Simmons First National Corporation (NASDAQ:SFNC) Q4 2023 Earnings Call Transcript

Simmons First National Corporation (NASDAQ:SFNC) Q4 2023 Earnings Call Transcript January 24, 2024

Simmons First National Corporation 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 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [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 fourth quarter 2023 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 fourth quarter earnings materials, including the earnings 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 31, 2023 and our Form 10-K for the year-ended December 31, 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 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: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from David Feaster with Raymond James. Please go ahead.

David Feaster: Hey. Good morning, everybody.

Bob Fehlman: Good morning, David.

Jay Brogdon: Good morning, David.

David Feaster: I just wanted to maybe start out on the margin. You guys have been actively managing the balance sheet and done a really good job, you know, screen more rate neutral today. But just wanted to clarify some of the points on the margin guidance. It looks like you’re incorporating the forward curve into that guidance. I just wanted to make sure that was correct. And then just maybe some discussion on the margin trajectory over the course of the year. There’s going to be some obvious benefit from the restructuring in the fourth quarter that should help in the first quarter. But just kind of looking at the rate sensitivity and the repricing schedule, it looks like you should — even with incorporating the forward curves, should see some margin expansion over the course of the year, but just kind of wanted to get your sense on how you think about the margin trajectory, and if that was kind of jiving with the way you were thinking.

Jay Brogdon: Yes, David. This is Jay. Let me take a crack at answering some of those questions. First of all, I’ll talk about what our assumptions are? We are probably a little more conservative than the forward curve. We’re kind of have three rate cuts embedded in our budgeting and forecasting right now for the year. Of course, the third of those rate cuts would be pretty late in the year. So you’re not going to see a lot of impact from that in the year 2024. So that’s kind of how we’re looking at the rate assumptions for the year. When I think about just NIM and NIM trajectory to your second question there. I’m going to kind of stick with the guidance that we gave you in the third quarter. We were — we were obviously pleased with some of the trends that underlie the results this quarter.

And that was, you know, maybe a little favorable for the fourth quarter compared to where we thought we would be. I still think those trends point a very good direction, but there are still a lot of puts and takes. You know, we were pleased with some of the flows in deposits this quarter. There’s seasonable — seasonal attributes to our deposits in both the fourth quarter and early part of the year. So again, some puts and takes there. And then again, I’ll just point you to some of the disclosure we have in the deck around timing of some of our cash flows. We’ve still got some, you know, term deposits, a fair amount of them in Q1 that will reprice still again in Q2, but to a lot lesser degree than Q1. So again, optimistic around NIM overall, but I think in the near term, we’re sort of still in kind of the range that we’re operating in and still need to fight some of the pressures that exist on the deposit front.

As we move past kind of the immediate term, move through the balance of the year this year, you know, we feel good that the repricing of assets. Again, assuming that the rate assumptions that are out there are good assumptions, we feel confident that the repricing of assets and continued efforts we have around optimizing the balance sheet will help us to see some expansion in the margin and in net interest income. So that’s kind of our expectations as we look to the immediate term and then through the balance of the year.

David Feaster: That’s great. That makes sense. And then, maybe just touching on the loan growth side. You talked about in the press release about demand slowing. And as you guys are taking a very conservative approach, obviously, just looking at the new origination yields and the pipeline yields. You’re doing a great job pushing pricing, but at the same time, we’ve seen the pipeline grow for two straight quarters. I’m just curious, maybe what’s driving some of the growth and the improvement in the pipeline? Despite slowing demand and you continue to push pricing, where are you seeing an opportunity to gain market share? And maybe just some color on what segments and geographies are kind of driving that growth.

Jay Brogdon: Yes, David. One thing I want to point out, as we kind of talk about loan growth, I think it’s important to remember that while we are seeing some moderating growth, we’re still experiencing growth. And I would argue that’s even masked a little bit in the fourth quarter. We have a very good ag production team and history here at the bank, and we’re seasonally low. You know, ag loans were down in the fourth quarter. Despite that, we still had some growth. And we’ll see those ag loans begin to pick back up in the early part of the year here. And so, I think overall, we feel pretty good about the results from a loan growth perspective, particularly in light of the environment. We’re staying incredibly disciplined really on two fronts.

Of course, the credit front. All of our underwriting staying very disciplined there on what we let through the system. And then also continuing to be relentlessly focused on pricing and profitability. So, even with that focus, we saw in the fourth quarter some expansion in the loan pipeline, and we’ll continue to make a push to see that. I think a lot of that really depends on Fed actions throughout the year this year and just kind of the macro backdrop. And I’ll use that same term I used earlier. You know, we’re optimistic, but we’re cautiously optimistic about that. And we’ll just stay disciplined on all the fronts that are important to us there.