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.

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.

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 agricultural perspective. And so we should see some tailwinds from that throughout the next couple of quarters. So to see some loan growth in the first quarter, you hit it on. I mean 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 the outlook for loan growth in the balance of the year, it's a balanced outlook. We continue to sort of think in that low single-digit kind of 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.

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 sides, supplementing that with higher cost wholesale funding on the CD side. Just curious, 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?

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 if I look back throughout the quarter, think of it kind of on a monthly basis, 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 kind of 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 kind of continue over the coming months and quarters.

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 and 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.

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 the last time we talked, we were kind of 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.

I'd like to offer a few insights on that. Firstly, our guidance from January remains largely unchanged. We anticipated that the first two quarters of this year would see margins stabilize, with a slight decrease in the first quarter, which aligns with our expectations. I foresee similar conditions in the second quarter. Most of the margin pressure in the first quarter came from declines in non-interest-bearing deposits in January, but we haven't experienced significant declines since then. We're focused on maintaining our position in the first half of the year, and we continue to expect margin expansion in the second half of the year and into next year. I also want to highlight that there is some liability sensitivity on our balance sheet, and while we can't control the Fed's actions or timing, we anticipate benefits when interest rates begin to decline. Additionally, if we consider the impact of deposit migration—especially non-interest-bearing deposits—and observe the repricing of assets and liabilities throughout the year, this should naturally promote margin expansion. Overall, we believe these factors set us up well for the remainder of the year. The unpredictability lies mainly with the extent of non-interest-bearing deposit migration, as this will significantly influence the extent and rate of improvement throughout the year.

I wanted to start out on deposit costs. I know we sort of in the first quarter, had a wave of CDs maturing. Could you just talk to where those CDs priced up to? And have your current CD offerings changed much quarter-over-quarter?

Yes. This is Daniel. Looking at our customer CDs over the past 30 days, we've noted a net range of about 3 to 3.60. For the brokered CDs, these are typically priced at a wholesale level. On Page 15, you'll see that in our second quarter, around $1.8 billion is set to reprice. Some of that will exceed 3.50, particularly one public customer that will price higher. I estimate that group will likely reprice between 3.75% and 4%. Excluding that customer, we have about $1.4 billion anticipated to reprice around the 3.50 mark. If the new production reflects the historical trends of the last 30 days, we believe there may be some margin opportunities.

Yes. So do you think it's fair to assume that the pace of the deposit cost increases begins to moderate in the second quarter?

I would say so. Yes, I'll jump in on that. I think that's fair. I think we're actually seeing that. And it kind of goes back to my comment just a couple of minutes ago to David's question. If we isolate for just repricing, not volume or migration and look at asset and liability repricing, we think there's some opportunity on both sides that are favorable to margin as we move forward.

Got it. And then last for me, I just wanted to shift over to credit. I appreciate all the details you break out on the NPA segment. But I was just curious on any trends you're seeing in the criticized or classified segments in the quarter?

I appreciate that question. Classifieds on a linked quarter basis are essentially flat. When considering leading indicators from a credit perspective, I focus on classifieds being flat and the fact that past due loans have actually decreased. We were pleased with our past due loans at 24 basis points in the fourth quarter, which fell to 19 basis points in the first quarter. Overall, credit appears very stable to us. We’re focused on a couple of areas within the classified portfolio and, as we always do, we will approach those areas with caution. To further clarify the past due trends, at the 19 basis points where we ended the quarter, within the commercial portfolio—which represents the larger dollar volume—we’re at mid-single digits in terms of past dues. Overall, I feel positive about the credit situation concerning the broader core portfolio.

I wanted to start off with operating expenses that came in around 2% average assets this quarter. Is that how we should be thinking about them moving forward?

Yes, I think that's reasonable. It might be slightly higher as we move ahead. However, let me refer back to what we indicated last quarter. We mentioned that we expected a decrease of 1% to 2% from our Q4 adjusted annualized figure, which is approximately $566 million. Doing the math, that brings us to an estimated range of $555 million to $560 million for the year. If we look at our quarter's performance, we recorded around 137 to 138, which aligns with that calculation. Overall, we feel confident about this quarter and our outlook moving forward. Our long-term objective is to significantly improve our efficiency ratio. There are two aspects to this: the revenue side, where we hope to benefit from better rates and timing, and the expense side, where we are optimistic about our expense management capabilities. We've demonstrated this consistently through the Better Bank Initiative, and we continue to explore additional opportunities. It's also important to note that we are making investments, as we're focusing on enhancing our people, processes, and tools throughout the bank. Our guidance remains unchanged, though there might be some seasonal variations. The first quarter typically includes higher payroll taxes and 401(k) contributions, while the second quarter will see merit increases. So, as for your initial question, aiming for around 2% seems like a reasonable target for us.

Yes. And the only thing I want to further emphasize there, Daniel hit it, we're making investments all across the bank. Our focus right now is pretty relentless in self-funding those investments where we can. And we've had good success with that last year and into this year, and we'll continue to be very, very focused on that as well.

Great. I appreciate the color there. And then just kind of shifting gears here. Can you give us an idea of your appetite for repurchasing shares at current levels?

Yes, I want to restate our current strategy regarding capital. Our top priorities are to maintain our dividend to shareholders and ensure sufficient funds for organic growth. Following that, we are focused on optimizing our balance sheet. In the fourth quarter, we conducted a bond sale, and we had hoped to do another in the first quarter. However, interest rates increased, which affected our timing. We plan to proceed with bond sales when the conditions are favorable, rather than rushing into them. While we could make immediate moves, we believe it's wiser to analyze the situation thoroughly and manage the process intelligently over time. We did not repurchase any shares in the first quarter, and we are currently evaluating how to allocate our capital in the future—whether for balance sheet optimization, debt retirement, or stock buybacks.

Well, thank you very much for joining us this morning. As you can tell, our industry still has a lot of uncertainty and speculation associated with it, and we're looking forward to moving to a more neutral interest rate environment. And in the meantime, as we wait for this normalization, our focus is still on our solid principles of asset quality, capital growth and flexibility. I think you've seen that in our performance, and I think you can see that going forward. I appreciate all of the work of this team, and we appreciate your participation today. Thank you very much, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.