Merger costs curb Simmons First profits by $4 million

Simmons First National Corporation said it incurred $4 million associated from the acquisition of Metropolitan National Bank and the subsequent branch consolidations now underway.


The Pine Bluff-based holding company said its core earnings totaled $7.7 million, or 48 cents a share, in the fourth quarter, up 4.7% and 9.1% respectively from the year ago period. The financial institution narrowly missed Wall Street’s 49-cent per share consensus. But, when factoring in the merger costs profits came to $3.8 million, or 23 cents a share.

With the merger costs considered the firm posted net earnings in 2013 of $23.2 million or $1.42 per share.


CEO George Makris Jr. said the bank is pleased the total results for the year and the recent quarter and while the acquisition and efficiency initiatives have and will weigh on profits in the short-term, he believes bank’s the long-term performance will benefit.

“Our focus continues to be improvement in core operating income," Makris said.

Makris said during Thursday’s earnings call the bank expects to take a $3.5 million hit to earnings in the first quarter of 2014 from the closing of 27 branches in combined Northwest Arkansas and Little Rock markets.

“We have identified 28 locations in Central Arkansas and 10 in Northwest Arkansas that will remain open and poised to growth services in those regions,” he said. “I will say the acquisition of Metropolitan went better and smoother than expected, we are set for a March 21 conversion of the branches and that will be the last piece of the merger.” Makris said during the call.

He hinted that the bank would be ready to tackle another deal after that.

SHARE, FINANCIAL PERFORMANCE
Simmons shares closed at $37.05 on Thursday, down 19 cents in light volume. For the past 52 weeks the share price has ranged from a high of $38.54 to a low of $23.16.


During 2013, the firm repurchased approximately 420,000 shares at an average price of $25.89. During the third quarter, the company suspended its stock repurchase program as it worked to absorb the $53.6 million paid (all cash) for Metropolitan National Bank in September.

Simmons reported net income growth of 29.5% in the quarter to $39.6 million. The $9 million year-over-year increase was linked to growth in the loans, earning assets acquired from Metropolitan and higher overall yield margins.


Non-interest expense for the fourth quarter of 2013 was $41.7 million, an increase of $9.5 million compared to the same period in 2012. 


"During the fourth quarter there were $3.7 million in incremental normal operating expenses attributable to our acquisition of Metropolitan National Bank. We also closed one underperforming branch (Bella Vista) during the quarter, incurring one-time costs of $108,000,” Makris said. 


Expense control remains a focus as Simmons continues to search for additional efficiency opportunities, Makris added.

LOAN AND DEPOSIT GROWTH

The pro forma bank reported $2.4 billion in loans on the books at the end of December. Total loans increased 25.1% from the same period in 2012.
 Acquired loans increased by $369 million, net of discounts, while legacy loans (all loans excluding acquired loans) grew $114 million, or 7.0%.

"We are encouraged by the continued growth in our legacy loan portfolio during the fourth quarter. We have had nice loan growth this year, particularly from the new lenders we have attracted in our targeted growth markets. Their production has exceeded our expectations through the end of the year," Makris noted in the release.

He added during the call that he was pleased with the caliber of lenders onboard since the Metropolitan deal saying they were eager and ready to grow production.

 Simmons reported total deposits of $3.7 billion at the end of December, growing $823 million or 28% from the year-ago period. This increase included $850 million acquired from the Metropolitan merger.

ASSET QUALITY

Simmons bank had $27.4 million in set aside for loan losses and loan credit mark of $101.4 million, for a total of $128.8 million in coverage.


Non-performing loans as a percent of total loans were 0.53% at year end. Non-performing assets increased $38.2 million from the previous quarter, to $74.1 million.


Included in the quarter was $42.1 million of acquired other real real estate owned (OREO) from the Metropolitan acquisition. 

For the full year of 2013, the annualized net charge-off ratio, excluding credit cards, was 0.15%, and the annualized credit card charge-off ratio was 1.33%.