Simmons First National Corp earnings calls

Reason for quarter decline and expenses

Q (Gary Tenner · D. A. David): Why did period-end assets fall — was it selective deal avoidance? And what is the normalized expense run rate after announced savings and where will reinvestments go?

A: Management said they are deliberately narrowing focus to higher-value, higher-margin business and will not dilute standards to chase volume. They reported outsized maturities and paydowns in Q3, and said risk spreads compressed while brokered deposit costs rose, which influenced results. They took one-time charges around $40 million plus or minus, expect about $40 million of pre net revenue improvement, will reinvest part of the savings (priority on deposit growth and C&I bankers), and said 2% to 3% expense growth was the annual guide but they may be flat or slightly down this year.

"I think the first thing I would say is that we are narrowing our focus on the type of growth that we pursue." — James Brogdon (CEO)

Balance sheet size and loan book makeup

Q (David Feaster · Raymond James): Do you expect the balance sheet to keep contracting? How is demand trending and can you size the low-rate fixed loan book? Also, how will you reinvest cost savings?

A: Management said they remain wide open for business top of funnel but Q3 had unusually large maturities and early paydowns and Q4 will also be above normal. They said compressed risk spreads reduce their willingness to reprice loans down and they will keep discipline, which may constrain near-term growth. They sized the lower yielding book as $2.1 billion of weighted average with weighted average rate less than 4%, noted over a billion dollars of paydowns were >= $5 million with less than $50 million of relationship deposits, and said reinvestment will target deposits, tech/automation, direct marketing, and hiring quality bankers in C&I.

"I think it is probably Or maybe just it is $2.1 billion, David, of weighted average with weighted average rate less than 4%." — Charles Daniel Hobbs (CFO)

Early results from hires and margin movement

Q (Matt Olney · Stephen): Any early progress from recent executive and producer hires and what does the margin path look like as you deleverage and reprice the book?

A: They said recent investments improved speed, reduced redundancies, and added automation and tooling that shorten days to close and free bankers for higher-value work. Branch optimization created capacity to hire dislocated talent; a lift-out of the St. Louis wealth team exceeded expectations and noninterest revenue is growing. On margin, they reported NIM 3.92 and linked-quarter NIM expansion of 8 basis points (about half from deleveraging and half from core strategy and back-book repricing) and added $550 million swaps to protect on the downside.

"If you recall, we did a lift out of St. Louis wealth team that has been very, very positive for us, and it is exceeded all the expectations that we have had." — Charles Daniel Hobbs (CFO)

Deposit cost and spot rate

Q (Woody Lay · KBW): What was your cost of deposits at quarter end and what is the starting point for Q4?

A: They said deposit cost dropped partly from deleveraging and shifting some broker deposits into FHLB, noting broker costs had run about 30 basis points ahead of FHLB. They reported an exit deposit rate for September of 1.83% and said that is probably the bottom and will rise with expected rate hikes. Their modeled loan beta is about 85% and total deposit beta about 30% to 35%, and they ran a money-market test that saved about $2 million in interest expense used to fund promos.

"specific to your question on cost of deposits, our exit rate for September was 1.83%" — Charles Daniel Hobbs (CFO)

Where deposit growth came from

Q (Christopher J. Van Steenberg): Is the recent core deposit growth from existing customers adding wallet share, or from new customers or specific markets?

A: They said it is a mix of both deepening existing relationships and acquiring new customers. They are seeing good response rates in legacy and acquired markets, and the campaign designed for new money has been about 75% new money to the bank so far. They plan to continue those marketing and deposit initiatives.

"And that new money comes from deepening existing and new customers and what we have seen so far is about 75% of that campaign is new money to the bank." — Charles Daniel Hobbs (CFO)

Analyst closing remark

Q (Woody Lay): (Analyst gave a brief acknowledgment and thanks.)

A: There was no management answer in this exchange; the analyst simply acknowledged and thanked the team.

Quarterly mindset shift and buybacks

Q (Stephen Scouten · Piper Sandler): Was there a shift in strategy mid-quarter that caused the remix of the loan book? And why no share repurchase this quarter — will repurchase activity pick up?

A: Management said nothing structural changed in strategy; the quarter saw larger-than-expected early paydowns and continued spread compression, which tightened appetite for lower-spread production. On buybacks, they paused repurchases in Q3 mainly because they were earmarking capital for the one-time investments and charges disclosed in the 8-K and felt those investments offered higher return; they said appetite to repurchase is increasing and patience in Q3 should not be extrapolated.

Fee income and NII outlook

Q (Brian Wilczynski · Morgan Stanley): How are wealth and service fees progressing and is net interest income still likely at the high end of your up 9% to 11% range for the year?

A: They said wealth management was a strength from early investments and customer acquisition and should continue to inflect; service charges rose with higher transaction volume. On NII they said they still feel really confident about the high end of that range, but noted Q4 execution is more challenging if risk spreads do not recover even though they grew NII and expanded margin in Q3.

"We still feel really confident about the high end of that range." — Charles Daniel Hobbs (CFO)