Simmons First National Corporation (NASDAQ:SFNC) Q4 2022 Earnings Call Transcript

Simmons First National Corporation (NASDAQ:SFNC) Q4 2022 Earnings Call Transcript January 24, 2023

Operator: Good morning, and welcome to the Simmons First National Corporation Fourth Quarter 2022 Earnings Conference Call. 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 fourth quarter 2022 earnings call. Joining me today are several members of our executive management team, including our Executive Chairman, George Makris; and our CEO, Bob Fehlman. Before we begin the Q&A, I would like to remind you that our fourth quarter earnings materials, including the 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 and net interest margin.

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These statements involve risks and uncertainties, and you should, therefore, not place undue reliance on any forward-looking statement as actual results might 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 most recent Form 10-Qs and our Form 10-K for the year ended December 31, 2021, 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 included as exhibits to the Form 8-K we filed 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.

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Q&A Session

Operator: The first question is from Brady Gailey of KBW. Please go ahead.

Brady Gailey: Hey, thanks. Good morning, guys. I wanted to start with the tax rate. The tax rate has been a little volatile this year. And it was abnormally low in the fourth quarter. Where should we expect, kind of the forward tax rate to be? Any color on why it was lower in 4Q?

Jay Brogdon: Hi Brady, this is Jay. Let me jump in on that and give a couple of initial remarks. First of all, you’re exactly right. The effective tax rate came in low in the fourth quarter. I’ll speak to that latter question first. Couple of drivers there, but really the biggest one, we call it out on our materials is a tax credit that we were able to, sort of complete the project and recognize in the fourth quarter. As a result, we’re able to take a full-year of that credit. The way that works from an accounting perspective is, you get the tax benefit sort of grossed up down in the tax line item and then there’s an amortization of that tax credit up in the non-interest expense area. And we call both those out there. So, sort of that full-year benefit recorded in the fourth quarter was the biggest driver to the tax rate, sort of being below expectation in the quarter.

I think going forward to your initial question, I think I would think of 2023 tax rate, sort of ranging in that 18% to 19% area.

Brady Gailey: Okay. That’s helpful. And then I noticed you guys were pretty active in the share buyback for the first three quarters of the year, but no buyback in the fourth quarter. So, any color there and how we should think about you guys potentially repurchasing stock in 2023?

Bob Fehlman: Brady, this is Bob. I’ll go ahead and take that one. You’re right, early in the year, we did a lot of stock buyback. Our focus really right now is growing tangible book value per share through EPS and organic growth. Doesn’t mean we won’t do stock buyback if the timing is right, but right now we’re really focused on building our capital position going into 2023. So, as you saw, we really did very little, if to no purchases in Q3, and in Q4 we did none at all. We’re going to be very selective going forward in this environment we’re in, just uncertainty of just holding on to capital and building tangible book value per share. All right. And then another good quarter of double-digit loan growth, which I know you guys kind of messaged on the conference call last quarter, but I think I remember after that you guys expect loan growth to really slow down in 2023, is that still the right way to think about that?

And where do you expect loan growth to be this year?

Matt Reddin: Hey, Brady, this is Matt. I’ll jump into the first. Yes, you’re €“ we had a nice fourth quarter, good diversified loan growth, it’s about a footprint. As you can see in the material on the pipeline, there’s technology, where rates on the pipeline is slowing. We still see moderated loan growth. A lot of that improved our unfunded commitment. Still seeing demand, kind of at mid-single digits is what we’re seeing 2023 so far, but it is, kind of an economic environment.

Bob Fehlman: Also, Brady, just like the rest of the industry, we have slower paydowns in this environment with rates going up. So, you have less cash flows going out on paydowns and refinancing. And so that helps all of us in the industry build there, but it really bodes well for the unfunded commitments pipeline we had earlier in the year too that we’re still funding those over a period of time.