Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Our net income for the three months ended June 30, 2017 was $23.1 million and diluted
earnings per share were $0.72, compared to net income of $22.9 million and $0.75 diluted earnings per share for the same period
of 2016. Diluted earnings per share decreased by $0.03, or 4.0%. Net income for the six months ended June 30, 2017, was $45.2 million
and diluted earnings per share were $1.42, compared to net income of $46.4 million and $1.52 diluted earnings per share for
the same period in 2016. Year-to-date diluted earnings per share decreased by $0.10, or 6.6%.
Net income for the first and second quarters in both 2017 and 2016 included
non-core items that impacted net income. The 2017 non-core items were significant and mainly related to acquisitions. The
2016 non-core items primarily related to branch right sizing initiatives. Excluding all non-core items, core earnings for the
three months ended June 30, 2017 were $26.8 million, or $0.84 diluted core earnings per share, compared to $25.1
million, or $0.82 diluted core earnings per share for the same period in 2016. Diluted core earnings per share increased by
$0.02, or 2.4%. Year-to-date core earnings were $49.3 million, an increase of $1.0 million, or 2.1%, compared with the same
period in 2016. Year-to-date diluted core earnings per share were $1.55, a decrease of $0.04, or 2.5%. See Reconciliation of
Non-GAAP Measures for additional discussion of non-GAAP measures.
On January 17, 2017, we merged Simmons First Finance Company, a wholly-owned subsidiary
of Simmons Bank, into Simmons Bank to reduce regulatory risks related to its operations relative to the size of its assets. At
June 30, 2017, the loan balance of this portfolio was $38 million.
In February 2017, we executed the sale of 11 substandard loans, which were primarily
loans acquired, with a net principal balance of $11 million. We recognized a loss of $676,000 on this sale.
During March 2017, we exited the indirect lending market as this is a low-margin unit
and we made a financial decision to reallocate our capital resources. At June 30, 2017, the loan balance of this portfolio was
$217 million.
On May 15, 2017, we closed the transaction to acquire Hardeman County Investment Company,
Inc. (“Hardeman”) including its wholly-owned bank subsidiary, First South Bank. At June 30, 2017 First South Bank operated
as an independently chartered bank. First South Bank is scheduled to be merged into our lead bank, Simmons Bank, in September 2017
with a simultaneous systems conversion. As a result of this acquisition, we recognized $7.1 million in pretax merger related
expenses during the six month period ended June 30, 2017.
In June 2017, we executed a sale of thirty-five classified loans with a discounted principal
balance of $13.8 million, which included $7.3 million of legacy loans and $6.5 million of loans acquired. The loans acquired portion
of the sale resulted in a benefit of $1.4 million accretion income and $714,000 increase in provision expense for loans acquired,
resulting in a net pretax benefit of approximately $700,000.
The regulatory application and shareholder approval processes for our announced acquisitions
of Southwest Bancorp, Inc. and First Texas BHC, Inc. is progressing as we recently filed the merger applications for these transactions.
Conversion and integration plans are in process. Subject to regulatory approval and the satisfaction of other closing conditions,
we anticipate a closing date as early as October 2017 or as late as January 2018.
We had solid results in the second quarter. We are 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 are experiencing upward
pressure on cost of funds which is currently prohibiting an expansion in the net interest margin. We continue to expand our risk
management programs in anticipation of surpassing $10 billion in assets within the next few months.
Total loans, including loans acquired, were $6.225 billion at June 30, 2017, compared
to $5.633 billion at December 31, 2016 and $5.014 billion at June 30, 2016. Total loans increased $448 million during the quarter,
which included $270 million in legacy loan growth from strong activity in the Springfield, Northwest Arkansas, Kansas City, St.
Louis and Little Rock markets. We continue to have good asset quality.
Stockholders’ equity as of June 30, 2017 was $1.234 billion, book value per share
was $38.31 and tangible book value per share was $24.71. Our ratio of stockholders’ equity to total assets
was 13.6% and the ratio of tangible stockholders’ equity to tangible assets was 9.2% at June 30 2017. See Reconciliation
of Non-GAAP Measures for additional discussion of non-GAAP measures. The Company’s Tier I leverage ratio of 10.8%, 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).
Simmons First National Corporation is a $9.1 billion Arkansas based financial holding
company conducting financial operations throughout Arkansas, Kansas, Missouri and Tennessee.
CRITICAL ACCOUNTING POLICIES
Overview
We follow accounting and reporting policies that conform, in all material respects, to
generally accepted accounting principles and to general practices within the financial services industry. The preparation
of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical
experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i)
the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different
estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting
estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.
The accounting policies that we view as critical to us are those relating to estimates
and judgments regarding (a) the determination of the adequacy of the allowance for loan losses, (b) acquisition accounting, (c)
the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation 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, Loans Acquired
We account for our acquisitions under ASC Topic 805,
Business Combinations
, which requires the use
of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance
for loan losses related to the loans acquired 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 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.
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 on recorded goodwill, if any, will be recorded as operating expenses.
Stock-based Compensation 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 awarding of bonus shares granted to directors, officers and other key employees.
In accordance with ASC Topic 718,
Compensation – Stock Compensation
, the
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various
assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect
the fair value estimate. For additional information, see Note 14, Stock Based Compensation, in the accompanying Condensed
Notes to Consolidated Financial Statements included elsewhere in this report.
Income Taxes
We are subject to the federal income tax laws of the United States,
and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws,
taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions
and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing
the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities
have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing
assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly
based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis,
management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities
and reserves for contingent tax liabilities.
The adoption of ASU 2016-09 –
Compensation-Stock Compensation:
Improvements to Employee Share-Based Payment Accounting
, decreased the effective tax rate during the year as the new standard
impacted how the income tax effects associated with stock-based compensation are recognized.
IMPACTS OF FUTURE GROWTH
In late 2016 and early 2017, the Company announced that it has entered into definitive agreements and plans
of merger with three bank holding companies (“Announced Acquisitions”) (see “Note 2: Acquisitions,” beginning
on page 11). One of these Announced Acquisitions closed in May 2017. The remaining Announced Acquisitions are likely to close during
2017. Each of the bank holding companies’ subsidiary banks is expected to be subsequently merged into Simmons Bank (the bank
mergers, together with the Announced Acquisitions, are hereinafter referred to as the “Anticipated Transactions”).
Upon the completion of the Anticipated Transactions, both the Company and Simmons Bank are expected to have assets in excess of
$10 billion.
The Dodd-Frank Act and associated Federal Reserve regulations cap the interchange rate
on debit card transactions that can be charged by banks that, together with their affiliates, have at least $10 billion in
assets at $0.21 per transaction plus five basis points multiplied by the value of the transaction. The cap goes into effect July
1
st
of the year following the year in which a bank reaches the $10 billion asset threshold. Due to the Company’s
Announced Acquisitions, Simmons Bank, when viewed together with its affiliates, expects to have assets in excess of $10 billion
by December 31, 2017, and anticipates, therefore, that it will be subject to the interchange rate cap effective July 1, 2018. Because
of the cap, Simmons Bank estimates that it will receive approximately $3.8 million less in debit card fees on an after-taxis basis
in 2018 and $7.5 million less on an after-tax basis in 2019.
The Dodd-Frank Act also requires banks and bank holding companies with more than $10
billion in assets to conduct annual stress tests. In anticipation of becoming subject to this requirement, the Company and Simmons
Bank have begun the necessary preparations, including undertaking a gap analysis, implementing enhancements to the audit and compliance
departments, and investing in various information technology systems. However, the Company believes that significant, additional
expenditures will be required in order to fully comply with the stress testing requirements. Based upon the expected closing dates
of the Anticipated Transactions, the Company believes that the first stress test will be required to be reported in or around July
2020 for the fiscal year 2019.
Additionally, the Dodd-Frank Act established the Bureau of Consumer Financial Protection
(the “CFPB”) and granted it supervisory authority over banks with total assets of more than $10 billion. After completion
of the Anticipated Transactions, Simmons Bank will become subject to CFPB oversight with respect to its compliance with federal
consumer financial laws. Simmons Bank will continue to be subject to the oversight of its other regulators with respect to matters
outside the scope of the CFPB’s jurisdiction. While the CFPB has broad rule-making, supervisory and examination authority,
as well as expanded data collecting and enforcement powers, its ultimate impact on the operations of Simmons Bank remains uncertain.
It is also important to note that the Dodd-Frank Act changed how
the FDIC calculates deposit insurance premiums payable by insured depository institutions. The Dodd-Frank Act directed the FDIC
to amend its assessment regulations so that assessments are generally based upon a depository institution’s average total
consolidated assets less the average tangible equity of the insured depository institution during the assessment period. Assessments
were previously based on the amount of an institution’s insured deposits. When Simmons Bank exceeds $10 billion in total
assets, it will become subject to the assessment rates assigned to larger banks which may result in higher deposit insurance premiums.
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. Through acquisition our loans acquired
tended to have longer maturities. In addition, due to market pressures the duration of our legacy loan portfolio has also extended
over the past several years. Our current interest rate sensitivity shows that approximately 36% of our loans and 72% of our time
deposits will reprice in the next year.
Net Interest Income Quarter-to-Date Analysis
For the three month period ended June 30, 2017, net interest income on a fully taxable
equivalent basis was $78.9 million, an increase of $10.6 million, or 15.6%, over the same period in 2016. The increase
in net interest income was the result of a $12.4 million increase in interest income and a $1.8 million increase in interest
expense.
The increase in interest income primarily resulted from a $10.6 million increase in interest
income on loans, consisting of legacy loans and loans acquired. The increase in loan volume during 2017 generated $12.4 million
of additional interest income, while a 15 basis point decline in yield resulted in a $1.8 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, the Hardeman
acquisition during the quarter and the Citizens acquisition in the third quarter of 2016.
Included in interest income is the effect of yield accretion recognized as a result of
updated estimates of the cash flows of our loans acquired, 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 loans acquired, 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 the three months ended June 30, 2017 and 2016, interest income included $4.8 million
and $4.7 million, respectively, for the yield accretion recognized on loans acquired. The accretable yield adjustments recorded
in future periods will change as we continue to evaluate expected cash flows from the loans acquired.
The increase in interest expense was the result of a $1.0 million increase in interest
expense on deposits primarily from deposit volume from the recent acquisitions. Interest expense also increased $621,000 due to
the $262.3 million increase in other borrowings.
Net Interest Income Year-to-Date Analysis
For the six month period ended June 30, 2017, net interest income on a fully taxable
equivalent basis was $153.2 million, an increase of $12.7 million, or 9.0%, over the same period in 2016. The increase
in net interest income was the result of a $15.1 million increase in interest income and a $2.4 million increase in interest
expense.
The increase in interest income primarily resulted from a $12.7 million increase in interest
income on loans and a $2.7 million increase in interest income on investment securities. The increase in loan volume during 2017
generated $22.4 million of additional interest income, while a 37 basis point decline in yield resulted in a $9.7 million
decrease in interest income. The increase in loan volume was primarily due to our acquisitions. $536,000 of the increase in interest
income on investment securities was due to volume increases while $2.1 million was a result of an increase in yield on the security
portfolio.
For the six months ended June 30, 2017, interest income included $9.2 million and $12.8
million, respectively, for the yield accretion recognized on loans acquired.
The $2.4 million increase in interest expense is primarily from the growth in deposit
accounts related to the acquisitions and the increase in other debt.
Net Interest Margin
Our net interest margin decreased 10 basis points to 4.04% for the three month period ended June 30, 2017,
when compared to 4.14% for the same period in 2016. For the six month period ended June 30, 2017, net interest margin decreased
24 basis points to 4.04% when compared to 4.28% for the same period in 2016. The most significant factor in the decreasing
margin during the six month period ended June 30, 2017 is the impact of the lower accretable yield adjustments discussed. Normalized
for all accretion on loans acquired, our core net interest margin at June 30, 2017 and 2016 was 3.79% and 3.86%, respectively.
We expect that increases in deposit costs will continue to offset short-term increases in rates on earning assets. These increases
are a result of increased competition for deposits and the recent Federal Reserve rate hikes. See Reconciliation of Non-GAAP Measures
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 six months ended June 30, 2017 and 2016, respectively, as well as changes in fully taxable equivalent net
interest margin for the three and six months ended June 30, 2017, versus June 30, 2016.
Table 1: Analysis of Net Interest Margin
(FTE = Fully Taxable Equivalent)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
83,898
|
|
|
$
|
71,900
|
|
|
$
|
162,325
|
|
|
$
|
147,521
|
|
FTE adjustment
|
|
|
2,082
|
|
|
|
1,675
|
|
|
|
4,047
|
|
|
|
3,759
|
|
Interest income – FTE
|
|
|
85,980
|
|
|
|
73,575
|
|
|
|
166,372
|
|
|
|
151,280
|
|
Interest expense
|
|
|
7,086
|
|
|
|
5,317
|
|
|
|
13,133
|
|
|
|
10,707
|
|
Net interest income – FTE
|
|
$
|
78,894
|
|
|
$
|
68,258
|
|
|
$
|
153,239
|
|
|
$
|
140,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets – FTE
|
|
|
4.40
|
%
|
|
|
4.47
|
%
|
|
|
4.38
|
%
|
|
|
4.60
|
%
|
Cost of interest bearing liabilities
|
|
|
0.48
|
%
|
|
|
0.42
|
%
|
|
|
0.45
|
%
|
|
|
0.42
|
%
|
Net interest spread – FTE
|
|
|
3.92
|
%
|
|
|
4.05
|
%
|
|
|
3.93
|
%
|
|
|
4.18
|
%
|
Net interest margin – FTE
|
|
|
4.04
|
%
|
|
|
4.14
|
%
|
|
|
4.04
|
%
|
|
|
4.28
|
%
|
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
|
|
Three Months Ended
June 30,
2017 vs. 2016
|
|
Six Months Ended
June 30,
2017 vs. 2016
|
|
|
|
|
|
Increase due to change in earning assets
|
|
$
|
12,757
|
|
|
$
|
22,565
|
|
Decrease due to change in earning asset yields
|
|
|
(352
|
)
|
|
|
(7,473
|
)
|
Decrease due to change in interest bearing liabilities
|
|
|
(1,465
|
)
|
|
|
(2,397
|
)
|
Decrease due to change in interest rates paid on interest bearing liabilities
|
|
|
(304
|
)
|
|
|
(29
|
)
|
Increase in net interest income
|
|
$
|
10,636
|
|
|
$
|
12,666
|
|
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 and six months ended June 30, 2017 and 2016. 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 June 30,
|
|
|
2017
|
|
2016
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
($ in thousands)
|
|
Balance
|
|
Expense
|
|
Rate (%)
|
|
Balance
|
|
Expense
|
|
Rate (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
160,318
|
|
|
$
|
201
|
|
|
|
0.50
|
|
|
$
|
126,114
|
|
|
$
|
77
|
|
|
|
0.25
|
|
Federal funds sold
|
|
|
3,078
|
|
|
|
13
|
|
|
|
1.69
|
|
|
|
2,570
|
|
|
|
17
|
|
|
|
2.66
|
|
Investment securities - taxable
|
|
|
1,374,261
|
|
|
|
6,874
|
|
|
|
2.01
|
|
|
|
1,087,179
|
|
|
|
5,939
|
|
|
|
2.20
|
|
Investment securities - non-taxable
|
|
|
337,230
|
|
|
|
5,118
|
|
|
|
6.09
|
|
|
|
416,115
|
|
|
|
4,203
|
|
|
|
4.06
|
|
Mortgage loans held for sale
|
|
|
12,250
|
|
|
|
145
|
|
|
|
4.75
|
|
|
|
28,844
|
|
|
|
295
|
|
|
|
4.11
|
|
Assets held in trading accounts
|
|
|
52
|
|
|
|
--
|
|
|
|
0.00
|
|
|
|
6,932
|
|
|
|
3
|
|
|
|
0.17
|
|
Loans
|
|
|
5,954,019
|
|
|
|
73,629
|
|
|
|
4.96
|
|
|
|
4,957,888
|
|
|
|
63,041
|
|
|
|
5.11
|
|
Total interest earning assets
|
|
|
7,841,208
|
|
|
|
85,980
|
|
|
|
4.40
|
|
|
|
6,625,642
|
|
|
|
73,575
|
|
|
|
4.47
|
|
Non-earning assets
|
|
|
971,252
|
|
|
|
|
|
|
|
|
|
|
|
896,491
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,812,460
|
|
|
|
|
|
|
|
|
|
|
$
|
7,522,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
$
|
4,069,179
|
|
|
$
|
2,984
|
|
|
|
0.29
|
|
|
$
|
3,526,278
|
|
|
$
|
2,035
|
|
|
|
0.23
|
|
Time deposits
|
|
|
1,277,336
|
|
|
|
1,832
|
|
|
|
0.58
|
|
|
|
1,242,805
|
|
|
|
1,741
|
|
|
|
0.56
|
|
Total interest bearing deposits
|
|
|
5,346,515
|
|
|
|
4,816
|
|
|
|
0.36
|
|
|
|
4,769,083
|
|
|
|
3,776
|
|
|
|
0.32
|
|
Federal funds purchased and securities sold under agreement to repurchase
|
|
|
115,101
|
|
|
|
92
|
|
|
|
0.32
|
|
|
|
104,668
|
|
|
|
59
|
|
|
|
0.23
|
|
Other borrowings
|
|
|
434,584
|
|
|
|
1,559
|
|
|
|
1.44
|
|
|
|
172,268
|
|
|
|
938
|
|
|
|
2.19
|
|
Subordinated debentures
|
|
|
64,019
|
|
|
|
619
|
|
|
|
3.88
|
|
|
|
60,132
|
|
|
|
544
|
|
|
|
3.64
|
|
Total interest bearing liabilities
|
|
|
5,960,219
|
|
|
|
7,086
|
|
|
|
0.48
|
|
|
|
5,106,151
|
|
|
|
5,317
|
|
|
|
0.42
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
1,597,550
|
|
|
|
|
|
|
|
|
|
|
|
1,271,878
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
45,348
|
|
|
|
|
|
|
|
|
|
|
|
57,486
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,603,117
|
|
|
|
|
|
|
|
|
|
|
|
6,435,515
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,209,343
|
|
|
|
|
|
|
|
|
|
|
|
1,086,618
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
8,812,460
|
|
|
|
|
|
|
|
|
|
|
$
|
7,522,133
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.92
|
|
|
|
|
|
|
|
|
|
|
|
4.05
|
|
Net interest margin
|
|
|
|
|
|
$
|
78,894
|
|
|
|
4.04
|
|
|
|
|
|
|
$
|
68,258
|
|
|
|
4.14
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
($ in thousands)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing balances due from banks
|
|
$
|
143,417
|
|
|
$
|
322
|
|
|
|
0.45
|
|
|
$
|
146,748
|
|
|
$
|
220
|
|
|
|
0.30
|
|
Federal funds sold
|
|
|
1,663
|
|
|
|
14
|
|
|
|
1.70
|
|
|
|
2,204
|
|
|
|
27
|
|
|
|
2.46
|
|
Investment securities - taxable
|
|
|
1,333,351
|
|
|
|
13,351
|
|
|
|
2.02
|
|
|
|
1,082,017
|
|
|
|
11,249
|
|
|
|
2.09
|
|
Investment securities - non-taxable
|
|
|
343,032
|
|
|
|
10,002
|
|
|
|
5.88
|
|
|
|
422,966
|
|
|
|
9,453
|
|
|
|
4.49
|
|
Mortgage loans held for sale
|
|
|
11,861
|
|
|
|
271
|
|
|
|
4.61
|
|
|
|
27,730
|
|
|
|
572
|
|
|
|
4.15
|
|
Assets held in trading accounts
|
|
|
50
|
|
|
|
--
|
|
|
|
0.00
|
|
|
|
6,064
|
|
|
|
9
|
|
|
|
0.30
|
|
Loans
|
|
|
5,819,803
|
|
|
|
142,412
|
|
|
|
4.93
|
|
|
|
4,923,787
|
|
|
|
129,750
|
|
|
|
5.30
|
|
Total interest earning assets
|
|
|
7,653,117
|
|
|
|
166,372
|
|
|
|
4.38
|
|
|
|
6,611,516
|
|
|
|
151,280
|
|
|
|
4.60
|
|
Non-earning assets
|
|
|
960,063
|
|
|
|
|
|
|
|
|
|
|
|
899,141
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,613,240
|
|
|
|
|
|
|
|
|
|
|
$
|
7,510,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
$
|
4,009,451
|
|
|
$
|
5,430
|
|
|
|
0.27
|
|
|
$
|
3,505,424
|
|
|
$
|
4,053
|
|
|
|
0.23
|
|
Time deposits
|
|
|
1,269,881
|
|
|
|
3,590
|
|
|
|
0.57
|
|
|
|
1,273,209
|
|
|
|
3,377
|
|
|
|
0.53
|
|
Total interest bearing deposits
|
|
|
5,279,332
|
|
|
|
9,020
|
|
|
|
0.34
|
|
|
|
4,778,633
|
|
|
|
7,430
|
|
|
|
0.31
|
|
Federal funds purchased and securities sold under agreement to repurchase
|
|
|
113,287
|
|
|
|
167
|
|
|
|
0.30
|
|
|
|
109,109
|
|
|
|
125
|
|
|
|
0.23
|
|
Other borrowings
|
|
|
390,126
|
|
|
|
2,753
|
|
|
|
1.42
|
|
|
|
178,134
|
|
|
|
2,065
|
|
|
|
2.33
|
|
Subordinated debentures
|
|
|
62,236
|
|
|
|
1,193
|
|
|
|
3.87
|
|
|
|
60,121
|
|
|
|
1,087
|
|
|
|
3.64
|
|
Total interest bearing liabilities
|
|
|
5,844,981
|
|
|
|
13,133
|
|
|
|
0.45
|
|
|
|
5,125,997
|
|
|
|
10,707
|
|
|
|
0.42
|
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
1,532,025
|
|
|
|
|
|
|
|
|
|
|
|
1,248,595
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
48,328
|
|
|
|
|
|
|
|
|
|
|
|
55,362
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,425,334
|
|
|
|
|
|
|
|
|
|
|
|
6,429,954
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,187,906
|
|
|
|
|
|
|
|
|
|
|
|
1,080,703
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
8,613,240
|
|
|
|
|
|
|
|
|
|
|
$
|
7,510,657
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.93
|
|
|
|
|
|
|
|
|
|
|
|
4.18
|
|
Net interest margin
|
|
|
|
|
|
$
|
153,239
|
|
|
|
4.04
|
|
|
|
|
|
|
$
|
140,573
|
|
|
|
4.28
|
|
Table 4 shows changes in interest income and interest expense resulting from changes
in volume and changes in interest rates for the three and six month periods ended June 30, 2017, 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
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2017 over 2016
|
|
2017 over 2016
|
(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
|
|
$
|
26
|
|
|
$
|
98
|
|
|
$
|
124
|
|
|
$
|
(5
|
)
|
|
$
|
107
|
|
|
$
|
102
|
|
Federal funds sold
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(13
|
)
|
Investment securities - taxable
|
|
|
1,468
|
|
|
|
(533
|
)
|
|
|
935
|
|
|
|
2,530
|
|
|
|
(428
|
)
|
|
|
2,102
|
|
Investment securities - non-taxable
|
|
|
(907
|
)
|
|
|
1,822
|
|
|
|
915
|
|
|
|
(1,994
|
)
|
|
|
2,543
|
|
|
|
549
|
|
Mortgage loans held for sale
|
|
|
(191
|
)
|
|
|
41
|
|
|
|
(150
|
)
|
|
|
(356
|
)
|
|
|
55
|
|
|
|
(301
|
)
|
Assets held in trading accounts
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
Loans
|
|
|
12,360
|
|
|
|
(1,772
|
)
|
|
|
10,588
|
|
|
|
22,401
|
|
|
|
(9,739
|
)
|
|
|
12,662
|
|
Total
|
|
|
12,757
|
|
|
|
(352
|
)
|
|
|
12,405
|
|
|
|
22,565
|
|
|
|
(7,473
|
)
|
|
|
15,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction and savings accounts
|
|
|
344
|
|
|
|
605
|
|
|
|
949
|
|
|
|
629
|
|
|
|
748
|
|
|
|
1,377
|
|
Time deposits
|
|
|
49
|
|
|
|
42
|
|
|
|
91
|
|
|
|
(9
|
)
|
|
|
222
|
|
|
|
213
|
|
Federal funds purchased and securities sold under agreements to repurchase
|
|
|
6
|
|
|
|
27
|
|
|
|
33
|
|
|
|
5
|
|
|
|
37
|
|
|
|
42
|
|
Other borrowings
|
|
|
1,030
|
|
|
|
(409
|
)
|
|
|
621
|
|
|
|
1,733
|
|
|
|
(1,045
|
)
|
|
|
688
|
|
Subordinated debentures
|
|
|
36
|
|
|
|
39
|
|
|
|
75
|
|
|
|
39
|
|
|
|
67
|
|
|
|
106
|
|
Total
|
|
|
1,465
|
|
|
|
304
|
|
|
|
1,769
|
|
|
|
2,397
|
|
|
|
29
|
|
|
|
2,426
|
|
Increase (decrease) in net interest income
|
|
$
|
11,292
|
|
|
$
|
(656
|
)
|
|
$
|
10,636
|
|
|
$
|
20,168
|
|
|
$
|
(7,502
|
)
|
|
$
|
12,666
|
|
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 June 30, 2017, was $7.0
million, compared to $4.6 million for the three month period ended June 30, 2016, an increase of $2.4 million. The provision for
loan losses for the six month period ended June 30, 2017, was $11.3 million, compared to $7.4 million for the six month period
ended June 30, 2016, an increase of $3.9 million. See Allowance for Loan Losses section for additional information.
The provision increase was necessary in order to maintain an appropriate allowance for
loan losses for the company’s growing legacy portfolio. Significant loan growth in our markets, both from new loans and
from loans acquired migrating to legacy, as well as increases in specific reserves on certain impaired loans, required an allowance
to be established for those loans through a provision.
Finally, a $714,000 and $1.5 million provision was recorded on loans acquired during
the three and six months ended June 30, 2017 as a result of a shortage in our credit mark on certain purchased credit impaired
loans. The shortage in credit mark was due to subsequent deterioration in the loans after purchase.
NON-INTEREST INCOME
Total non-interest income was $35.7 million for the three month period ended June 30,
2017, a decrease of $1.1 million, or 3.1%, compared to $36.9 million for the same period in 2016. Total non-interest income
was $65.8 million for the six month period ended June 30, 2017, a decrease of $593,000, or 0.9%, compared to $66.4 million for
the same period in 2016.
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 and
SBA 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 decrease in non-interest income was due to gains recorded on the sale of securities
that totaled $2.3 million during the six month period ended June 30, 2017 compared to $4.1 million for the same period in 2016.
In addition, non-interest income from mortgage and SBA lending was $1.2 million less than the same period in 2016. These decreases
were partially offset by increases in trust income, service charges and debit and credit card fees.
Table 5 shows non-interest income for the three and six month periods ended June 30,
2017 and 2016, respectively, as well as changes in 2017 from 2016.
Table 5: Non-Interest Income
|
|
Three Months
|
|
2017
|
|
Six Months
|
|
2017
|
|
|
Ended June 30
|
|
Change from
|
|
Ended June 30
|
|
Change from
|
(In thousands)
|
|
|
2017
|
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
2016
|
|
|
2016
|
Trust income
|
|
$
|
4,113
|
|
|
$
|
3,656
|
|
|
$
|
457
|
|
|
|
12.50
|
%
|
|
$
|
8,325
|
|
|
$
|
7,287
|
|
|
$
|
1,038
|
|
|
|
14.24
|
%
|
Service charges on deposit accounts
|
|
|
8,483
|
|
|
|
7,661
|
|
|
|
822
|
|
|
|
10.73
|
|
|
|
16,585
|
|
|
|
14,977
|
|
|
|
1,608
|
|
|
|
10.74
|
|
Other service charges and fees
|
|
|
2,515
|
|
|
|
2,718
|
|
|
|
(203
|
)
|
|
|
-7.47
|
|
|
|
4,712
|
|
|
|
5,585
|
|
|
|
(873
|
)
|
|
|
-15.63
|
|
Mortgage and SBA lending income
|
|
|
3,961
|
|
|
|
4,730
|
|
|
|
(769
|
)
|
|
|
-16.26
|
|
|
|
6,384
|
|
|
|
7,564
|
|
|
|
(1,180
|
)
|
|
|
-15.60
|
|
Investment banking income
|
|
|
637
|
|
|
|
1,181
|
|
|
|
(544
|
)
|
|
|
-46.06
|
|
|
|
1,327
|
|
|
|
1,865
|
|
|
|
(538
|
)
|
|
|
-28.85
|
|
Debit and credit card fees
|
|
|
8,659
|
|
|
|
7,688
|
|
|
|
971
|
|
|
|
12.63
|
|
|
|
16,593
|
|
|
|
14,888
|
|
|
|
1,705
|
|
|
|
11.45
|
|
Bank owned life insurance income
|
|
|
859
|
|
|
|
826
|
|
|
|
33
|
|
|
|
4.00
|
|
|
|
1,677
|
|
|
|
1,824
|
|
|
|
(147
|
)
|
|
|
-8.06
|
|
Gain on sale of securities, net
|
|
|
2,236
|
|
|
|
3,759
|
|
|
|
(1,523
|
)
|
|
|
-40.52
|
|
|
|
2,299
|
|
|
|
4,088
|
|
|
|
(1,789
|
)
|
|
|
-43.76
|
|
Net gain on sale of premises held for sale
|
|
|
632
|
|
|
|
--
|
|
|
|
632
|
|
|
|
100.00
|
|
|
|
589
|
|
|
|
--
|
|
|
|
589
|
|
|
|
100.00
|
|
Other income
|
|
|
3,649
|
|
|
|
4,669
|
|
|
|
(1,020
|
)
|
|
|
-21.85
|
|
|
|
7,313
|
|
|
|
8,319
|
|
|
|
(1,006
|
)
|
|
|
-12.09
|
|
Total non-interest income
|
|
$
|
35,744
|
|
|
$
|
36,888
|
|
|
$
|
(1,144
|
)
|
|
|
-3.10
|
%
|
|
$
|
65,804
|
|
|
$
|
66,397
|
|
|
$
|
(593
|
)
|
|
|
-0.89
|
%
|
Recurring fee income (service charges, trust fees and credit card fees) for the three
month period ended June 30, 2017, was $23.8 million, an increase of $2 million from the three month period ended June 30, 2016.
Trust income increased by $457,000 or 12.5%, service charges and fees increased $619,000 or 6.0% and debit and credit card fees
increased by $971,000, or 12.6%. The increase in debit and credit card fees is related to a higher volume of debit and credit card.
The majority of the increase was due to the additions of accounts from the Hardeman and Citizen acquisitions and continued positive
growth in our trust department.
Mortgage and SBA lending income decreased by $1.2 million for the six months ended June 30, 2017 compared to last
year, due primarily to the seasonal nature of the mortgage volume as well as the timing of selling the guaranteed portion of SBA
loans. Investment banking income decreased $538,000 during the six months ended June 30, 2017 compared to the same period last
year as a result of the closure of our Institutional Division and exit from its lines of business in the third quarter of 2016.
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 June 30, 2017 was $71.4 million,
an increase of $7.3 million, or 11.3%, from the same period in 2016. The most significant impact to non-interest expense were the
following non-core items.
We saw a $6.2 million increase in merger related costs from last year. We had $6.6 million of merger related
costs in the second quarter of 2017 compared to only $372,000 in the second quarter of 2016. The merger related costs in the current
year were from our acquisition of Hardeman during the quarter and from the two pending acquisitions. This increase was offset by
a decrease in branch right sizing expense for the second quarter of 2017 to $99,000 from $3.2 million for the second quarter of
2016.
Normalizing for the non-core merger related costs and branch right sizing expenses, non-interest
expense for the three months ended June 30, 2017 increased $4.2 million, or 6.9 %, from the same period in 2016, primarily due
to the incremental operating expenses of the acquired franchises and increased professional fees associated with preparation to
pass $10 billion in assets.
Non-interest expense for the six months ended June 30, 2017 was $137.7 million, an increase
of $11.8 million, or 9.4%, from the same period in 2016. The most significant impact to non-interest expense were the following
non-core items.
First, we saw a $6.7 million increase in merger related costs from last year. Included
in the six months ended June 30, 2017 were $7.1 million in merger related costs, primarily from our Hardeman transaction and from
our anticipated acquisitions . In the same period of 2016 we recorded $465,000 of merger related costs.
Second, branch right sizing expense for the six months ended June 30, 2017 decreased
by $3.0 million from the same period in 2016. We had $3.2 million of branch right sizing expense in 2016 from our ten branch closings.
We continue to monitor branch operations and profitability as well as changing customer habits.
Normalizing for the non-core merger related costs and branch right sizing, non-interest
expense for the six months ended June 30, 2017 increased $8.2 million, or 6.7%, from the same period in 2016, primarily due to
the incremental operating expenses of the acquired franchises.
Salaries and employee benefits increased by $1.1 million for the three months ended June 30, 2017 compared to the
same period in 2016. Salaries and employee benefits increased by $1.9 million for the six months ended June 30, 2017 related to
the Hardeman acquisition which occurred during May 2017 and the Citizen merger which occurred during September 2016. Occupancy
expense decreased by $122,000 for the three months ended June 30, 2017 and increased $70,000 for the six months period ended June
30, 2017 when compared to the same periods in 2016, while furniture and equipment expense increased by $473,000 and $970,000 from
the same periods in 2016.
The increases in several other operating expense categories during the periods were a
result of the 2017 and 2016 acquisitions. Professional services increased by $1.1 million for the three months ended June 30, 2017
from the same period in 2016. Professional services increased by $2.7 million for the six months ended June 30, 2017 from the same
period in 2016 related to exam fees, auditing and accounting services and general consulting expenses.
Table 6 below shows non-interest expense for the three and six month periods ended June
30, 2017 and 2016, respectively, as well as changes in 2017 from 2016.
Table 6: Non-Interest Expense
|
|
Three Months
|
|
2017
|
|
Six Months
|
|
2017
|
|
|
Ended June 30
|
|
Change from
|
|
Ended June 30
|
|
Change from
|
(In thousands)
|
|
|
2017
|
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
2016
|
|
|
2016
|
Salaries and employee benefits
|
|
$
|
34,205
|
|
|
$
|
33,103
|
|
|
$
|
1,102
|
|
|
|
3.33
|
%
|
|
$
|
69,741
|
|
|
$
|
67,877
|
|
|
$
|
1,864
|
|
|
|
2.75
|
%
|
Occupancy expense, net
|
|
|
4,868
|
|
|
|
4,990
|
|
|
|
(122
|
)
|
|
|
-2.44
|
|
|
|
9,531
|
|
|
|
9,461
|
|
|
|
70
|
|
|
|
0.74
|
|
Furniture and equipment expense
|
|
|
4,550
|
|
|
|
4,077
|
|
|
|
473
|
|
|
|
11.60
|
|
|
|
8,993
|
|
|
|
8,023
|
|
|
|
970
|
|
|
|
12.09
|
|
Other real estate and foreclosure expense
|
|
|
517
|
|
|
|
967
|
|
|
|
(450
|
)
|
|
|
-46.54
|
|
|
|
1,106
|
|
|
|
1,934
|
|
|
|
(828
|
)
|
|
|
-42.81
|
|
Deposit insurance
|
|
|
780
|
|
|
|
1,096
|
|
|
|
(316
|
)
|
|
|
-28.83
|
|
|
|
1,460
|
|
|
|
2,244
|
|
|
|
(784
|
)
|
|
|
-34.94
|
|
Merger related costs
|
|
|
6,603
|
|
|
|
372
|
|
|
|
6,231
|
|
|
|
1675.00
|
|
|
|
7,127
|
|
|
|
465
|
|
|
|
6,662
|
|
|
|
1432.69
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
3,962
|
|
|
|
2,911
|
|
|
|
1,051
|
|
|
|
36.10
|
|
|
|
9,131
|
|
|
|
6,404
|
|
|
|
2,727
|
|
|
|
42.58
|
|
Postage
|
|
|
1,204
|
|
|
|
1,074
|
|
|
|
130
|
|
|
|
12.10
|
|
|
|
2,335
|
|
|
|
2,309
|
|
|
|
26
|
|
|
|
1.13
|
|
Telephone
|
|
|
982
|
|
|
|
1,041
|
|
|
|
(59
|
)
|
|
|
-5.67
|
|
|
|
2,060
|
|
|
|
2,100
|
|
|
|
(40
|
)
|
|
|
-1.90
|
|
Credit card expenses
|
|
|
3,107
|
|
|
|
2,542
|
|
|
|
565
|
|
|
|
22.23
|
|
|
|
5,944
|
|
|
|
5,372
|
|
|
|
572
|
|
|
|
10.65
|
|
Marketing
|
|
|
1,687
|
|
|
|
2,149
|
|
|
|
(462
|
)
|
|
|
-21.50
|
|
|
|
3,033
|
|
|
|
3,122
|
|
|
|
(89
|
)
|
|
|
-2.85
|
|
Operating supplies
|
|
|
459
|
|
|
|
458
|
|
|
|
1
|
|
|
|
0.22
|
|
|
|
814
|
|
|
|
817
|
|
|
|
(3
|
)
|
|
|
-0.37
|
|
Amortization of intangibles
|
|
|
1,554
|
|
|
|
1,451
|
|
|
|
103
|
|
|
|
7.10
|
|
|
|
3,104
|
|
|
|
2,908
|
|
|
|
196
|
|
|
|
6.74
|
|
Branch right sizing expense
|
|
|
99
|
|
|
|
3,219
|
|
|
|
(3,120
|
)
|
|
|
-96.92
|
|
|
|
217
|
|
|
|
3,233
|
|
|
|
(3,016
|
)
|
|
|
-93.29
|
|
Other expense
|
|
|
6,831
|
|
|
|
4,687
|
|
|
|
2,144
|
|
|
|
45.74
|
|
|
|
13,134
|
|
|
|
9,662
|
|
|
|
3,472
|
|
|
|
35.93
|
|
Total non-interest expense
|
|
$
|
71,408
|
|
|
$
|
64,137
|
|
|
$
|
7,271
|
|
|
|
11.34
|
%
|
|
$
|
137,730
|
|
|
$
|
125,931
|
|
|
$
|
11,799
|
|
|
|
9.37
|
%
|
LOAN PORTFOLIO
Our legacy loan portfolio, excluding loans acquired, averaged $4.615 billion and $3.455
billion during the first six months of 2017 and 2016, respectively. As of June 30, 2017, total loans, excluding
loans acquired, were $5.001 billion, an increase of $673.4 million from December 31, 2016. 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 very strong growth in the
majority of our market areas in which we operate. We continue to actively recruit and hire new associates in our growth markets
in an effort to make quality loans. In addition, $35 million of the increase was related to loan participations with First Texas
BHC, Inc., our pending acquisition target, which is evidence of their strong loan demand.
Also contributing to our legacy loan growth are loans acquired 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, 2016 to June 30, 2017
included $112.9 million in balances that migrated from loans acquired during the period. These migrated loan balances are included
in the legacy loan balances as of June 30, 2017.
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)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
176,953
|
|
|
$
|
184,591
|
|
Other consumer
|
|
|
366,136
|
|
|
|
303,972
|
|
Total consumer
|
|
|
543,089
|
|
|
|
488,563
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
457,896
|
|
|
|
336,759
|
|
Single family residential
|
|
|
1,014,412
|
|
|
|
904,245
|
|
Other commercial
|
|
|
2,089,707
|
|
|
|
1,787,075
|
|
Total real estate
|
|
|
3,562,015
|
|
|
|
3,028,079
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
678,932
|
|
|
|
639,525
|
|
Agricultural
|
|
|
191,345
|
|
|
|
150,378
|
|
Total commercial
|
|
|
870,277
|
|
|
|
789,903
|
|
Other
|
|
|
25,191
|
|
|
|
20,662
|
|
Total loans, excluding loans acquired, before allowance for loan losses
|
|
$
|
5,000,572
|
|
|
$
|
4,327,207
|
|
Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $543.1 million
at June 30, 2017, or 10.9% of total loans, compared to $488.6 million, or 11.3% of total loans at December 31, 2016. The
increase in consumer loans from December 31, 2016, to June 30, 2017, was due to growth in direct consumer loans offset by the expected
seasonal decrease in our credit card portfolio..
Real estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $3.562 billion at June 30, 2017, or 71.2% of total loans, compared
to the $3.028 billion, or 70.0%, of total loans at December 31, 2016, an increase of $533.9 million.
Commercial loans consist of non-real estate loans related to business and agricultural loans. Commercial
loans were $870.3 million at June 30, 2017, or 17.4% of total loans, compared to $789.9 million, or 18.3% of total loans
at December 31, 2016, an increase of $80.4 million. Non-agricultural commercial loans increased to $678.9 million,
a $39.4 million increase, or 6.2%, growth from December 31, 2016. Agricultural loans increased to $191.3 million, a $41.0 million
increase, or 27.29%, 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, plus $35.0 million in cash 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 May 15, 2017, we completed the acquisition of Hardeman and issued 799,970 shares of
the Company’s common stock valued at approximately $42.6 million as of May 15, 2017, plus $30.0 million in cash in exchange
for all outstanding shares of Hardeman common stock. Included in the acquisition were loans with a fair value of $251.6 million.
Table 8 reflects the carrying value of all loans acquired as of June 30, 2017 and December 31, 2016.
Table 8: Loans Acquired
(In thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Other consumer
|
|
$
|
37,636
|
|
|
$
|
49,677
|
|
Total consumer
|
|
|
37,636
|
|
|
|
49,677
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
59,731
|
|
|
|
57,587
|
|
Single family residential
|
|
|
374,219
|
|
|
|
423,176
|
|
Other commercial
|
|
|
634,892
|
|
|
|
690,108
|
|
Total real estate
|
|
|
1,068,842
|
|
|
|
1,170,871
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
116,057
|
|
|
|
81,837
|
|
Agricultural
|
|
|
2,204
|
|
|
|
3,298
|
|
Total commercial
|
|
|
118,261
|
|
|
|
85,135
|
|
Total loans acquired
(1)
|
|
$
|
1,224,739
|
|
|
$
|
1,305,683
|
|
____________________________
|
(1)
|
Loans acquired are reported net of a $391,000 and $954,000 allowance at June 30, 2017 and December 31, 2016, respectively.
|
The majority of the loans acquired in the Citizens and Hardeman 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 and Hardeman
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 during the loan term and if it
is probable that not all contractually required payments will be collected.
Some purchased impaired loans were determined to have experienced additional impairment
upon disposition or foreclosure in 2017. During the three and six months ended June 30, 2017, we recorded $714,000 and $1,464,000,
respectively, provision for these loans and charge-offs of $2.0 million, resulting in an allowance for loan losses for purchased
impaired loans at June 30, 2017 of $391,000. 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 or principal exceeds 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 $17.1 million
from December 31, 2016 to June 30, 2017. Foreclosed assets held for sale decreased by $883,000. During the second quarter,
$3.2 million in former bank branches previously classified as premises held for sale were transferred to foreclosed assets held
for sale. Nonaccrual loans increased by $18.0 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 1.02% at June
30, 2017, compared to 0.93% at December 31, 2016. The increase in the non-performing ratio from the fourth quarter is primarily
the result of two credit relationships totaling $11.0 million in the Wichita market.
In June 2017, we executed a sale of thirty-five classified loans with a discounted principal
balance of $13.8 million, which included $7.3 million of legacy loans and $6.5 million of loans acquired. The loans acquired portion
of the sale resulted in a benefit of $1.4 million accretion income and $714,000 increase in provision expense for loans acquired,
resulting in a net benefit of approximately $700,000.
In February 2017, we executed a sale of eleven substandard loans, which were primarily
loans acquired, with a net principal balance of $11 million. We recognized a loss of $676,000 on this sale.
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 $19.3 million at June 30, 2017, compared to $14.2
million at December 31, 2016. The majority of our TDRs remain in the CRE portfolio with the largest increase comprised
of two relationships.
We return TDRs to accrual status only if (1) all contractual amounts due can reasonably
be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period,
typically at least six months.
We continue to maintain good asset quality. The allowance for loan losses
as a percent of total loans was 0.83% as of June 30, 2017. Non-performing loans equaled 1.15% of total loans, a 24 basis
point increase from December 31, 2016 and a 2 basis point decrease from June 30, 2016. Non-performing assets were 0.93% of
total assets. The allowance for loan losses was 72% of non-performing loans. Our annualized net charge-offs to
total loans for the first six months of 2017 was 0.21%. Excluding credit cards, the annualized net charge-offs to total loans
for the same period was 0.15%. Annualized net credit card charge-offs to total credit card loans were 1.63%, compared
to 1.28% during the full year 2016, and more than 190 basis points better than the most recently published industry average charge-off
ratio as reported by the Federal Reserve for all banks.
Table 9 presents information concerning non-performing assets, including nonaccrual loans
and foreclosed assets held for sale (excluding all loans acquired).
Table 9: Non-performing Assets
($ in thousands)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Nonaccrual loans
(1)
|
|
$
|
57,127
|
|
|
$
|
39,104
|
|
Loans past due 90 days or more (principal or interest payments)
|
|
|
281
|
|
|
|
299
|
|
Total non-performing loans
|
|
|
57,408
|
|
|
|
39,403
|
|
Other non-performing assets:
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale
|
|
|
26,012
|
|
|
|
26,895
|
|
Other non-performing assets
|
|
|
485
|
|
|
|
471
|
|
Total other non-performing assets
|
|
|
26,497
|
|
|
|
27,366
|
|
Total non-performing assets
|
|
$
|
83,905
|
|
|
$
|
66,769
|
|
|
|
|
|
|
|
|
|
|
Performing TDRs
|
|
$
|
8,794
|
|
|
$
|
10,998
|
|
Allowance for loan losses to non-performing loans
|
|
|
72
|
%
|
|
|
92
|
%
|
Non-performing loans to total loans
|
|
|
1.15
|
%
|
|
|
0.91
|
%
|
Non-performing assets to total assets
(2)
|
|
|
0.93
|
%
|
|
|
0.79
|
%
|
____________________________
|
(1)
|
Includes nonaccrual TDRs of approximately $10.5 million at June 30, 2017 and $3.2 million at December 31, 2016.
|
|
(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 six month
periods ended June 30, 2017 and 2016.
At June 30, 2017, impaired loans, net of government guarantees and loans acquired, were
$57.1 million compared to $43.7 million at December 31, 2016. 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.
Reserve for Unfunded Commitments
In addition to the allowance for loan losses, we have established a reserve for unfunded
commitments, classified in other liabilities. This reserve is maintained at a level sufficient to absorb losses arising
from unfunded loan commitments. The adequacy of the reserve for unfunded commitments is determined monthly based on
methodology similar to our methodology for determining the allowance for loan losses. Net adjustments to the reserve
for unfunded commitments are included in other non-interest expense.
An analysis of the allowance for loan losses is shown in Table 10.
Table 10: Allowance for Loan Losses
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
36,286
|
|
|
$
|
31,351
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
1,945
|
|
|
|
1,561
|
|
Other consumer
|
|
|
2,167
|
|
|
|
882
|
|
Real estate
|
|
|
2,368
|
|
|
|
1,053
|
|
Commercial
|
|
|
641
|
|
|
|
2,759
|
|
Total loans charged off
|
|
|
7,121
|
|
|
|
6,255
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
513
|
|
|
|
495
|
|
Other consumer
|
|
|
1,326
|
|
|
|
252
|
|
Real estate
|
|
|
448
|
|
|
|
223
|
|
Commercial
|
|
|
62
|
|
|
|
325
|
|
Total recoveries
|
|
|
2,349
|
|
|
|
1,295
|
|
Net loans charged off
|
|
|
4,772
|
|
|
|
4,960
|
|
Provision for loan losses
(1)
|
|
|
9,865
|
|
|
|
7,132
|
|
Balance, June 30
(3)
|
|
$
|
41,379
|
|
|
|
33,523
|
|
|
|
|
|
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
1,634
|
|
Other consumer
|
|
|
|
|
|
|
1,093
|
|
Real estate
|
|
|
|
|
|
|
6,464
|
|
Commercial
|
|
|
|
|
|
|
1,197
|
|
Total loans charged off
|
|
|
|
|
|
|
10,388
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
Credit card
|
|
|
|
|
|
|
412
|
|
Other consumer
|
|
|
|
|
|
|
264
|
|
Real estate
|
|
|
|
|
|
|
128
|
|
Commercial
|
|
|
|
|
|
|
40
|
|
Total recoveries
|
|
|
|
|
|
|
844
|
|
Net loans charged off
|
|
|
|
|
|
|
9,544
|
|
Provision for loan losses
(2)
|
|
|
|
|
|
|
12,307
|
|
Balance, end of year
(3)
|
|
|
|
|
|
$
|
36,286
|
|
____________________________
|
(1)
|
Provision for loan losses of $1,464,000 attributable to loans acquired, was excluded from this table for 2017 (total
year-to-date provision for loan losses is $11,330,000) and $307,000 was excluded from this table for 2016 (total 2016 provision
for loan losses is $7,439,000). Charge offs of $2.0 million on loans acquired were excluded from this table for 2017 (total net
loan charged off is $6.8 million.
|
|
(2)
|
Provision for loan losses of $626,000 attributable to loans acquired, was excluded from this table for 2016 (total 2016 provision
for loan losses is $20,065,000).
|
|
(3)
|
Allowance for loan losses at June 30, 2017 includes $391,000 allowance for loans acquired (not shown in the table above) and
December 31, 2016 and June 30, 2016 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance
for loan losses at June 30, 2017 was $41,770,000 and the total allowance for loan losses at December 31, 2016 and June 30, 2016
was $37,240,000 and $34,477,000, respectively.
|
Provision for Loan Losses
The amount of provision to the allowance during the three and six months ended June 30,
2017 and 2016, and for the year ended December 31, 2016, 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 June 30, 2017, the allowance for loan losses reflects an increase of approximately
$5.1 million from December 31, 2016, while total loans, excluding loans acquired, increased by $673.4 million over the same
six month period. The allocation in each category within the allowance generally reflects the overall changes in the
loan portfolio mix.
The following table sets forth the sum of the amounts of the allowance for loan losses
attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of
loans in each category to the total loan portfolio, excluding loans acquired, for each of the periods indicated. These allowance
amounts have been computed using the Company’s internal grading system, specific impairment analysis, qualitative and quantitative
factor allocations. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual
categories.
Table 11: Allocation of Allowance for Loan Losses
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Allowance
|
|
|
% of
|
|
|
Allowance
|
|
|
% of
|
|
($ in thousands)
|
|
Amount
|
|
|
loans
(1)
|
|
|
Amount
|
|
|
loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards
|
|
$
|
3,754
|
|
|
|
3.6
|
%
|
|
$
|
3,779
|
|
|
|
4.3
|
%
|
Other consumer
|
|
|
3,442
|
|
|
|
7.3
|
%
|
|
|
2,796
|
|
|
|
7.0
|
%
|
Real estate
|
|
|
25,731
|
|
|
|
71.2
|
%
|
|
|
21,817
|
|
|
|
70.0
|
%
|
Commercial
|
|
|
8,105
|
|
|
|
17.4
|
%
|
|
|
7,739
|
|
|
|
18.2
|
%
|
Other
|
|
|
347
|
|
|
|
0.5
|
%
|
|
|
155
|
|
|
|
0.5
|
%
|
Total
(2)
|
|
$
|
41,379
|
|
|
|
100.0
|
%
|
|
$
|
36,286
|
|
|
|
100.0
|
%
|
____________________________
|
(1)
|
Percentage of loans in each category to total loans, excluding loans acquired.
|
|
(2)
|
Allowance for loan losses at June 30, 2017 and December 31, 2016 includes $391,000 and $954,000, respectively, allowance for
loans acquired (not shown in the table above). The total allowance for loan losses at June 30, 2017 and December 31, 2016 was $41,770,000
and $37,240,000, respectively
|
DEPOSITS
Deposits are our primary source of funding for earning assets and are primarily developed through our network of
over 159 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 June 30, 2017, core deposits comprised 90.6% 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 June 30, 2017, were $7.104 billion, an increase of $368.3 million
from December 31, 2016. 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 $5.792 billion at June 30, 2017, compared to $5.448 billion at December 31, 2016, a $344.3 million increase. Total time
deposits increased $24.1 million to $1.311 billion at June 30, 2017, from $1.287 billion at December 31, 2016. We had $22.1 million
and $7.0 million of brokered deposits at June 30, 2017 and December 31, 2016, respectively.
OTHER BORROWINGS AND SUBORDINATED DEBENTURES
Our total debt was $542.3 million and $333.6 million at June 30, 2017 and December 31,
2016, respectively. The outstanding balance for June 30, 2017 includes $392.1 million in FHLB short-term advances, $37.2 million
in FHLB long-term advances, $45.7 million in notes payable and $67.3 million of trust preferred securities. The outstanding balance
for December 31, 2016 included $180.0 million in FHLB short-term advances, $45.3 million in FHLB long-term advances, $47.9
million in notes payable and $60.4 million of trust preferred securities.
The $45.7 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 six months ended June 30, 2017, we increased total debt by $208.7 million
from December 31, 2016 primarily due to the $212.1 million increase in FHLB short-term advances partially offset by the maturity
of $6.3 million of FHLB long-term advances.
CAPITAL
Overview
At June 30, 2017, total capital was $1.234 billion. Capital represents shareholder
ownership in the Company – the book value of assets in excess of liabilities. At June 30, 2017, our common equity
to assets ratio was 13.6%, down 9 basis points from year-end 2016.
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.
Stock Repurchase
During 2007, the Company approved a stock repurchase program which authorized the repurchase
of up to 700,000 shares of common stock. On July 23, 2012, we announced the substantial completion of the existing stock
repurchase program and the adoption by our Board of Directors of a new stock repurchase program. The current program
authorizes the repurchase of up to 850,000 additional shares of Class A common stock, or approximately 5% of the shares outstanding.
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 we intend to repurchase. We may discontinue purchases at any time that management
determines additional purchases are not warranted. 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 2016 or 2017.
Cash Dividends
We declared cash dividends on our common stock of $0.50 per share for the first six months
of 2017 compared to $0.48 per share for the first six months of 2016, an increase of $0.02, or 4.2%. 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
and the funding of debt obligations. The primary sources for meeting these liquidity needs are the current cash on hand
at the parent company and the future dividends received from Simmons Bank. Payment of dividends by the subsidiary bank
is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions of Item 3 –
Quantitative and Qualitative Disclosure About Market Risk for additional information regarding the parent company’s liquidity.
Risk Based Capital
Our bank subsidiary is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines
that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us
to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined
in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management
believes that, as of June 30, 2017, 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 June 30, 2017 and December 31, 2016 are presented in
Table 12 below:
Table 12: Risk-Based Capital
|
|
June 30,
|
|
December 31,
|
($ in thousands)
|
|
2017
|
|
2016
|
|
|
|
|
|
Tier 1 capital:
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
$
|
1,234,076
|
|
|
$
|
1,151,111
|
|
Trust preferred securities
|
|
|
67,312
|
|
|
|
60,397
|
|
Goodwill and other intangible assets, net of deferred taxes
|
|
|
(406,990
|
)
|
|
|
(354,028
|
)
|
Unrealized gain on available-for-sale securities, net of income taxes
|
|
|
11,322
|
|
|
|
15,212
|
|
Other
|
|
|
--
|
|
|
|
15
|
|
Total Tier 1 capital
|
|
|
905,720
|
|
|
|
872,707
|
|
Tier 2 capital:
|
|
|
|
|
|
|
|
|
Qualifying unrealized gain on available-for-sale equity securities
|
|
|
1
|
|
|
|
--
|
|
Qualifying allowance for loan losses
|
|
|
45,369
|
|
|
|
40,241
|
|
Total Tier 2 capital
|
|
|
45,370
|
|
|
|
40,241
|
|
Total risk-based capital
|
|
$
|
951,090
|
|
|
$
|
912,948
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
6,925,727
|
|
|
$
|
6,039,034
|
|
|
|
|
|
|
|
|
|
|
Assets for leverage ratio
|
|
$
|
8,424,763
|
|
|
$
|
7,966,681
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of period:
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio (CET1)
|
|
|
12.11
|
%
|
|
|
13.45
|
%
|
Tier 1 leverage ratio
|
|
|
10.75
|
%
|
|
|
10.95
|
%
|
Tier 1 risk-based capital ratio
|
|
|
13.08
|
%
|
|
|
14.45
|
%
|
Total risk-based capital ratio
|
|
|
13.73
|
%
|
|
|
15.12
|
%
|
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. Management believes that, as of June 30, 2017, the Company and Simmons Bank
would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements
were currently effective.
Tier 1 capital includes common equity tier 1 capital and certain additional tier 1 items as provided under the
Basel III Rules. The tier 1 capital for the Company consists of common equity tier 1 capital and $67.3 million of trust preferred
securities. The Basel III Rules include certain provisions that would require trust preferred securities to be phased out of qualifying
tier 1 capital. Currently, the Company’s trust preferred securities are grandfathered under the Basel III Rules and will
continue to be included as tier 1 capital. However, should the Company exceed $15 billion in total assets, the grandfather provisions
applicable to its trust preferred securities would no longer apply and such trust preferred securities would no longer be included
as tier 1 capital, but would continue to be included as total capital.
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.
CAUTIONARY NOTE REGARDING 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 non-core items {gain from early
retirement of trust preferred securities, 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). Non-core items are included in financial results presented in accordance
with generally accepted accounting principles (“GAAP”).
The Company believes the exclusion of these non-core 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 non-core items to be relevant to ongoing financial performance. Management
and the Board of Directors utilize “core earnings” (non-GAAP) for the following purposes:
• Preparation of the Company’s operating
budgets
• Monthly financial performance reporting
• Monthly “flash” reporting of consolidated
results (management only)
• Investor presentations of Company performance
The Company believes the presentation of “core earnings” on a diluted per
share basis, “diluted core earnings per share” (non-GAAP) 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 non-core
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
We have $438.0 million and $401.5 million total goodwill and other intangible assets at June 30, 2017 and
December 31, 2016, respectively. Because of our high level of intangible assets, management believes a useful calculation
is return on tangible equity (non-GAAP).
The Company believes that presenting these non-GAAP financial measures will permit investors
and analysts to assess the performance of the Company on the same basis as that applied by management and the Board of Directors.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly
applied and are not audited. To mitigate these limitations, the Company has procedures in place to identify and approve
each item that qualifies as non-core to ensure that the Company’s “core” results are properly reflected for period-to-period
comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a Company,
they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results
as reported under GAAP. In particular, a measure of earnings that excludes non-core items does not represent the amount
that effectively accrues directly to stockholders (i.e., non-core items are included in earnings and stockholders’ equity).
See Table 13 below for the reconciliation of core earnings, which exclude non-core items
for the periods presented.
Table 13: Reconciliation of Core Earnings (non-GAAP)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
($ in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
23,065
|
|
|
$
|
22,909
|
|
|
$
|
45,185
|
|
|
$
|
46,390
|
|
Non-core items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from early retirement of trust preferred securities
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(594
|
)
|
Merger related costs
|
|
|
6,603
|
|
|
|
372
|
|
|
|
7,127
|
|
|
|
465
|
|
Branch right sizing
|
|
|
(536
|
)
|
|
|
3,219
|
|
|
|
(382
|
)
|
|
|
3,233
|
|
Tax effect
(1)
|
|
|
(2,379
|
)
|
|
|
(1,409
|
)
|
|
|
(2,645
|
)
|
|
|
(1,218
|
)
|
Net non-core items
|
|
|
3,688
|
|
|
|
2,182
|
|
|
|
4,100
|
|
|
|
1,886
|
|
Core earnings (non-GAAP)
|
|
$
|
26,753
|
|
|
$
|
25,091
|
|
|
$
|
49,285
|
|
|
$
|
48,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.72
|
|
|
$
|
0.75
|
|
|
$
|
1.42
|
|
|
$
|
1.52
|
|
Non-core items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from early retirement of trust preferred securities
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.02
|
)
|
Merger related costs
|
|
|
0.21
|
|
|
|
0.01
|
|
|
|
0.22
|
|
|
|
0.02
|
|
Branch right sizing
|
|
|
(0.02
|
)
|
|
|
0.11
|
|
|
|
(0.01
|
)
|
|
|
0.11
|
|
Tax effect
(1)
|
|
|
(0.07
|
)
|
|
|
(0.05
|
)
|
|
|
(0.08
|
)
|
|
|
(0.04
|
)
|
Net non-core items
|
|
|
0.12
|
|
|
|
0.07
|
|
|
|
0.13
|
|
|
|
0.07
|
|
Diluted core earnings per share (non-GAAP)
|
|
$
|
0.84
|
|
|
$
|
0.82
|
|
|
$
|
1.55
|
|
|
$
|
1.59
|
|
____________________________
|
(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)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Total common stockholders’ equity
|
|
$
|
1,234,076
|
|
|
$
|
1,151,111
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(379,437
|
)
|
|
|
(348,505
|
)
|
Other intangible assets
|
|
|
(58,528
|
)
|
|
|
(52,959
|
)
|
Total intangibles
|
|
|
(437,965
|
)
|
|
|
(401,464
|
)
|
Tangible common stockholders’ equity
|
|
$
|
796,111
|
|
|
$
|
749,647
|
|
Shares of common stock outstanding
|
|
|
32,212,832
|
|
|
|
31,277,723
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
38.31
|
|
|
$
|
36.80
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share (non-GAAP)
|
|
$
|
24.71
|
|
|
$
|
23.97
|
|
See Table 15 below for the calculation of tangible common equity and the reconciliation
of tangible common equity to tangible assets as of June 30, 2017 and December 31, 2016.
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)
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
|
Total common stockholders’ equity
|
|
$
|
1,234,076
|
|
|
$
|
1,151,111
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(379,437
|
)
|
|
|
(348,505
|
)
|
Other intangible assets
|
|
|
(58,528
|
)
|
|
|
(52,959
|
)
|
Total intangibles
|
|
|
(437,965
|
)
|
|
|
(401,464
|
)
|
Tangible common stockholders’ equity
|
|
$
|
796,111
|
|
|
$
|
749,647
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,068,308
|
|
|
$
|
8,400,056
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(379,437
|
)
|
|
|
(348,505
|
)
|
Other intangible assets
|
|
|
(58,528
|
)
|
|
|
(52,959
|
)
|
Total intangibles
|
|
|
(437,965
|
)
|
|
|
(401,464
|
)
|
Tangible assets
|
|
$
|
8,630,343
|
|
|
$
|
7,998,592
|
|
|
|
|
|
|
|
|
|
|
Ratio of equity to assets
|
|
|
13.61
|
%
|
|
|
13.70
|
%
|
Ratio of tangible common equity to tangible assets (non-GAAP)
|
|
|
9.22
|
%
|
|
|
9.37
|
%
|
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
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
($ in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
76,812
|
|
|
$
|
66,583
|
|
|
$
|
149,192
|
|
|
$
|
136,814
|
|
FTE adjustment
|
|
|
2,082
|
|
|
|
1,675
|
|
|
|
4,047
|
|
|
|
3,759
|
|
Fully tax equivalent net interest income
|
|
|
78,894
|
|
|
|
68,258
|
|
|
|
153,239
|
|
|
|
140,573
|
|
Total accretable yield
|
|
|
(4,792
|
)
|
|
|
(4,700
|
)
|
|
|
(9,219
|
)
|
|
|
(12,777
|
)
|
Core net interest income
|
|
$
|
74,102
|
|
|
$
|
63,558
|
|
|
$
|
144,020
|
|
|
$
|
127,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning assets – quarter-to-date
|
|
$
|
7,841,208
|
|
|
$
|
6,625,642
|
|
|
$
|
7,653,177
|
|
|
$
|
6,611,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
4.04
|
|
|
|
4.14
|
|
|
|
4.04
|
|
|
|
4.28
|
|
Core net interest margin (non-GAAP)
|
|
|
3.79
|
|
|
|
3.86
|
|
|
|
3.79
|
|
|
|
3.89
|
|