Good day, and welcome to the Simmons First National Corporation Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ed Bilek. Please go ahead. Good morning, and welcome to Simmons First National Corporation's Third Quarter 2023 Earnings Call. Joining me today are several members of our executive management team, including our Executive Chairman, George Makris, CEO, Bob Fehlman, and President and CFO, Jay Brogdon. Before we begin the Q&A, I would like to remind you that our third quarter earnings materials, including the press release and presentation deck, are available on our website at simmonsbank.com under the Investor Relations tab. During today's call, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections, and outlook, including, among others, our outlook regarding future economic conditions, interest rates, lending and deposit activity, credit quality, liquidity, and net interest margin. These statements involve risks and uncertainties, and you should therefore not place undue reliance on any forward-looking statement as actual results could differ materially from those expressed in or implied by the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our earnings release and investor presentation, furnished with our Form 8-K today, our Form 10-Q for the quarter ended March 31st, 2023, and our Form 10-K for the year ended December 31st, 2022, including the risk factors contained in that Form 10-K. These forward-looking statements speak only as of the date they are made, and Simmons assumes no obligation to update or revise any forward-looking statements or other information. Finally, in this presentation, we will discuss certain non-GAAP financial metrics we believe provide useful information to investors. Additional disclosures regarding non-GAAP metrics, including the reconciliations of these non-GAAP metrics to GAAP, are contained in our earnings release and investor presentation, which are also included as exhibits to the Form 8-K we filed this morning with the SEC and are also available on the Investor Relations page of our website, simmonsbank.com. Operator, we are ready to begin the Q&A session. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brady Gailey with KBW. Please go ahead. Hey, thank you. Good morning, guys. Good morning, Brady. Maybe if we could just start with credit quality. Your credit was still pretty clean, but there was a little bit of noise. You had a new $8 million commercial NPL and then the $10 million net charge-off from the nursing extended care loan. Maybe just a little extra color on what's happening with those two loans. Hey, Brady, it's Jay. Yeah, I'll jump in and let me let me kind of step back for a moment and describe some of the work we've done and our feelings around credit, and then I'll kind of, you know, hone in on the credits you've asked about. But first, I'd just say that we continue to feel very good about our overall credit picture. You know, we—if you even go back to Q2, we did a deep dive on our office portfolio. You know, no major changes coming out of that deep dive, and we continue to rotate through our portfolios, stressing for interest rate, stressing for any other type of activity that we see on a macro level or on a micro level with our own customers. And I'd say the results overall, when we look at, you know, any leading indicators, or any of just our overall credit metrics, continue to, you know, continue to feel good to us, and we have confidence in the quality of the portfolio. You know, we've talked a lot in Q3 about the deep dive on the nursing and extended care portfolio. That's a, that's a, you know, a sector that has had some difficulties going back to, you know, COVID ramifications, inflationary pressures, longer periods of time to reach stabilization, et cetera. It's not a huge portfolio for us. It's about a $300 million portfolio. But we wanted to get in there in the third quarter again and kind of deep dive that portfolio. You know, the results of that, bottom line, at the end of the quarter, we have zero non-performers in that portfolio. But we did go through the portfolio, identify one borrower, one project in particular, that was not cash flowing for all the reasons I mentioned earlier. And, you know, we worked with the borrower, worked through some modifications that, you know, resulted in a $10 million or so charge-off for us, on that credit. That, that, that borrower, that project is now cash flowing. We feel very good about the modifications we've made, you know, to that loan. And again, overall, as it relates to that portfolio and the broader portfolio, I guess one more metric I'd give you on the nursing and extended care piece in particular, you know, at the conclusion of that deep dive, you know, when we get to 9:30, we've got about a 4.9% reserve level on that portfolio. So again, feel like we were incredibly conservative, which is true to our form, but very conservative in how we got in there and addressed that portfolio and feel good about it. You know, outside of that credit, when we look at other migrations within classifieds or nonperformers, there's really nothing significant that I would call out. There's some puts and takes in there. We've had good results in, you know, working out some credits in there. We've got a few flowing in, but that really nothing stands out other than just sort of normal course activity. All right. That's, that's helpful. And then moving on to expenses. You know, I know you guys have achieved the $50 million cost reduction plan. So if you look at core expenses in the quarter, they're around $130 million. So should we now think of expenses, you know, as, as flattish into the fourth quarter and into 2024, or will there be some creep? How, how do we think about the forward expense run rate? Yeah, I'll take another shot at that one as well, Brady. So I'd say, you know, we outline a some accrual cleanups again here in the third quarter. So I do think you've got to adjust for that from a run rate perspective. I think, you know, it's fair to think of fourth quarter non-interest expense run rates kind of in that mid-130s range, you know, which significantly exceeds, you know, what we had hoped to achieve through the Better Bank Initiative goals that we had outlined earlier in the year. I think as we look into next year run rates, you know, that's kind of the launching point. However, again, you'll—you know, you won't have any of those sort of incentive run rate adjustments coming into those numbers. And as we've continued to say, we're going to remain very focused on the expense discipline side of things, but we'll also continue to evaluate some, you know, some opportunities or investment opportunities we have. So I think our guide that we've given previously, you know, is what I'd still stand by today, and we'll, you know, as we continue to evaluate the opportunities that are out there, if there are other goals or initiatives that we want to lay out, we would guide them or announce them at a later date. Okay. And then, and finally, for me, just on the net interest margin, I know in the fourth quarter, we should have the benefit of the hedge gains starting to flow through, but, you know, your NIM is still kind of slipping on a core basis. So, you know, you have a positive coming and maybe a little more NIM slippage. So how should we think about the NIM next quarter and into 2024? Yeah, I think, I think you just set it up perfectly. You know, I've talked about it historically or in past conversations, kind of underlying NIM, you know, meaning sort of the, the net interest margin, absent the, the positive impact of the, the swap. There, there will continue to be some pressure there, although I think that, you know, we see that pressure moderating for sure. I think we are experiencing, at this point, sort of the, the natural lag effect at this point, with the Fed kind of in the late innings, it seems, on, interest rate hikes. We've got some lagging that'll occur over the fourth quarter and maybe into the first quarter. A great example of that would just be CD maturities, that'll take place, in the quarter, and so, in the fourth quarter and in the first quarter, so we'll have some repricing there. But again, I think the pressure on the cost side will slow down through the fourth quarter and the first quarter. You know, bottom line result of all of that is, as we move through, you know, through third or through fourth quarter and first quarter, I think NIM's kind of in a band. What you saw in Q3, we're probably close to the band of where I think our overall net interest margin will be. I think we've probably inflected here in the third and fourth quarter. You know, and then as we move into, you know, move through next year, subject to, you know, whatever happens with the Fed or in the market more broadly, we're going to have a lot more assets repricing than deposits repricing, and that's how I would think about the margin going forward here. Okay, great. Thanks for all the color. Brady. Our next question comes from David Feaster with Raymond James. Please go ahead. Hey, good morning, everybody. Good morning, David. Hey, David. I was hoping maybe we could just touch on some of the trends that you're seeing on the core funding side. We're, we're obviously seeing some of the migration and, and client utilization of excess cash, but I'm just curious, maybe some of the underlying trends that you're seeing and, and where are you seeing the most opportunity to drive core deposit growth, how core deposit balances are trending early in, in the fourth quarter, and maybe how new, new deposit pricing is, for both core deposits as well as your CDs? Yeah, David, I'll, you know, jump in there on that one as well. I'd tell you that, really, it's kind of a continuation of the same trends we've seen. You know, deposits were down for the quarter on a period-end basis, but, you know, one thing I'd point out is that both loans and deposits were up, you know, on an average basis for the quarter. And yet, you know, we were really kind of flat on the brokered side. We were down on the borrowing side. So we were able to see you know, good ability to hold the line, and again, on an average basis, even kind of grow the core deposit book in the quarter. It's the migration piece that you continue to see the experience in, that, you know, that has the higher cost associated with it. So, continue to see that even into October. I'd like to think that we're seeing, and we saw it at different points in the third quarter, that, you know, the trends would slow down and speed up. So there's kind of some sputtering in how we think about that migration and what we're observing in the portfolio, but you still see some pressure on NIBs and lower-cost IB transaction accounts... you know, we're not losing a lot of accounts, at all. It's really more, just dollars migrating out of those lower cost buckets, and primarily into, you know, CD promo type activity. So I think we'll continue to experience that, although to a slower degree, again, going forward. I think the bigger, you know, the bigger factor, will again, just kind of be repricing of lower cost CDs, as those mature over the next three and six months. And then just in terms of trying to drive core deposit growth, you know, look, it's an incredibly competitive environment out there, and we look market by market at price sensitivity, you know, on a daily basis. We look at our own fund flows. We have done a great job targeting deposits that have flowed out and bringing those back in, as well as just you know, through our through our promo campaigns, whether it's on the money market or the CD side, and continue to have, you know, good success there. But you're just always balancing between the front book and the back book, as you evaluate, you know, those opportunities. You know, and David, I'd add on to that, in addition of the migration from, you know, non-interest bearing to interest bearing, you know, we're also seeing lower balances per account. Yeah. You know, the consumers have less cash in their pocket than they did a year ago, and you continue to still feel some of that. And as Jay said, we haven't seen a decline in number of accounts, our customers, but we have seen balances, whether it's migration because of rate or less balances in their account due to inflation and higher interest rates and all of that, people have less cash in their accounts than they did six months ago, a year ago. That's a good point. Maybe on the other side of the coin, it is great to see the increase in, in the loans ready to close, and the rate, 843 basis points, is, is terrific. I'm just curious, what, what are you seeing that drove the uptick in that pipeline quarter -over -quarter? Where are you seeing opportunities that, that bring good risk-adjusted returns at these higher rates? Are there any segments or geographies that are presenting better returns, and just kind of how you think about, loan growth going forward? Yeah, I'd say that, you know, again, want to mention loans were up on an average basis for the quarter. We mentioned in the slides, when you look at sort of our loan balance waterfall on page 19, you know, we talk about the fact that we had a handful of credits that we really worked throughout the quarter, very focused efforts, either because of, you know, lower rates and/or, you know, candidly, risk ratings, that we didn't love, where we saw opportunities to get those credits out of the bank, and we're able to do that successfully right at the end of the quarter. So, you know, I want to, I want to, you know, emphasize that we are continuing to, to focus on growing loans on a good risk-adjusted returns basis, and we're seeing success with that. And our pipeline's a great indication of that, as you point out, David. You know, in addition to the pipeline, you know, sort of inflecting this quarter and being up, I'd really draw your attention, actually, just even to that ready to close portion of the pipeline is the portion that's up most significantly on a quarter-over-quarter basis. The rates that we're seeing in there are very attractive, and I'd just say they're, you know, it's a broad-based effort. I mean, we're seeing it, you know, all across the footprint. I wouldn't really call out any geography as particularly better than the other, nor really any category. It's more opportunistic. There are, you know, situations in this environment where I think incumbent banks are, you know, for whatever reasons, having to do some either something irrational or have their eye off the ball. And, you know, we have had some really good opportunities with customers where we've been maybe a secondary provider to come in and really grow to the full relationship and bring some things into the pipeline that we're pretty excited about. You know, and David, in addition to the pricing on the risk side, is the push to bring that full relationship in. You bring the deposits in, you bring treasury management in. You know, we've been pushing that for a long time, but really the focus today is, when a loan's coming on, is what are the deposits? What are the relationships? And no concessions unless there's, you know, a full relationship out there. That brings to that total profitability of that customer. That's a really good point. And maybe last one for me, just touching on capital priorities. You know, regulatory capital is continuing to grow. You've been active repurchasing stock. I'm just curious how you think about capital priorities, and then, you know, just any thoughts on you know, monetizing the swap? Is there any appetite to do that and utilize that capital for any type of balance sheet optimization or restructuring or anything? You know, David, I'd say right now, you know, we're still staying the course. We evaluate each quarter, whether we're going to be in stock buyback or not. One thing we have committed to is we wouldn't buy back more shares than our earnings less cash dividends. So we'll evaluate this quarter, not saying we'll be in it, not saying we'll be out of it, but it would be a measured approach like we have, if we do continue in it. Our capital, we're comfortable, especially the regulatory side right now. I think a little bit of decline in TCE was expected with where the 10-year has moved. Other than that, I think our TCE would have been up. So we're comfortable in the range we are, and we think we're doing a balanced approach on stock buyback. Again, we'll evaluate this quarter and determine where we are. We all like to say, I mean, given the environment where bank stocks are trading, we'd love to buy back as much as we can, but we think the prudent amount today is really to decide if you're in or not, and if you're in, to do it in a balanced with, again, your earnings less your cash dividends. Yeah, and David, I'd just jump in on the, you know, on the swap and the analytics around that. I mean, that is also similar to what Bob described, you know, analysis that we do, you know, all day, every day, ongoing throughout every quarter. We'll continue to do that. And, you know, if we think that we find something that's advantageous, given the market dynamics, you know, particularly as it relates to that swap, then we would take advantage of it. But, you know, I'd say thus far, we've been more than happy to have, you know, sat pat there. Terrific. Thanks, everybody. Our next question comes from Matt Olney with Stephens. Please go ahead. Hey, thanks. Good morning, guys. Matt. Matt. On the credit front, you mentioned that deeper review of some extended care nursing in the third quarter that followed the office deep dive in 2Q. As you kind of look forward in the 4Q in next year, is there any kind of other deeper dive focused within any specific portfolio? And then, and then I guess part two of that, it sounds like maybe as a result of what you looked at recently, you worked some credits out of the bank that just didn't line up with your process. Curious, yeah, what your thoughts are about, you know, the potential of seeing similar events in the future, where you proactively work out some still performing credits out of the bank. Thanks. Yeah, Matt, I'd say that, we don't have any sector specific portfolios that are due up in terms of the deep dive. Coming into the balance of the year here this year, we'll probably prioritize those going into next year and determine what, if anything, we'd want to dig into further. I'd say the one maybe stepping away and just from sector specific or you know, we're looking at different buckets within the portfolio and just more broadly, you know, we do continue throughout the year, and we'll continue to stress our, you know, our customers, our borrowers at you know, higher rates, higher for longer rates, et cetera. And again, we've done that all through the year, this year, and continue to feel good about the results of that. We're not seeing any kind of broad-based stress from that, but, you know, that's kinda the flow of our loan review and where we sit right now around those portfolios. As it relates to working out, you know, credits, as you asked there at the end, I think that's something we'll continue to be opportunistic around. I mean, we're really doing that, again, all across the portfolio. There's a number of factors that we think about. Again, one is, you know, just the rate that we have the loans at. Maybe the biggest factor is the relationship that we have or the relationship opportunity that we believe we have. You know, now is the time where, as Bob mentioned a while ago, we're very, very focused on full relationships. The stuff we're bringing into the pipeline is relationship heavy. The stuff we have on the books, if it's relationship light, is getting a lot of scrutiny, particularly at renewal dates, but even if there are opportunities that we see to move those out, we're willing to do that. So I don't think any of that really looks like necessarily big portfolio sales or anything like that as it relates broadly to the portfolio, but more opportunistic and more kind of a granular level of analysis. Yeah, and just a little bit of expansion on that $160 million payoff. Most of that happened right at the end of the quarter, so there was little impact to margin during the quarter. Most, as we said, some of those loans were lower rate, so we were kind of glad to see them go off the books for the spread that we had on them, and the risk wasn't worth it. A few others had some elevated. The risk rating was moving up, wasn't in the non-performing or concern area, but when you looked at it and the change, we were glad to see those move, especially where their pricing was for the risk rating. So we'll continue to look for those opportunities, and if we can, help them out the door. If not, you know, we'll continue to work through them. But I agree, Jay, we've done several deep dives, and we haven't seen any other areas that we have that concern. Okay, thanks for the commentary. And just as a follow-up to that, and kind of on Bob's point around some of the fixed asset repricing opportunity, any more color you can give us there as some of these loans come up for renewal and you look to reprice those higher? Any kind of a color or any commentary on that? You know, I'll mention a few things, and I'd point, you know, everyone to slide 16 for some information around interest rate and interest rate sensitivity. But, you know, I already mentioned in my remarks earlier on the funding side that I think Q4 and Q1, again, subject to sort of the moves in the market that would be unexpected. I think Q4 and Q1 will be kind of the biggest periods of repricing that we have left to go here on the liability side. But on a go-forward basis, continue to see a lot of really good opportunities, both in terms of repricing and in terms of pipeline opportunity on the asset side. And we give you some statistics there on 16. One in particular that I'd call out, you know, we've got $1 billion in, you know, fixed rate. Next 12 months, $1 billion in fixed-rate loans at a weighted average rate of 5.78%. So I think there'll be, you know, quite a few good opportunities to have some significant repricing in that portfolio or that portion of our portfolio. And again, we see a lot more opportunity in terms of asset repricing over the quarters to come than we do risk in terms of the liability side. Okay, thanks for that. And, Jay, following up on that, you mentioned $1 billion of the fixed rate loans. Any color on the new and renewed loan pricing more recently? It's really similar to what you're seeing in the pipeline statistic there. So our renewal rates are just right on top of our top line opportunity rates. Got it. Okay. That's helpful, guys. Thank you very much. Thanks, Matt. Our next question comes from Graham Dick with Piper Sandler. Please go ahead. Hey, guys. Good morning. Good morning. Morning. I just, I just wanted to circle back quickly and then make sure I heard that correctly. Sounds like it's gonna be sort of range bound for here. Was that ex- the swap impact, or is that inclusive of that swap impact here in 4Q? It's inclusive in the fourth quarter. I think basically the way to look at it, Graham, is, you know, the pressure we'll see on that underlying NIM, particularly around, again, CD repricing and maturities in the fourth quarter and first quarter, as well as, you know, some level of likely migration. We think that migration is slowing within the portfolio, but I think those factors will probably drive that underlying NIM down a bit, you know, and largely be offset with the benefit of the swap. So I think really, I see that inflection point, you know, being kind of real time, Q3, Q4, Q1. When I look at the overall NIM, I think we'll be kinda in the band that you saw us in Q3 over the next six or so months. Okay, great. That's very helpful. And then I had just a couple more. On the increase in modified loans to about $34 million, was that all due to that, I guess, the nursing home credit you said you modified? Is that or is that just a couple of loans in there, I guess, that drove that increase? You know, I'm not 100% sure of the answer to that, Graham, but I think, I'm sure the majority of it would have been related to the one that I've mentioned. Okay. All right, and then I guess, just lastly, as it relates to the securities portfolio, I saw it was $140 million-$180 million in maturities per quarter. I assume that means across 2024. Is it the same into 2025, or is there any difference in the maturity schedule as we look out to that year? You know, I think it's probably gonna be similar, but I-- again, you got me there. I don't have a great answer to that. I haven't looked too far past 2024 in those, but I'm not-- nothing comes to my mind, Graham, that would make me think it'd be dramatically different. Okay, that's perfect. No problem at all. All right, guys, I appreciate it. Thank you. Thank you. Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead. Thanks. Good morning. Good morning. Morning. Hey, just following up on that question a little bit in terms of balance sheet management. Obviously, a few quarters in a row of runoff in the portfolio, just as obviously, there's some pressure on the funding side, et cetera. With rates where they are, is there any change to the thought process around how to utilize the runoff from that portfolio, or should we just assume that that runoff continues? And then the flip side of that is you mentioned the repricing and maturities of the CDs. You know, in addition to the retail CDs, you've got about $1.3 billion of brokerage CDs that mature here in the fourth quarter as well. Should we assume that those just roll? Yeah, and I wanna go back to the first part of your question there and make sure I understand. When you're talking about runoff in the portfolio, you're referring to the securities portfolio? Correct. Yeah. Yeah, so then I'd say that, obviously, there are some very attractive rates out there from an investment securities point of view, but our strategy will continue to be, to the extent we have what we believe are good risk-adjusted returns in the loan portfolio, and cash flows coming off of our balance sheet sufficient to invest in that, that's where our investment priority would be on the loan side. So, that's what our experience has been so far. You know, and that's what I think generally our strategy would be here, into the intermediate future. So, that's a long way of saying to your question that I think that you could expect continued securities portfolio runoff, and reinvestment into the loan portfolio. If there are any—you know, we've talked a lot about balance sheet optimization. That continues to be a theme. If there are opportunities to, you know, shrink the balance sheet a bit, either through, and we saw, again, some opportunities to do this in the third quarter, but opportunities to, you know, reduce the levels of other borrowings or brokered, we'll absolutely do that and replace it with core funding, even if that funding is on the core CD side, or higher rate money market side. But to the extent that there are shortfalls there or needs for any of that wholesale borrowing, we're happy to do it, particularly if it's cheaper and less expensive. That's kinda how we try to play around those funding sources that are out there, is really just purely to try to, you know, take advantage of the opportunities at the lowest costs that are out there. So as we see those repricing, both on the core CD book and the brokered CD book, I think you'd see more of the same there over the coming months. Okay, I appreciate that. And I apologize if I missed it, and it's in your presentation, but can you tell us the deposit spot rates? I don't think I caught them as I was going through. You know, I don't have the deposit spot rates. We don't have those published in there. But you know, I'd say on the promo side, you know, you're seeing, you know, five handles for the most part, in our CD top promo campaigns. Again, very delicate balance that we're working through in terms of trying to balance our front book and our back book all across the portfolio, and that's how we think about both our standard rates, spot rates, as well as any promos, and the markets that we are, you know, seeking to penetrate with those promotional opportunities. Okay, thank you. Our next question comes from Matt Olney with Stephens. Please go ahead. Yeah, guys, apologize if you've mentioned this, but as far as the loan growth outlook from here, you mentioned lots of puts and takes from the pay downs on the way, but improving loan pipeline. Where would you point us towards, or with respect to the loan growth over the next few quarters? Is that mid-single-digit loan growth still reasonable? I think that, you know, the mid-single digit with our outlook for the year this year, you know, and we were above that early in the year, and we're kind of, you know, stepping into that as we balance it in the back part of the year here this year. I think it'd be a, you know, that would be, perhaps more in the range, but on the optimistic side of the range as I look over the coming quarters here. I think that in light of our focus on relationship banking, in light of our focus on working out either lower cost or lower risk rating credits, where we find opportunities, et cetera, you're gonna see a much lower kind of single digit expectation in loan growth going forward than even kind of that mid-single digit number. Yeah, and Matt, I'd say, given the macro environment we're all going through right now, we feel very comfortable with low to mid-single digit in this environment. Agreed. Yep. Okay, that's helpful. And then just to clarify, I think in the past, you've given some commentary around deposit betas for the cycle. Any— I know the cycle is getting a little bit more extended here than we initially thought, but any updated thoughts around deposit betas from here? Yeah, I mean, I think, you know, we're probably cumulative mid-40s. Is that what we have there? 44%. Yeah. So we're sort of mid-40s. I mean, when I look at, you know, CDs maturing, in particular, over the next few months, when I look at the tougher one to predict, which is just the level of migration over the next handful of months, you know, I'd say that there's a good chance that creeps into the 50s as we look forward. But that's, again, all of it, like everything else, Matt, is, you know, very much subject to what does the Fed do from here. But that'd be my best handicap as I sit here today. Yep. Okay. Thanks, guys. Yeah, thanks, Matt. This concludes our question and answer session. I would like to turn the conference back over to George Makris for any closing remarks. Well, thanks to all of you for joining us today. This is hard for me to say, but I think the real key for the next year or so is gonna be patience, of which I have very little. But there are still so many external factors affecting the banking industry today, that we really can't guess what that needs to be. And our focus needs to be on good, fundamental management of the bank. I'm really pleased with the results of our Better Bank Initiative. I'm optimistic that there's more benefit to come. You can see that in our repricing opportunities, in our securities portfolio, and our fixed-rate loan portfolio, we have some upside potential that we're excited about, and most importantly, we're still in business. We have a lot of capacity left, to help our customers grow in the market as they see that opportunity. So I'm very optimistic about what 2024 holds for our bank. We appreciate your support and your participation today. Have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.