Simmons First National Corporation (NASDAQ:SFNC) Q1 2024 Earnings Call Transcript

Simmons First National Corporation (NASDAQ:SFNC) Q1 2024 Earnings Call Transcript April 24, 2024

Simmons First National Corporation reports earnings inline with expectations. Reported EPS is $0.32 EPS, expectations were $0.32. SFNC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Simmons First National Corporation First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s remarks, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ed Bilek, Director of Investor Relations. Please go ahead.

Ed Bilek: Good morning, and welcome to Simmons First National Corporation’s first quarter 2024 earnings call. Joining me today are several members of our executive management team, including our Executive Chairman, George Makris; CEO, Bob Fehlman; President, Jay Brogdon; and CFO, Daniel Hobbs. Today’s call will be in a Q&A format. Before we begin, I would like to remind you that our first quarter earnings materials including the earnings release and the 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 statements 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 and our Form 10-K for the year ended December 31, 2023, 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 those non-GAAP metrics to GAAP are contained in our earnings release and investor presentation, which are included as exhibits to the Form 8-K we filed with the SEC this morning and are also available on the Investor Relations page of our website, simmonsbank.com. Operator, we are ready to begin the Q&A session.

See also 20 Best DocuSign Alternatives to Explore in 2024 and 15 Best Places to Retire in Ohio.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from David Feaster from Raymond James. Please go ahead.

David Feaster: Hi. Good morning, everybody.

Bob Fehlman: Good morning, David.

David Feaster: Maybe let’s just start out with loan growth. That was great to see. It was above forecast, driven by construction fundings and the pipeline has grown. I’m just curious how do you think about loan growth? What’s the pulse of your clients? I’m just trying to get a sense of whether the increase in the pipeline is driven by increasing demand, whether it’s increased appetite for credit on your end or just any thoughts on the growth outlook would be helpful?

Jay Brogdon: Yes, David. This is Jay. I’ll jump in with some initial remarks on that. We were pleased with the loan growth in the quarter. And in particular, I’ll call out in the fourth quarter and again this quarter, these are sort of seasonal unfavorable periods of time from an ag perspective. And so we should see some tailwinds from that throughout the next couple of quarters, so see some loan growth in the first quarter. You hit it on. A lot of it came from the construction bucket. I’ll point out some of that is fund ups of unfunded commitments, right? And so keep that in mind. Our pipeline I’d say is not a change in our outlook from a credit perspective. We are seeking loan growth. We are being incredibly disciplined, both from a credit and from a pricing point of view.

So I’m pleased to see some expansion in the pipeline, given that discipline, but it’s really not indicative of a change in our outlook or optimism or aggressiveness around loan growth. I just put it more toward the category of disciplined execution at this point. When I think about — I’ll wrap my comment up with this, David. When I think about the outlook for loan growth in the balance of the year, it’s a balanced outlook. We continue to think in that low single-digit range is we think the right range. There are some fund-ups we’ll continue to see on the construction side. We’ll see some success pulling things through the pipeline, but we expect some healthy paydowns from some of the existing projects that are out there that will hit the permanent market, et cetera.

And when you think about a rate higher-for-longer environment, that doesn’t make me more optimistic about loan growth. Again, we’re seeing borrower demand out there. But we put all that together and continue to think that we’ll need to stay focused to deliver on the loan growth that we expect in the balance of the year.

David Feaster: Okay. Great. That’s helpful. And then maybe touching on the other side, the funding side. Just curious how you think about deposit growth. You’ve been pretty successful, especially in the money market and savings account side, supplementing that with higher cost wholesale funding on the CD side. Just curious, how do you — what’s your deposit growth strategy today? And then just any thoughts on NIB trends that you’re seeing? And how you think about funding loan growth going forward?

Jay Brogdon: Yes. I think we have seen some success in the interest-bearing side of the equation. And so that’s a good thing. We’ll continue to stay focused there. We have considerable efforts around combating the NIB trends that the industry is facing right now. And so we think we’ve got some levers we can continue to pull there to combat those trends. So we’re very focused on that and we’ll continue to be. To give you a glimpse, David, of some of the trends, really the — if I look back throughout the quarter, think of it on a monthly basis, the — really the only month worth noting of deposit or NIB migration happened in January. So unfortunately, from a NII or margin perspective as it relates to the quarter, that event took place early in the quarter.

You’ve got to pierce through some seasonality, both in Q4 and Q1 to really get a sense of what the core trends are. But when we look at February, March and even to date in April, we see a lot better trends in NIBs than what we saw in January. So that makes me a little bit optimistic. I’m still going to be cautious, again, given some of the seasonality and just same pressures, I mentioned, from a rate higher-for-longer on the loan growth side, that’s going to be a threat on the deposit migration side. But the last few months have been favorable towards us. And hopefully, we can see that continue over the coming months and quarters.

Bob Fehlman: David, one thing I’d point out, too, we track a number of customers, and we’re seeing a continual increase in our number of customers. So it’s not decreasing customers, and we point this out each quarter. Our customers, just like across the country, everybody has less money in their accounts, number one, from inflation. And number two, they’re looking at moving their money to higher rates out of noninterest bearing. So we’re all dealing with it. As Jay said, we feel we had a little bit of optimism in February, March. I don’t know if that’s a trend yet. But that’s a hard one to control. What we can control is taking care of our customers and getting new customers, and that’s what we’re focused on today.

David Feaster: For sure. And those are some encouraging trends. Maybe just putting it all together, just curious, how do you think about the margin trajectory? I mean last time we talked, we’re expecting a modest improvement over the course of the year. Curious how you think about the margin trajectory as we look forward? And then how do you think about managing the balance sheet? I mean you’re structurally well positioned for a higher-for-longer environment just given the core deposit base and the earning asset repricing side. So just curious how you think about managing the asset sensitivity at this point, given we’re pretty rate neutral?