acquisitions from the previous
two years. Competitive pressures and artificially low interest rates continue to put pressure on our net interest income but we
have done a good job of diversifying our revenue through other lines of business such as our trust operations, mortgage lending,
credit card services, and other wealth management offerings. We will continue to focus on improving our efficiency throughout the
remainder of the year. 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. We intend to continue seeking acquisitions that are strategic to
our business.
Stockholders’ equity as of September 30, 2016 was $1.147 billion, book value per
share was $36.69 and tangible book value per share was $23.80. Our ratio of stockholders’ equity to total
assets was 13.9% and the ratio of tangible stockholders’ equity to tangible assets was 9.5% at September 30, 2016. See Table
14 – Reconciliation of Tangible Book Value per Share (non-GAAP) and Table 15 – Reconciliation of Tangible Common Equity
and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) for additional discussion of non-GAAP measures. The Company’s
Tier I leverage ratio of 11.6%, 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 $8.227 billion at September 30, 2016, compared to $7.560 billion at
December 31, 2015 and $7.560 billion at September 30, 2015. Total loans, including loans acquired, were $5.401 billion
at September 30, 2016, compared to $4.919 billion at December 31, 2015 and $4.853 billion at September 30, 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 financial holding company, headquartered in Pine
Bluff, Ark., with total assets of $8.2 billion 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) external factors and pressure from competition, (6) the experience, ability
and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition
and (8) 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 acquisition 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, restricted stock awards, restricted
stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise
of stock options or satisfaction of the conditions in the awards of the restricted or performance stock 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 Quarter-to-Date Analysis
For the three month period ended September 30, 2016, net interest income on a fully taxable
equivalent basis was $70.2 million, a decrease of $10.6 million, or 13.1%, over the same period in 2015. The decrease
in net interest income was the result of an $11.8 million decrease in interest income and a $1.2 million decrease in interest
expense.
The decrease in interest income primarily resulted from an $11.3 million decrease in
interest income on loans, consisting of legacy loans and acquired loans. The increase in loan volume during 2016 generated $4.1
million of additional interest income, while a 120 basis point decline in yield resulted in a $15.4 million decrease in interest
income. The interest income increase from loan volume was primarily due to our legacy loan growth from the same period last year.
Included in interest income is the effect of 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 flow estimate may increase
or decrease based on payment histories and loss expectations of the loans. The resulting adjustment to interest income
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 was shorter, and were recorded in non-interest expense.
For the three months ended September 30, 2016, interest income was less by $9.6 million
and non-interest income was greater by $2.0 million, compared to the same period in 2015, due to the adjustments discussed above.
The net effect lowered 2016 third quarter pre-tax income by $7.6 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 $1.2 million decrease in interest expense is primarily from a 146 basis point decline
in the cost of our other borrowings.
Net Interest Income Year-to-Date Analysis
For the nine month period ended September 30, 2016, net interest income on a fully taxable
equivalent basis was $211.2 million, an increase of $72,000 over the same period in 2015. The change in net interest
income was the result of a $646,000 decrease in interest income and a $718,000 decrease in interest expense.
The decrease in interest income primarily resulted from a $3.0 million decrease in interest
income on loans and a $2.5 million increase in interest income on investment securities. The increase in loan volume during 2016
generated $29.5 million of additional interest income, while a 95 basis point decline in yield resulted in a $32.5 million
decrease in interest income. The increase in loan volume was primarily due to our legacy loan growth during 2016. $1.8 million
of the increase in interest income on investment securities was due to volume increases while $735,000 was a result of an increase
in yield on the security portfolio.
For the nine months ended September 30, 2016, the acquired loan cash flow adjustments
resulted in a decrease to interest income by $17.8 million and non-interest income was greater by $7.7 million compared to the
same period in 2015. The net increase to year-to-date 2016 pre-tax income was $10.1 million compared with 2015.
The $718,000 decrease in interest expense is primarily from a 60 basis point decline
in the cost of our other borrowings.
Net Interest Margin
Our net interest margin decreased 73 basis points to 4.09% for the three month period
ended September 30, 2016, when compared to 4.82% for the same period in 2015. For the nine month period ended September 30, 2016,
net interest margin decreased 36 basis points to 4.22% when compared to 4.58% for the same period in 2015. The most
significant factor in the decreasing margin during the three month period ended September 30, 2016 is the impact of the lower
accretable yield adjustments previously discussed. Normalized for all accretion on acquired loans, our core net interest margin
at September 30, 2016 and 2015 was 3.87% and 3.82%, respectively. See Reconciliation of Non-GAAP Measures and Table 16 –
Reconciliation of Core Net Interest Margin (non-GAAP) for additional discussion of non-GAAP measures.
Net Interest Income Tables
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three and nine months ended September 30, 2016 and 2015, respectively, as well as changes in fully taxable equivalent
net interest margin for the three and nine months ended September 30, 2016, versus September 30, 2015.
Table 1: Analysis of Net Interest Margin
(FTE = Fully Taxable Equivalent)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
73,418
|
|
|
$
|
85,199
|
|
|
$
|
220,940
|
|
|
$
|
221,624
|
|
FTE adjustment
|
|
|
2,181
|
|
|
|
2,172
|
|
|
|
6,370
|
|
|
|
6,332
|
|
Interest income – FTE
|
|
|
75,599
|
|
|
|
87,371
|
|
|
|
227,310
|
|
|
|
227,956
|
|
Interest expense
|
|
|
5,355
|
|
|
|
6,523
|
|
|
|
16,062
|
|
|
|
16,780
|
|
Net interest income – FTE
|
|
$
|
70,244
|
|
|
$
|
80,848
|
|
|
$
|
211,248
|
|
|
$
|
211,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets – FTE
|
|
|
4.41
|
%
|
|
|
5.20
|
%
|
|
|
4.54
|
%
|
|
|
4.94
|
%
|
Cost of interest bearing liabilities
|
|
|
0.41
|
%
|
|
|
0.48
|
%
|
|
|
0.42
|
%
|
|
|
0.45
|
%
|
Net interest spread – FTE
|
|
|
4.00
|
%
|
|
|
4.72
|
%
|
|
|
4.12
|
%
|
|
|
4.49
|
%
|
Net interest margin – FTE
|
|
|
4.09
|
%
|
|
|
4.82
|
%
|
|
|
4.22
|
%
|
|
|
4.58
|
%
|
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
|
|
Three Months Ended
September 30,
2016 vs. 2015
|
|
Nine Months Ended
September 30,
2016 vs. 2015
|
|
|
|
|
|
Increase due to change in earning assets
|
|
$
|
3,941
|
|
|
$
|
30,948
|
|
Decrease due to change in earning asset yields
|
|
|
(15,713
|
)
|
|
|
(31,594
|
)
|
Increase (decrease) due to change in interest bearing liabilities
|
|
|
300
|
|
|
|
(163
|
)
|
Increase due to change in interest rates paid on interest bearing liabilities
|
|
|
868
|
|
|
|
881
|
|
(Decrease) increase in net interest income
|
|
$
|
(10,604
|
)
|
|
$
|
72
|
|
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 September 30, 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 September 30,
|
|
|
2016
|
|
2015
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
($ in thousands)
|
|
Balance
|
|
Expense
|
|
Rate (%)
|
|
Balance
|
|
Expense
|
|
Rate (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
246,818
|
|
|
$
|
244
|
|
|
|
0.39
|
|
|
$
|
206,467
|
|
|
$
|
122
|
|
|
|
0.23
|
|
Federal funds sold
|
|
|
6,431
|
|
|
|
19
|
|
|
|
1.18
|
|
|
|
19,086
|
|
|
|
15
|
|
|
|
0.31
|
|
Investment securities - taxable
|
|
|
1,038,437
|
|
|
|
4,445
|
|
|
|
1.70
|
|
|
|
1,209,985
|
|
|
|
4,901
|
|
|
|
1.61
|
|
Investment securities - non-taxable
|
|
|
391,495
|
|
|
|
5,468
|
|
|
|
5.56
|
|
|
|
357,048
|
|
|
|
5,582
|
|
|
|
6.20
|
|
Mortgage loans held for sale
|
|
|
31,256
|
|
|
|
299
|
|
|
|
3.81
|
|
|
|
26,379
|
|
|
|
291
|
|
|
|
4.38
|
|
Assets held in trading accounts
|
|
|
5,108
|
|
|
|
4
|
|
|
|
0.31
|
|
|
|
6,401
|
|
|
|
4
|
|
|
|
0.25
|
|
Loans
|
|
|
5,105,474
|
|
|
|
65,120
|
|
|
|
5.07
|
|
|
|
4,835,068
|
|
|
|
76,456
|
|
|
|
6.27
|
|
Total interest earning assets
|
|
|
6,825,019
|
|
|
|
75,599
|
|
|
|
4.41
|
|
|
|
6,660,434
|
|
|
|
87,371
|
|
|
|
5.20
|
|
Non-earning assets
|
|
|
878,818
|
|
|
|
|
|
|
|
|
|
|
|
947,333
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,703,837
|
|
|
|
|
|
|
|
|
|
|
$
|
7,607,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
$
|
3,645,414
|
|
|
$
|
1,965
|
|
|
|
0.21
|
|
|
$
|
3,600,930
|
|
|
$
|
2,222
|
|
|
|
0.24
|
|
Time deposits
|
|
|
1,213,895
|
|
|
|
1,767
|
|
|
|
0.58
|
|
|
|
1,397,928
|
|
|
|
1,936
|
|
|
|
0.55
|
|
Total interest bearing deposits
|
|
|
4,859,309
|
|
|
|
3,732
|
|
|
|
0.31
|
|
|
|
4,998,858
|
|
|
|
4,158
|
|
|
|
0.33
|
|
Federal funds purchased and securities sold under agreement to repurchase
|
|
|
105,576
|
|
|
|
59
|
|
|
|
0.22
|
|
|
|
109,311
|
|
|
|
55
|
|
|
|
0.20
|
|
Other borrowings
|
|
|
192,453
|
|
|
|
1,048
|
|
|
|
2.17
|
|
|
|
197,832
|
|
|
|
1,812
|
|
|
|
3.63
|
|
Subordinated debentures
|
|
|
60,238
|
|
|
|
516
|
|
|
|
3.41
|
|
|
|
61,851
|
|
|
|
498
|
|
|
|
3.19
|
|
Total interest bearing liabilities
|
|
|
5,217,576
|
|
|
|
5,355
|
|
|
|
0.41
|
|
|
|
5,367,852
|
|
|
|
6,523
|
|
|
|
0.48
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
1,322,818
|
|
|
|
|
|
|
|
|
|
|
|
1,121,078
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
49,191
|
|
|
|
|
|
|
|
|
|
|
|
74,696
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,589,585
|
|
|
|
|
|
|
|
|
|
|
|
6,563,626
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,114,252
|
|
|
|
|
|
|
|
|
|
|
|
1,044,141
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
7,703,837
|
|
|
|
|
|
|
|
|
|
|
$
|
7,607,767
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
4.72
|
|
Net interest margin
|
|
|
|
|
|
$
|
70,244
|
|
|
|
4.09
|
|
|
|
|
|
|
$
|
80,848
|
|
|
|
4.82
|
|
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
($ in thousands)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
180,105
|
|
|
$
|
465
|
|
|
|
0.34
|
|
|
$
|
295,476
|
|
|
$
|
561
|
|
|
|
0.25
|
|
Federal funds sold
|
|
|
3,613
|
|
|
|
46
|
|
|
|
1.70
|
|
|
|
50,618
|
|
|
|
118
|
|
|
|
0.31
|
|
Investment securities - taxable
|
|
|
1,064,670
|
|
|
|
15,029
|
|
|
|
1.89
|
|
|
|
1,152,756
|
|
|
|
12,352
|
|
|
|
1.43
|
|
Investment securities - non-taxable
|
|
|
415,296
|
|
|
|
16,016
|
|
|
|
5.15
|
|
|
|
349,511
|
|
|
|
16,184
|
|
|
|
6.19
|
|
Mortgage loans held for sale
|
|
|
28,905
|
|
|
|
872
|
|
|
|
4.03
|
|
|
|
26,230
|
|
|
|
813
|
|
|
|
4.14
|
|
Assets held in trading accounts
|
|
|
5,745
|
|
|
|
13
|
|
|
|
0.30
|
|
|
|
6,591
|
|
|
|
11
|
|
|
|
0.22
|
|
Loans
|
|
|
4,984,349
|
|
|
|
194,869
|
|
|
|
5.22
|
|
|
|
4,289,339
|
|
|
|
197,917
|
|
|
|
6.17
|
|
Total interest earning assets
|
|
|
6,682,683
|
|
|
|
227,310
|
|
|
|
4.54
|
|
|
|
6,170,521
|
|
|
|
227,956
|
|
|
|
4.94
|
|
Non-earning assets
|
|
|
892,370
|
|
|
|
|
|
|
|
|
|
|
|
866,014
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,575,053
|
|
|
|
|
|
|
|
|
|
|
$
|
7,036,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
$
|
3,552,088
|
|
|
$
|
6,018
|
|
|
|
0.23
|
|
|
$
|
3,274,344
|
|
|
$
|
5,701
|
|
|
|
0.23
|
|
Time deposits
|
|
|
1,253,437
|
|
|
|
5,144
|
|
|
|
0.55
|
|
|
|
1,346,879
|
|
|
|
5,596
|
|
|
|
0.56
|
|
Total interest bearing deposits
|
|
|
4,805,525
|
|
|
|
11,162
|
|
|
|
0.31
|
|
|
|
4,621,223
|
|
|
|
11,297
|
|
|
|
0.33
|
|
Federal funds purchased and securities sold under agreement to repurchase
|
|
|
107,932
|
|
|
|
183
|
|
|
|
0.23
|
|
|
|
115,713
|
|
|
|
177
|
|
|
|
0.20
|
|
Other borrowings
|
|
|
182,908
|
|
|
|
3,114
|
|
|
|
2.27
|
|
|
|
186,955
|
|
|
|
4,014
|
|
|
|
2.87
|
|
Subordinated debentures
|
|
|
60,160
|
|
|
|
1,603
|
|
|
|
3.56
|
|
|
|
53,506
|
|
|
|
1,292
|
|
|
|
3.23
|
|
Total interest bearing liabilities
|
|
|
5,156,525
|
|
|
|
16,062
|
|
|
|
0.42
|
|
|
|
4,977,397
|
|
|
|
16,780
|
|
|
|
0.45
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
1,273,337
|
|
|
|
|
|
|
|
|
|
|
|
1,064,273
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
53,304
|
|
|
|
|
|
|
|
|
|
|
|
63,171
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,483,166
|
|
|
|
|
|
|
|
|
|
|
|
6,104,841
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,091,887
|
|
|
|
|
|
|
|
|
|
|
|
931,694
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
7,575,053
|
|
|
|
|
|
|
|
|
|
|
$
|
7,036,535
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
4.49
|
|
Net interest margin
|
|
|
|
|
|
$
|
211,248
|
|
|
|
4.22
|
|
|
|
|
|
|
$
|
211,176
|
|
|
|
4.58
|
|
Table 4 shows changes in interest income and interest expense resulting from changes
in volume and changes in interest rates for the three and nine month periods ended September 30, 2016, as compared to the same
periods 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016 over 2015
|
|
2016 over 2015
|
(In thousands, on a fully
|
|
|
|
Yield/
|
|
|
|
|
|
Yield/
|
|
|
taxable equivalent basis)
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
28
|
|
|
$
|
94
|
|
|
$
|
122
|
|
|
$
|
(260
|
)
|
|
$
|
164
|
|
|
$
|
(96
|
)
|
Federal funds sold
|
|
|
(15
|
)
|
|
|
19
|
|
|
|
4
|
|
|
|
(194
|
)
|
|
|
122
|
|
|
|
(72
|
)
|
Investment securities - taxable
|
|
|
(723
|
)
|
|
|
267
|
|
|
|
(456
|
)
|
|
|
(1,002
|
)
|
|
|
3,679
|
|
|
|
2,677
|
|
Investment securities - non-taxable
|
|
|
512
|
|
|
|
(626
|
)
|
|
|
(114
|
)
|
|
|
2,776
|
|
|
|
(2,944
|
)
|
|
|
(168
|
)
|
Mortgage loans held for sale
|
|
|
50
|
|
|
|
(42
|
)
|
|
|
8
|
|
|
|
81
|
|
|
|
(22
|
)
|
|
|
59
|
|
Assets held in trading accounts
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
--
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
2
|
|
Loans
|
|
|
4,090
|
|
|
|
(15,426
|
)
|
|
|
(11,336
|
)
|
|
|
29,548
|
|
|
|
(32,596
|
)
|
|
|
(3,048
|
)
|
Total
|
|
|
3,941
|
|
|
|
(15,713
|
)
|
|
|
(11,772
|
)
|
|
|
30,948
|
|
|
|
(31,594
|
)
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
|
27
|
|
|
|
(284
|
)
|
|
|
(257
|
)
|
|
|
474
|
|
|
|
(157
|
)
|
|
|
317
|
|
Time deposits
|
|
|
(264
|
)
|
|
|
95
|
|
|
|
(169
|
)
|
|
|
(384
|
)
|
|
|
(68
|
)
|
|
|
(452
|
)
|
Federal funds purchased and securities sold under agreements to repurchase
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
4
|
|
|
|
(12
|
)
|
|
|
18
|
|
|
|
6
|
|
Other borrowings
|
|
|
(48
|
)
|
|
|
(716
|
)
|
|
|
(764
|
)
|
|
|
(85
|
)
|
|
|
(815
|
)
|
|
|
(900
|
)
|
Subordinated debentures
|
|
|
(13
|
)
|
|
|
31
|
|
|
|
18
|
|
|
|
170
|
|
|
|
141
|
|
|
|
311
|
|
Total
|
|
|
(300
|
)
|
|
|
(868
|
)
|
|
|
(1,168
|
)
|
|
|
163
|
|
|
|
(881
|
)
|
|
|
(718
|
)
|
Increase (decrease) in net interest income
|
|
$
|
4,241
|
|
|
$
|
(14,845
|
)
|
|
$
|
(10,604
|
)
|
|
$
|
30,785
|
|
|
$
|
(30,713
|
)
|
|
$
|
72
|
|
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 September 30, 2016, was
$8.3 million, compared to $1.6 million for the three month period ended September 30, 2015, an increase of $6.7 million. The provision
for loan losses for the nine month period ended September 30, 2016, was $15.7 million, compared to $5.8 million for the nine month
period ended September 30, 2015, an increase of $9.9 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.
Our provision expense for the three month period ended September 30, 2016 included replenishment
of a $5.4 million single charge-off related to a nonaccrual loan acquired from Metropolitan National Bank. The loan was charged
down to the appraised liquidation value of the collateral and the charged-off amount was added back to the allowance for loan losses
during the quarter, resulting in the increase in provision. The provision expense for the nine month period ended September 30,
2016 also included replenishment of a $2 million charge-off related to potential customer fraud on an agricultural loan, which
carried a pass rating and for which recovery is unknown.
Finally, a $215,000 provision was recorded on acquired loans during the three months
ended September 30, 2016 while $522,000 was recorded during the nine months ended September 30, 2016 as a result of a shortage
in our credit mark on certain purchased credit impaired loans.
NON-INTEREST INCOME
Total non-interest income was $36.9 million for the three month period ended September
30, 2016, an increase of $13.8 million, or 59.8%, compared to $23.1 million for the same period in 2015. Total non-interest
income was $103.3 million for the nine month period ended September 30, 2016, an increase of $37.3 million, or 56.4%, compared
to $66.0 million for the same period in 2015. The increase in non-interest income was partially due to gains recorded on the sale
of securities that totaled $4.4 million as part of our bond portfolio rebalancing strategy. We are actively looking to reduce
the number of issuances we hold in our portfolio and monitoring the market conditions for opportunities to sell securities and
replace with comparable yields while only marginally extending the duration of the portfolio.
There was a $14.8 million increase in non-interest income from the nine month period
ended September 30, 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 $22.5 million, or 27.8%.
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 and gains (losses) from
sales of securities. The remaining increase in non-interest income was due to additional mortgage lending, trust income and investment
banking revenue.
Table 5 shows non-interest income for the three and nine month periods ended September
30, 2016 and 2015, respectively, as well as changes in 2016 from 2015.
Table 5: Non-Interest Income
|
|
Three Months
|
|
2016
|
|
Nine Months
|
|
2016
|
|
|
Ended September 30,
|
|
Change from
|
|
Ended September 30,
|
|
Change from
|
(In thousands)
|
|
2016
|
|
2015
|
|
2015
|
|
2016
|
|
2015
|
|
2015
|
Trust income
|
|
$
|
3,873
|
|
|
$
|
2,215
|
|
|
$
|
1,658
|
|
|
|
74.85
|
%
|
|
$
|
11,160
|
|
|
$
|
6,536
|
|
|
$
|
4,624
|
|
|
|
70.75
|
%
|
Service charges on deposit accounts
|
|
|
8,771
|
|
|
|
8,488
|
|
|
|
283
|
|
|
|
3.33
|
|
|
|
23,748
|
|
|
|
22,881
|
|
|
|
867
|
|
|
|
3.79
|
|
Other service charges and fees
|
|
|
1,840
|
|
|
|
2,672
|
|
|
|
(832
|
)
|
|
|
-31.14
|
|
|
|
5,320
|
|
|
|
7,102
|
|
|
|
(1,782
|
)
|
|
|
-25.09
|
|
Mortgage lending income
|
|
|
5,760
|
|
|
|
3,446
|
|
|
|
2,314
|
|
|
|
67.15
|
|
|
|
15,429
|
|
|
|
9,156
|
|
|
|
6,273
|
|
|
|
68.51
|
|
Investment banking income
|
|
|
1,131
|
|
|
|
663
|
|
|
|
468
|
|
|
|
70.59
|
|
|
|
2,999
|
|
|
|
1,808
|
|
|
|
1,191
|
|
|
|
65.87
|
|
Debit and credit card fees
|
|
|
7,825
|
|
|
|
6,879
|
|
|
|
946
|
|
|
|
13.75
|
|
|
|
22,713
|
|
|
|
19,013
|
|
|
|
3,700
|
|
|
|
19.46
|
|
Bank owned life insurance income
|
|
|
606
|
|
|
|
748
|
|
|
|
(142
|
)
|
|
|
-18.98
|
|
|
|
2,429
|
|
|
|
2,066
|
|
|
|
363
|
|
|
|
17.57
|
|
Gain on sale of securities
|
|
|
315
|
|
|
|
40
|
|
|
|
275
|
|
|
|
687.50
|
|
|
|
4,403
|
|
|
|
2
|
|
|
|
4,401
|
|
|
|
--
|
|
Gain on sale of banking operations
|
|
|
--
|
|
|
|
2,110
|
|
|
|
(2,110
|
)
|
|
|
-100.00
|
|
|
|
--
|
|
|
|
2,110
|
|
|
|
(2,110
|
)
|
|
|
-100.00
|
|
Net (loss) on assets covered by FDIC loss share agreements
|
|
|
--
|
|
|
|
(9,085
|
)
|
|
|
9,085
|
|
|
|
-100.00
|
|
|
|
--
|
|
|
|
(14,812
|
)
|
|
|
14,812
|
|
|
|
-100.00
|
|
Net gain on sale of premises held for sale
|
|
|
175
|
|
|
|
153
|
|
|
|
22
|
|
|
|
14.38
|
|
|
|
175
|
|
|
|
153
|
|
|
|
22
|
|
|
|
14.38
|
|
Other income
|
|
|
6,580
|
|
|
|
4,743
|
|
|
|
1,837
|
|
|
|
38.73
|
|
|
|
14,891
|
|
|
|
9,999
|
|
|
|
4,892
|
|
|
|
48.92
|
|
Total non-interest income
|
|
$
|
36,876
|
|
|
$
|
23,072
|
|
|
$
|
13,804
|
|
|
|
59.83
|
%
|
|
$
|
103,267
|
|
|
$
|
66,014
|
|
|
$
|
37,253
|
|
|
|
56.43
|
%
|
Recurring fee income (service charges, trust fees and credit card fees) for the three
month period ended September 30, 2016, was $22.3 million, an increase of $2.1 million from the three month period ended September
30, 2015. Trust income increased by $1.7 million or 74.85%, and debit and credit card fees increased by $946,000, or 13.75%.
These increases were partially offset by a decrease in other service charges and fees of $832,000. The increase in trust income
is related to the acquisition of Ozark Trust during the fourth quarter of 2015.
Mortgage lending income increased by $2.3 million for the three months ended September
30, 2016 compared to last year, due primarily to additional lenders and an increasingly active residential real estate market.
Included in non-interest income for the three months ended September 30, 2015 was a $2.1 million gain on the sale of our Salina
banking operations.
Net loss on assets covered by FDIC loss share agreements decreased by $9.1 million and
$14.8 million during the three and nine month period ending September 30, 2016, respectively, 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 September 30, 2016 was $62.4 million,
a decrease of $5.1 million, or 7.50%, from the same period in 2015. The most significant impact to non-interest expense were the
following nonrecurring items.
We saw a $667,000 increase in merger related costs from last year. We had $1.5 million
of merger related costs in the third quarter of 2016 compared to only $857,000 in the third quarter of 2015. The merger related
costs in the current year were from our acquisition of Citizens and in the prior year were from our acquisitions of Liberty, Community
First and Ozark Trust. This increase was offset by a decrease in branch right sizing expense for the second quarter of 2016 to
$218,000 from $458,000 for the second quarter of 2015.
Normalizing for the nonrecurring merger related costs and branch right sizing expenses,
non-interest expense for the three months ended September 30, 2016 decreased $5.5 million, or 8.29 %, from the same period in 2015.
Non-interest expense for the nine months ended September 30, 2016 was $188.4 million,
a decrease of $806,000, or 0.43%, from the same period in 2015. The most significant impact to non-interest expense were the following
nonrecurring items.
First, we saw a $10.5 million decrease in merger related costs from last year. Included
in the nine months ended September 30, 2016 were $2.0 million in merger related costs, primarily from our acquisition of Citizens.
In the same period of 2015 we recorded $12.5 million of merger related costs associated with our Liberty, Community First and Ozark
Trust acquisitions.
Second, branch right sizing expense for the nine months ended September 30, 2016 increased
by $214,000 from the same period in 2015. We had $3.5 million of branch right sizing expense in 2016 from our ten branch closings.
For the same period in 2015, we had expenses of $3.2 million associated with the closure and maintenance of twelve branches. We
continue to monitor branch operations and profitability as well as changing customer habits.
Normalizing for the nonrecurring merger related costs and branch right sizing, non-interest
expense for the nine months ended September 30, 2016 increased $9.5 million, or 5.49%, from the same period in 2015, primarily
due to the incremental operating expenses of the acquired franchises.
Salaries and employee benefits decreased by $5.2 million for the three months ended
September 30, 2016 compared to the same period in 2015 as we continue to recognize the benefits from our ongoing efficiency
initiatives and cost saves related to the integration of our 2015 acquisitions. Salaries and employee benefits increased by
$940,000 for the nine months ended September 30, 2016 related to the Community First and Liberty mergers during 2015.
Occupancy expense decreased by $122,000 for the three months ended September 30, 2016 and increased $711,000 for the nine
months period ended September 30, 2016 when compared to the same periods in 2015, while furniture and equipment expense
increased by $70,000 and $1.7 million from the same periods in 2015.
The incremental increases in several other operating expense categories during the periods
were a result of the 2015 acquisitions. Professional services increased by $1.2 million and $3.4 million for the three and nine
months ended September 30, 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 and nine month periods ended September
30, 2016 and 2015, respectively, as well as changes in 2016 from 2015.
Table 6: Non-Interest Expense
|
|
Three Months
|
|
2016
|
|
Nine Months
|
|
2016
|
|
|
Ended September 30,
|
|
Change from
|
|
Ended September 30,
|
|
Change from
|
(In thousands)
|
|
2016
|
|
2015
|
|
2015
|
|
2016
|
|
2015
|
|
2015
|
Salaries and employee benefits
|
|
$
|
31,784
|
|
|
$
|
37,000
|
|
|
$
|
(5,216
|
)
|
|
|
-14.10
|
%
|
|
$
|
99,660
|
|
|
$
|
98,720
|
|
|
$
|
940
|
|
|
|
0.95
|
%
|
Occupancy expense, net
|
|
|
4,690
|
|
|
|
4,812
|
|
|
|
(122
|
)
|
|
|
-2.54
|
|
|
|
14,151
|
|
|
|
13,440
|
|
|
|
711
|
|
|
|
5.29
|
|
Furniture and equipment expense
|
|
|
4,272
|
|
|
|
4,202
|
|
|
|
70
|
|
|
|
1.67
|
|
|
|
12,296
|
|
|
|
10,621
|
|
|
|
1,675
|
|
|
|
15.77
|
|
Other real estate and foreclosure expense
|
|
|
1,849
|
|
|
|
2,297
|
|
|
|
(448
|
)
|
|
|
-19.50
|
|
|
|
3,782
|
|
|
|
3,694
|
|
|
|
88
|
|
|
|
2.38
|
|
Deposit insurance
|
|
|
1,136
|
|
|
|
1,013
|
|
|
|
123
|
|
|
|
12.14
|
|
|
|
3,380
|
|
|
|
2,979
|
|
|
|
401
|
|
|
|
13.46
|
|
Merger related costs
|
|
|
1,524
|
|
|
|
857
|
|
|
|
667
|
|
|
|
77.83
|
|
|
|
1,989
|
|
|
|
12,523
|
|
|
|
(10,534
|
)
|
|
|
-84.12
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
3,282
|
|
|
|
2,111
|
|
|
|
1,171
|
|
|
|
55.47
|
|
|
|
9,678
|
|
|
|
6,248
|
|
|
|
3,430
|
|
|
|
54.90
|
|
Postage
|
|
|
1,150
|
|
|
|
1,079
|
|
|
|
71
|
|
|
|
6.58
|
|
|
|
3,458
|
|
|
|
3,097
|
|
|
|
361
|
|
|
|
11.66
|
|
Telephone
|
|
|
912
|
|
|
|
1,521
|
|
|
|
(609
|
)
|
|
|
-40.04
|
|
|
|
3,014
|
|
|
|
3,698
|
|
|
|
(684
|
)
|
|
|
-18.50
|
|
Credit card expenses
|
|
|
2,947
|
|
|
|
2,309
|
|
|
|
638
|
|
|
|
27.63
|
|
|
|
8,319
|
|
|
|
6,579
|
|
|
|
1,740
|
|
|
|
26.45
|
|
Operating supplies
|
|
|
457
|
|
|
|
687
|
|
|
|
(230
|
)
|
|
|
-33.48
|
|
|
|
1,273
|
|
|
|
1,693
|
|
|
|
(420
|
)
|
|
|
-24.81
|
|
Amortization of intangibles
|
|
|
1,503
|
|
|
|
1,265
|
|
|
|
238
|
|
|
|
18.81
|
|
|
|
4,411
|
|
|
|
3,552
|
|
|
|
859
|
|
|
|
24.18
|
|
Branch right sizing expense
|
|
|
218
|
|
|
|
458
|
|
|
|
(240
|
)
|
|
|
-52.40
|
|
|
|
3,451
|
|
|
|
3,237
|
|
|
|
214
|
|
|
|
6.61
|
|
Other expense
|
|
|
6,710
|
|
|
|
7,884
|
|
|
|
(1,174
|
)
|
|
|
-14.89
|
|
|
|
19,498
|
|
|
|
19,085
|
|
|
|
413
|
|
|
|
2.16
|
|
Total non-interest expense
|
|
$
|
62,434
|
|
|
$
|
67,495
|
|
|
$
|
(5,061
|
)
|
|
|
-7.50
|
%
|
|
$
|
188,360
|
|
|
$
|
189,166
|
|
|
$
|
(806
|
)
|
|
|
-0.43
|
%
|
LOAN PORTFOLIO
Our legacy loan portfolio, excluding loans acquired, averaged $3.515 billion and $2.391
billion during the first nine months of 2016 and 2015, respectively. As of September 30, 2016, total loans, excluding
loans acquired, were $3.943 billion, an increase of $696.6 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). The growth in the legacy portfolio
is primarily attributable to the larger market areas in which we now operate as a result of our acquisitions. In addition, we have
actively recruited and hired new lenders in our growth markets in an effort to continue growing our loan portfolio.
Also contributing to our legacy loan growth are acquired loans that have migrated to
legacy 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 September 30,
2016 included $206.4 million in balances that migrated from acquired loans during the period. These migrated loan balances
are included in the legacy loan balances as of September 30, 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)
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
175,032
|
|
|
$
|
177,288
|
|
Other consumer
|
|
|
275,947
|
|
|
|
208,380
|
|
Total consumer
|
|
|
450,979
|
|
|
|
385,668
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
304,082
|
|
|
|
279,740
|
|
Single family residential
|
|
|
841,958
|
|
|
|
696,180
|
|
Other commercial
|
|
|
1,521,132
|
|
|
|
1,229,072
|
|
Total real estate
|
|
|
2,667,172
|
|
|
|
2,204,992
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
607,738
|
|
|
|
500,116
|
|
Agricultural
|
|
|
203,529
|
|
|
|
148,563
|
|
Total commercial
|
|
|
811,267
|
|
|
|
648,679
|
|
Other
|
|
|
13,671
|
|
|
|
7,115
|
|
Total loans, excluding loans acquired, before allowance for loan losses
|
|
$
|
3,943,089
|
|
|
$
|
3,246,454
|
|
Consumer loans consist of credit card loans and other consumer loans. Consumer
loans were $451.0 million at September 30, 2016, or 11.4% 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 September 30, 2016, was due to growth
in direct and indirect consumer loans.
Real estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $2.667 billion at September 30, 2016, or 67.6% of total loans,
compared to the $2.205 billion, or 67.9%, of total loans at December 31, 2015, an increase of $462.2 million. Commercial real estate
loans increased to $1.521 billion, a $292.1 million, or 23.8% growth from December 31, 2015 primarily due to increased opportunities
in our growth markets as a result of our larger scale from the recent acquisitions.
Commercial loans consist of non-agricultural commercial loans and agricultural
loans. Commercial loans were $811.3 million at September 30, 2016, or 20.6% of total loans, compared to
$648.7 million, or 20.0% of total loans at December 31, 2015, an increase of
$162.6 million. Non-agricultural commercial loans increased to $607.7 million, a $107.6 million, or 21.5%,
growth from December 31, 2015. Agricultural loans increased to $203.5 million, a $55.0 million, or 37.0%, increase 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 September 9, 2016, we completed the acquisition of Citizens and issued 835,741 shares
of the Company’s common stock valued at approximately $41.3 million as of September 9, 2016 in exchange for all outstanding
shares of Citizens common stock. Included in the acquisition were loans with a fair value of $340.8 million.
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 September 30, 2016 and
December 31, 2015.
Table 8: Loans Acquired
(In thousands)
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Other consumer
|
|
$
|
51,237
|
|
|
$
|
75,606
|
|
Total consumer
|
|
|
51,237
|
|
|
|
75,606
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
60,307
|
|
|
|
77,119
|
|
Single family residential
|
|
|
461,346
|
|
|
|
501,002
|
|
Other commercial
|
|
|
771,858
|
|
|
|
854,068
|
|
Total real estate
|
|
|
1,293,511
|
|
|
|
1,432,189
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
109,562
|
|
|
|
154,533
|
|
Agricultural
|
|
|
3,888
|
|
|
|
10,573
|
|
Total commercial
|
|
|
113,450
|
|
|
|
165,106
|
|
Total loans acquired
(1)
|
|
$
|
1,458,198
|
|
|
$
|
1,672,901
|
|
_______________________________________
|
(1)
|
Loans acquired are reported net of a $954,000 allowance at September 30, 2016 and December 31, 2015.
|
The majority of the loans originally acquired in the Citizens, 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 Citizens,
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. When accounts reach 90 days past due and there are attachable assets, the accounts are considered for litigation.
Credit card loans are generally charged off when payment of interest and principal is 150 days past due. The credit card recovery
group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible.
Total non-performing assets, excluding all loans acquired, increased by $4.6 million
from December 31, 2015 to September 30, 2016. Foreclosed assets held for sale decreased by $14.4 million. Nonaccrual
loans increased by $19.7 million during the period, primarily CRE loans. Non-performing assets, including trouble debt restructurings
(“TDRs”) and acquired foreclosed assets, as a percent of total assets were 1.00% at September 30, 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 $7.1 million and other migrated assets that have deteriorated since acquisition. We feel we are adequately reserved
for the potential exposures related to these credits. There were also several larger non-performing loans that were identified
during the year. The majority of these balances were related to acquired loans that have migrated, residential loans that have
entered loss mitigation, and certain balances remaining outstanding which were related to potential fraudulent activity on an agricultural
loan relationship discussed above. The decrease in foreclosed assets held for sale was the result of the sale of several properties
we acquired through our Metropolitan National Bank and FDIC-assisted transactions.
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 $16.5 million at September 30, 2016, compared to
$5.6 million at December 31, 2015. The majority of our TDRs remain in the CRE portfolio with the largest increase comprised
of two relationships.
We return TDRs to accrual status only if (1) all contractual amounts due can reasonably
be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period,
typically at least six months.
We continue to maintain good asset quality. The allowance for loan losses as a percent of total
loans was 0.86% as of September 30, 2016. Non-performing loans equaled 0.95% of total loans, a 37 basis point increase
from December 31, 2015 but a 22 basis point decrease from June 30, 2016. Non-performing assets were 0.83% of total assets,
a 2 basis point decline during the same period. The allowance for loan losses was 91% of non-performing loans. Our
annualized net charge-offs to total loans for the first nine months of 2016 was 0.47%. Excluding credit cards, the annualized
net charge-offs to total loans for the same period was 0.44%, a 32 basis point increase from the same period in 2015. This increase
is related to the two larger charge offs during 2016 that were discussed above. Annualized net credit card charge-offs to
total credit card loans were 1.22%, compared to 1.28% during the full year 2015, and more than 190 basis points better than the
most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.
Table 9 presents information concerning non-performing assets, including nonaccrual loans
and foreclosed assets held for sale (excluding all loans acquired).
Table 9: Non-performing Assets
($ in thousands)
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Nonaccrual loans
(1)
|
|
$
|
37,392
|
|
|
$
|
17,714
|
|
Loans past due 90 days or more (principal or interest payments)
|
|
|
144
|
|
|
|
1,191
|
|
Total non-performing loans
|
|
|
37,536
|
|
|
|
18,905
|
|
Other non-performing assets:
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale
|
|
|
30,396
|
|
|
|
44,820
|
|
Other non-performing assets
|
|
|
621
|
|
|
|
211
|
|
Total other non-performing assets
|
|
|
31,017
|
|
|
|
45,031
|
|
Total non-performing assets
|
|
$
|
68,553
|
|
|
$
|
63,936
|
|
|
|
|
|
|
|
|
|
|
Performing TDRs
|
|
$
|
13,604
|
|
|
$
|
3,031
|
|
Allowance for loan losses to non-performing loans
|
|
|
91
|
%
|
|
|
166
|
%
|
Non-performing loans to total loans
|
|
|
0.95
|
%
|
|
|
0.58
|
%
|
Non-performing assets to total assets
(2)
|
|
|
0.83
|
%
|
|
|
0.85
|
%
|
__________________________________________
|
(1)
|
Includes nonaccrual TDRs of approximately $2.9 million at September 30, 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 and nine month
periods ended September 30, 2016 and 2015.
At September 30, 2016, impaired loans, net of government guarantees and loans acquired,
were $40.5 million compared to $18.2 million at December 31, 2015. The increase in impaired loans is primarily related to
the non-performing loans discussed above. 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) external factors and pressure from competition, (6) the experience, ability and depth of lending management
and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) 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
|
|
|
2,260
|
|
|
|
2,350
|
|
Other consumer
|
|
|
1,482
|
|
|
|
1,183
|
|
Real estate
|
|
|
7,350
|
|
|
|
735
|
|
Commercial
|
|
|
3,043
|
|
|
|
761
|
|
Total loans charged off
|
|
|
14,135
|
|
|
|
5,029
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
694
|
|
|
|
667
|
|
Other consumer
|
|
|
358
|
|
|
|
398
|
|
Real estate
|
|
|
278
|
|
|
|
83
|
|
Commercial
|
|
|
337
|
|
|
|
178
|
|
Total recoveries
|
|
|
1,667
|
|
|
|
1,326
|
|
Net loans charged off
|
|
|
12,468
|
|
|
|
3,703
|
|
Provision for loan losses
(1)
|
|
|
15,211
|
|
|
|
5,055
|
|
Balance, September 30
(2)
|
|
$
|
34,094
|
|
|
|
30,380
|
|
|
|
|
|
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
757
|
|
Other consumer
|
|
|
|
|
|
|
489
|
|
Real estate
|
|
|
|
|
|
|
845
|
|
Commercial
|
|
|
|
|
|
|
654
|
|
Total loans charged off
|
|
|
|
|
|
|
2,745
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
223
|
|
Other consumer
|
|
|
|
|
|
|
140
|
|
Real estate
|
|
|
|
|
|
|
120
|
|
Commercial
|
|
|
|
|
|
|
2
|
|
Total recoveries
|
|
|
|
|
|
|
485
|
|
Net loans charged off
|
|
|
|
|
|
|
2,260
|
|
Provision for loan losses
(1)
|
|
|
|
|
|
|
3,231
|
|
Balance, end of year
(2)
|
|
|
|
|
|
$
|
31,351
|
|
_______________________________________
|
(1)
|
Provision for loan losses of $522,000 attributable to loans acquired, was excluded from this table for 2016 (total year-to-date
provision for loan losses is $15,733,000) and $73,000 was excluded from this table for 2015 (total 2015 provision for loan losses
is $9,022,000). The $522,000 for 2016 and $736,000 for 2015 was subsequently charged-off, resulting in no increase in the allowance
related to loans acquired.
|
|
(2)
|
Allowance for loan losses at September 30, 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 September 30, 2016 and December 31, 2015 was $35,048,000 and $32,305,000,
respectively.
|
Provision for Loan Losses
The amount of provision to the allowance during the three and nine months ended September
30, 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 September 30, 2016, the allowance for loan losses reflects an increase of approximately
$2.7 million from December 31, 2015, while total loans, excluding loans acquired, increased by $696.6 million over the same
nine month period. The allocation in each category within the allowance generally reflects the overall changes in the
loan portfolio mix.
The following table sets forth the sum of the amounts of the allowance for loan losses
attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of
loans in each category to the total loan portfolio, excluding loans acquired, for each of the periods indicated. These allowance
amounts have been computed using the Company’s internal grading system, specific impairment analysis, qualitative and quantitative
factor allocations. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual
categories.
Table 11: Allocation of Allowance for Loan Losses
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Allowance
|
|
% of
|
|
Allowance
|
|
% of
|
($ in thousands)
|
|
Amount
|
|
loans
(1)
|
|
Amount
|
|
loans
(1)
|
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
3,749
|
|
|
|
4.4
|
%
|
|
$
|
3,893
|
|
|
|
5.5
|
%
|
Other consumer
|
|
|
2,510
|
|
|
|
7.0
|
%
|
|
|
1,853
|
|
|
|
6.4
|
%
|
Real estate
|
|
|
19,459
|
|
|
|
67.6
|
%
|
|
|
19,522
|
|
|
|
67.9
|
%
|
Commercial
|
|
|
8,240
|
|
|
|
20.6
|
%
|
|
|
5,985
|
|
|
|
20.0
|
%
|
Other
|
|
|
136
|
|
|
|
0.4
|
%
|
|
|
98
|
|
|
|
0.2
|
%
|
Total
(2)
|
|
$
|
34,094
|
|
|
|
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 September 30, 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 September 30, 2016 and December 31, 2015 was $35,048,000 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 September 30, 2016, core deposits comprised 89.8% 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 September 30, 2016, were $6.617 billion, an increase of $531.3
million from December 31, 2015. The increase is primarily the result of the Citizens acquisition. 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 $5.289 billion at September 30, 2016,
compared to $4.766 billion at December 31, 2015, a $523.3 million increase. Total time deposits increased $8.0 million to $1.328
billion at September 30, 2016, from $1.320 billion at December 31, 2015. We had $12.1 million and $1.5 million of brokered deposits
at September 30, 2016 and December 31, 2015, respectively.
OTHER BORROWINGS AND SUBORDINATED DEBENTURES
Our total debt was $275.6 million and $222.9 million at September 30, 2016 and December
31, 2015, respectively. The outstanding balance for September 30, 2016 includes $120.0 million in FHLB short-term advances, $46.3
million in FHLB long-term advances, $49.0 million in notes payable and $60.3 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 $49.0 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 nine months ended September 30, 2016, we increased total debt by $52.7 million
from December 31, 2015 primarily due to the $80.0 million increase in FHLB short-term advances partially offset by the maturity
of $22.0 million of FHLB long-term advances.
CAPITAL
Overview
At September 30, 2016, total capital was $1.147 billion. Capital represents
shareholder ownership in the Company – the book value of assets in excess of liabilities. At September 30, 2016,
our common equity to assets ratio was 13.9%, up 10 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 qualified 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 2015 or 2016.
Cash Dividends
We declared cash dividends on our common stock of $0.72 per share for the first nine
months of 2016 compared to $0.69 per share for the first nine months of 2015, an increase of $0.03, 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 banks 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 September 30, 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 September 30, 2016 and December 31, 2015 are presented
in Table 12 below:
Table 12: Risk-Based Capital
|
|
September 30,
|
|
December 31,
|
($ in thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Tier 1 capital:
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
$
|
1,147,141
|
|
|
$
|
1,076,855
|
|
Trust preferred securities
|
|
|
60,290
|
|
|
|
60,570
|
|
Goodwill and other intangible assets
|
|
|
(354,582
|
)
|
|
|
(331,931
|
)
|
Unrealized gain on available-for-sale securities, net of income taxes
|
|
|
(2,117
|
)
|
|
|
2,665
|
|
Total Tier 1 capital
|
|
|
850,732
|
|
|
|
808,159
|
|
Tier 2 capital:
|
|
|
|
|
|
|
|
|
Qualifying unrealized gain on available-for-sale equity securities
|
|
|
--
|
|
|
|
--
|
|
Qualifying allowance for loan losses
|
|
|
38,050
|
|
|
|
35,068
|
|
Total Tier 2 capital
|
|
|
38,050
|
|
|
|
35,068
|
|
Total risk-based capital
|
|
$
|
888,782
|
|
|
$
|
843,227
|
|
|
|
|
|
|
|
|
|
|
Common equity:
|
|
|
|
|
|
|
|
|
Tier 1 capital
|
|
$
|
850,732
|
|
|
$
|
808,159
|
|
Non-cumulative preferred stock
|
|
|
--
|
|
|
|
(30,852
|
)
|
Trust preferred securities
|
|
|
(60,290
|
)
|
|
|
(60,570
|
)
|
Total common equity
|
|
$
|
790,442
|
|
|
$
|
716,737
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
5,724,052
|
|
|
$
|
5,044,453
|
|
|
|
|
|
|
|
|
|
|
Assets for leverage ratio
|
|
$
|
7,355,702
|
|
|
$
|
7,218,559
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of period:
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio (CET1)
|
|
|
13.81
|
%
|
|
|
14.21
|
%
|
Tier 1 leverage ratio
|
|
|
11.57
|
%
|
|
|
11.20
|
%
|
Tier 1 risk-based capital ratio
|
|
|
14.86
|
%
|
|
|
16.02
|
%
|
Total risk-based capital ratio
|
|
|
15.53
|
%
|
|
|
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 September 30, 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 tables below present computations of core earnings
(net income excluding nonrecurring items {
g
ain from early retirement of trust preferred securities,
gain on sale of banking operations, loss on FDIC loss share termination, merger related costs and branch right sizing expenses})
and diluted core earnings per share (non-GAAP) as well as a reconciliation of tangible book value per share (non-GAAP), tangible
common equity to tangible equity (non-GAAP) and the core net interest margin (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. These non-GAAP financial measures are 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” and core net interest margin (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. These non-GAAP financial measures are
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.
Non-GAAP financial measures 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 core earnings, which exclude nonrecurring
items for the periods presented.
Table 13: Reconciliation of Core Earnings (non-GAAP)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
($ in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,429
|
|
|
$
|
21,598
|
|
|
$
|
69,819
|
|
|
$
|
50,325
|
|
Nonrecurring items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from early retirement of trust preferred securities
|
|
|
--
|
|
|
|
--
|
|
|
|
(594
|
)
|
|
|
--
|
|
Gain on sale of banking operations
|
|
|
--
|
|
|
|
(2,110
|
)
|
|
|
--
|
|
|
|
(2,110
|
)
|
Loss on FDIC loss share termination
|
|
|
--
|
|
|
|
7,476
|
|
|
|
--
|
|
|
|
7,476
|
|
Merger related costs
|
|
|
1,524
|
|
|
|
857
|
|
|
|
1,989
|
|
|
|
12,523
|
|
Branch right sizing
|
|
|
43
|
|
|
|
304
|
|
|
|
3,276
|
|
|
|
3,084
|
|
Tax effect
(1)
|
|
|
(614
|
)
|
|
|
(2,560
|
)
|
|
|
(1,832
|
)
|
|
|
(7,589
|
)
|
Net nonrecurring items
|
|
|
953
|
|
|
|
3,967
|
|
|
|
2,839
|
|
|
|
13,384
|
|
Core earnings (non-GAAP)
|
|
$
|
24,382
|
|
|
$
|
25,565
|
|
|
$
|
72,658
|
|
|
$
|
63,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.76
|
|
|
$
|
0.72
|
|
|
$
|
2.28
|
|
|
$
|
1.83
|
|
Nonrecurring items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from early retirement of trust preferred securities
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.02
|
)
|
|
|
--
|
|
Gain on sale of banking operations
|
|
|
--
|
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.07
|
)
|
Loss on FDIC loss share termination
|
|
|
--
|
|
|
|
0.25
|
|
|
|
|
|
|
|
0.27
|
|
Merger related costs
|
|
|
0.05
|
|
|
|
0.03
|
|
|
|
0.06
|
|
|
|
0.46
|
|
Branch right sizing
|
|
|
--
|
|
|
|
0.01
|
|
|
|
0.11
|
|
|
|
0.11
|
|
Tax effect
(1)
|
|
|
(0.02
|
)
|
|
|
(0.09
|
)
|
|
|
(0.06
|
)
|
|
|
(0.28
|
)
|
Net nonrecurring items
|
|
|
0.03
|
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
0.49
|
|
Diluted core earnings per share (non-GAAP)
|
|
$
|
0.79
|
|
|
$
|
0.85
|
|
|
$
|
2.37
|
|
|
$
|
2.32
|
|
__________________________________
|
(1)
|
Effective tax rate of 39.225%, adjusted for non-deductible merger related costs.
|
See Table 14 below for the reconciliation of tangible book value per share.
Table 14: Reconciliation of Tangible Book Value per Share (non-GAAP)
(In thousands, except per share data)
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Total common stockholders’ equity
|
|
$
|
1,147,141
|
|
|
$
|
1,046,003
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(348,769
|
)
|
|
|
(327,686
|
)
|
Other intangible assets
|
|
|
(54,268
|
)
|
|
|
(53,237
|
)
|
Total intangibles
|
|
|
(403,037
|
)
|
|
|
(380,923
|
)
|
Tangible common stockholders’ equity
|
|
$
|
744,104
|
|
|
$
|
665,080
|
|
Shares of common stock outstanding
|
|
|
31,267,614
|
|
|
|
30,278,432
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
36.69
|
|
|
$
|
34.55
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share (non-GAAP)
|
|
$
|
23.80
|
|
|
$
|
21.97
|
|
See Table 15 below for the calculation of tangible common equity and the reconciliation
of tangible common equity to tangible assets as of September 30, 2016 and December 31, 2015.
Table 15: Reconciliation of Tangible Common Equity and the Ratio of Tangible
Common Equity to Tangible Assets (non-GAAP)
(In thousands, except per share data)
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
Total stockholders’ equity
|
|
$
|
1,147,141
|
|
|
$
|
1,076,855
|
|
Preferred stock
|
|
|
--
|
|
|
|
(30,852
|
)
|
Total common stockholders’ equity
|
|
|
1,147,141
|
|
|
|
1,046,003
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(348,769
|
)
|
|
|
(327,686
|
)
|
Other intangible assets
|
|
|
(54,268
|
)
|
|
|
(53,237
|
)
|
Total intangibles
|
|
|
(403,037
|
)
|
|
|
(380,923
|
)
|
Tangible common stockholders’ equity
|
|
$
|
744,104
|
|
|
$
|
665,080
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,226,992
|
|
|
$
|
7,559,658
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(348,769
|
)
|
|
|
(327,686
|
)
|
Other intangible assets
|
|
|
(54,268
|
)
|
|
|
(53,237
|
)
|
Total intangibles
|
|
|
(403,037
|
)
|
|
|
(380,923
|
)
|
Tangible assets
|
|
$
|
7,823,955
|
|
|
$
|
7,178,735
|
|
|
|
|
|
|
|
|
|
|
Ratio of equity to assets
|
|
|
13.94
|
%
|
|
|
14.24
|
%
|
Ratio of tangible common equity to tangible assets (non-GAAP)
|
|
|
9.51
|
%
|
|
|
9.26
|
%
|
See Table 16 below for the calculation of core net interest margin for the periods presented.
Table 16: Reconciliation of Core Net Interest Margin (non-GAAP)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
($ in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
68,063
|
|
|
$
|
78,676
|
|
|
$
|
204,878
|
|
|
$
|
204,844
|
|
FTE adjustment
|
|
|
2,181
|
|
|
|
2,172
|
|
|
|
6,370
|
|
|
|
6,332
|
|
Fully tax equivalent net interest income
|
|
|
70,244
|
|
|
|
80,848
|
|
|
|
211,248
|
|
|
|
211,176
|
|
Total accretable yield
|
|
|
(4,928
|
)
|
|
|
(14,928
|
)
|
|
|
(17,705
|
)
|
|
|
(35,055
|
)
|
Core net interest income
|
|
$
|
65,316
|
|
|
$
|
65,920
|
|
|
$
|
193,543
|
|
|
$
|
176,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets – quarter-to-date
|
|
$
|
6,825,019
|
|
|
$
|
6,660,434
|
|
|
$
|
6,682,683
|
|
|
$
|
6,170,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
4.09
|
|
|
|
4.82
|
|
|
|
4.22
|
|
|
|
4.58
|
|
Core net interest margin (non-GAAP)
|
|
|
3.81
|
|
|
|
3.93
|
|
|
|
3.87
|
|
|
|
3.82
|
|