Good day, and welcome to the Simmons First National Corporation Third Quarter 2025 Earnings Conference Call and Webcast. Please note, this event is being recorded. I would now like to turn the conference over to Ed Bilek, Investor Relations. Please go ahead.

Good morning, and welcome to Simmons First National Corporation's Third Quarter 2025 Earnings Call. Joining me today are several members of our executive management team, including Chairman and CEO, George Makris; President, Jay Brogdon; CFO, Daniel Hobbs; and Chief Operating Officer, Chris Van Steenberg. Today's call will be in a Q&A format. Before we begin, I would like to remind you that our third 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 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 yesterday as well as our Form 10-K for the year ended December 31, 2024, and Form 10-Q for the quarter ended June 30, 2025, including the risk factors contained in those filings. 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 furnished as exhibits to the Form 8-K we filed yesterday with the SEC and are also available on the Investor Relations page of our website, simmonsbank.com. Operator, we're ready to begin the Q&A session.

Our first question comes from David Feaster with Raymond James.

Man, it was a really busy quarter for you guys. You made a couple of transformational actions, right? We got the restructuring. Jay, you're now taking the helm. I guess my first question is, now that these transformational actions are completed, what are your key strategic initiatives, Jay? I mean, where are you focusing your time? And what are your top priorities as you're looking forward?

Yes, David, I really appreciate the question, and you're exactly right. It was a busy third quarter and an important and transformational quarter for Simmons Bank. And so as we look forward from here, I'll say something on the call, David, that the folks inside of Simmons Bank have heard us say for the past several weeks. And that is that we have put a lot of rigor and invested a lot of our capacity into addressing some structural challenges, the structure of our balance sheet, and we put that in the rearview window in the third quarter. And where we really shift all of our capacity and focus is really to the structure of our business. And we've been focused there. I think we can point to demonstrated results over the last couple of years and our ability to gain efficiency in our business. We've been very, very focused on generating some better and improved organic growth capabilities. And I think you'll see us really focused on maybe broadly those 2 things, continuing to pour into our organic growth outlook and capabilities that would include all sorts of things, for example, talent acquisition, which is a place where we're spending a lot of time, and we're seeing great opportunities, particularly with a lot of disruption all throughout our footprint right now. And so those types of things to enable and drive growth and then continuation of what we've already been doing, maybe with just more emphasis, again, more rigor on driving operational excellence in our business and gaining efficiency throughout. And so that would be, David, I think, how you could characterize the main pillars of our priorities moving forward from here.

Okay. That's helpful. And maybe just staying kind of on that growth side. Look, in my mind, you ripping the band off with the HTM restructure, you guys are taking a major bet on yourselves, right? Your ability to execute, drive loan growth, growth has been challenging, though. Competition is intense, pipelines are building. You've been very disciplined on pricing. Could you just touch on your thoughts on the growth side, where you're seeing opportunities? And when do you think you can start to see growth really start to accelerate?

Yes. Well, let me maybe start that one, David, with just a reminder, I hopefully sound like a broken record on this at this point. But our priority is really around growing and generating consistent, strong risk-adjusted returns. So when we start with growth, we're talking about soundness and profitability, first and foremost. And we're not really going to sacrifice either of those disciplines in pursuit of any type of growth. And so our outlook has been pretty consistent the last couple of years. We've been talking about low single-digit growth rates for loans, for example, and that's been where we've been pretty consistently for the last couple of years. We talked about in the third quarter around some of the restructuring transaction, we felt like that would maybe allow for some upside from those lower single-digit growth rates. And when I think about growth this quarter, when I think about top of funnel activity in our pipeline, production volumes, et cetera, I think all of that supports an increasingly positive outlook for us from a growth perspective. And so we feel good about where we are in terms of continuing to inflect in those areas. The environment is competitive. We're going to stay really, really disciplined in light of that. But I might just mention one other thing to you, David, as it comes to growth, and this is really important. We talk about this around the table as we're evaluating our business. And that's simply that we don't really have to grow volume to grow net interest income right now. And don't hear me saying we don't want to grow volume. We are wide open for business and seeing great activity, again, in both pipeline and production. But I think it's really important to understand what I just said. And maybe let me give you an example of what I mean when I say we don't have to grow volume to grow net interest income. The figure that I focus on is we have almost $3 billion of fixed rate loans that were originated several years ago in a much different rate environment. That almost $3 billion in loans is yielding about 3.9%. All of those loans, almost $3 billion of those loans reprice over the next 24 months, starting this quarter. And so we see significant tailwind. And when I think about a September net interest margin of 3.76%, kind of our run rate going into the fourth quarter, the actions we've taken to defend margin, the tailwinds in the loan back book, the tailwinds in the deposit back book as the Fed continues to cut rates, we feel like we are in an incredibly strong position moving forward just by continuing to be smart, run the business well, allow all those mechanical aspects of the balance sheet to continue to support margin and grow NII. And we'll just in the face of all of that, stay focused on growth, stay focused on operational excellence and be really, really smart and disciplined. And I think our capabilities will show through on the growth side as we do that.

That's great. And then kind of maybe just following up on that point. I mean, obviously, there's a lot of moving parts here with the margin. We only have a partial impact of the benefits this quarter. You gave a lot of good color in the slide deck on the margin. Exit rates are higher. Fourth quarter is expected to be at or above 3.65%. But there's just a lot of moving parts with the full quarter impact of the HCM restructuring, the hedging activities. Help us think about the margin trajectory as we look forward, just given the tailwinds that you just talked about from really material repricing and remixing opportunities as well as core deposit growth opportunities. Could you just help us think through kind of the margin trajectory over the next 12 months?

Yes, I will remain on this topic. Daniel may also want to provide some input. To begin with, I would like to address the outlook of over 3.65% that we provided for the fourth quarter. My perspective is that we aimed to indicate the September launch point, taking into account the partial impact during the quarter. September serves as a useful benchmark for understanding run rates given all the activities from the third quarter. The forecasted 3.65%, compared to the previous 3.76%, reflects the fact that numerous partial elements were still at play even into September. Key points include a rate cut that had no effect in September and our expectation of another 25 basis point cut at the next meeting. When considering these factors alongside the hedges we implemented throughout the third quarter, this informs our guidance for the 3.65% plus area. Additionally, I want to emphasize the resilience of our margins in this range. We feel very confident due to the hedging actions we've undertaken, even as the Federal Reserve continues to lower rates. Our outlook is aligned with the forward curve. By utilizing this forward curve and considering all repricing dynamics, I believe our margins can remain stable over the next 12 months. While there may be some fluctuations, I view the margin as quite secure. Coupled with our ongoing book activities and the incremental growth we expect, we anticipate solid results in terms of net interest income and overall returns.

Yes, David, this is Daniel. I would like to add a couple of points. The balance sheet restructuring significantly contributed to the increase in net interest margin, but it's also essential to emphasize the core fundamentals we've observed since the low point of the first quarter of '24, which was 2.66%. We've experienced growth each quarter, and we saw another increase in the core balance sheet net interest margin of 7 basis points. I expect this trend to continue, although it may be somewhat offset by anticipated rate cuts. Our forecast indicates four rate cuts over the next 12 months. It's important to remember that we were liability-sensitive before the transaction. Over time, we were moving towards a neutral position, but the transaction made us asset sensitive, prompting us to expand our hedging program. With our current net interest margin of over 3.65%, we now have better tools for managing interest rate risk. The hedging program we implemented, which we highlighted in a slide, reflects this. Our long-term goal is to maintain a net interest margin in the 3.50% to 3.75% range, even with a rate move of 200 to 250 basis points up or down. We believe the hedging strategies we evolved in the third quarter will enable us to achieve that, and we feel confident about our direction regarding net interest margin and our ability to protect it.

Congrats on all the moves you guys made.

And the next question comes from Woody Lay with KBW.

I wanted to start on the deposit base and operating with a leaner deposit base now. And I was just interested if you could share any color on how deposit betas have trended so far with the September cut and how you're thinking about betas with any incremental cuts from here?

Yes. Woody, I'll take that one and others can jump in. But when you look at our beta, cumulative beta was 65% so far through the rate cycle. And then if you think from there, I mentioned there, we've got 4 rate cuts modeled over the next 12 months, it's going to be difficult for that 65% to maintain itself, primarily because if you think about the balance sheet restructure, we reduced $1.4 billion of broker deposits, which had a 100% beta. So in that 65% beta to date had a 100% beta of those $1.4 billion that's not going to be there going forward. So that's one aspect of it. And then I just think that through this first half of the rate cycle, that banks were waiting for rates to come down to proactively start bringing rates down, rate paid down. And so I think the competitive nature of it is going to be somewhat challenging to maintain. So all that being said, I would expect that 65% to moderate a little bit between now and over the next 3 to 4 rate cuts. But still, our focus is striking the right balance between rate and deposit growth. And I think we've done a really good job of that so far. If you look at our deposit costs relative to peers and our ability to bring that down, we'll continue to do that, but we'll also fight and defend core customer deposits as we move from here.

I want to add a couple of points regarding our deposit situation. When we examine our customer base, particularly the consumer side, we're seeing growth in accounts. We're successfully adding customers and increasing the number of accounts. However, the challenge we're facing is the average balances per account, which have been decreasing. On a positive note, consumers are still spending and there's plenty of activity, but the average funds in the accounts are lower. In terms of commercial deposits, we're also experiencing growth. We've made significant investments in our business operations, including business banking and treasury management products over the past few years, and we're continuing to invest heavily in these areas. This includes enhancing our team, processes, and tools, which has led to strong growth in our fee income. We are seeing positive trends in account growth and anticipate that this will be a strong area for customer deposit and fee growth moving forward.

That's really helpful. I wanted to pivot to expenses. And I believe you mentioned adding talent is a big initiative for you all. And obviously, over the past couple of years, you've been really defensive on the expense base just given the headwinds to revenue. And now that we're seeing the operating leverage play out, how do you think about the forward expense growth rate from here?

In Q3, we made some adjustments. The total run rate for noninterest expenses in Q3 might be slightly higher than I would expect for Q4. However, it's not too far off from what we might see as a starting point for next year, considering payroll taxes and merit increases that can raise expenses early in the year. That's how I view the immediate run rate. Regarding expenses more generally, I have a balanced perspective. On one hand, we still have significant opportunities for efficiency that we've discussed over the past couple of years, and I believe we’re still in the middle innings of that process. There’s plenty left to accomplish. On the other hand, I’m spending considerable time on talent acquisition, and we’re identifying some excellent opportunities there. Using a baseball metaphor, I want as many quality chances as possible to engage talent. My focus on talent is about infusing our organization, which is vital for our organic growth strategy. As rates decline and opportunities arise in our market, we should be able to attract bankers to our firm and assist them in transitioning their client relationships to our bank. In short, we will continue to invest in the business, whether in people or tools, and I see expenses as balanced between these two aspects as we move forward.

All right. And then last for me, just wanted to touch on credit. We saw a pretty sizable move in the industry yesterday, just given some events that have occurred. And your credit was clean this quarter. But I was just hoping to get some overarching comments on how you're feeling about your credit outlook.

Yes. I'll mention a few things from a credit perspective, Woody. And I maybe just start with kind of your comment there. For us, when we look at whether it's NPLs, past dues, charge-offs. This was a very in-line quarter, kind of a benign quarter for us from all of those perspectives. And that was our expectation. And I really don't see anything that kind of challenges that expectation as we move forward from here, even in light of some of the things we're seeing more broadly. I would maybe just remind you and everyone, we, of course, took action on a couple of loans back in the first quarter. We continue to work toward resolution on those 2 relationships. I hope I'm somewhat optimistic that we can take maybe further action on those in the fourth quarter. That's our posture. That will be dependent on the facts and circumstances as we move forward from here. But just keep those loans in mind. Feel really good still as I sit here today about the specific reserve levels there against those. So I think it's just our posture again there is just to move toward resolution and be able to migrate that out of the figures. I might just mention one other thing from a credit perspective, Woody, that I think about, it may even tie back a little bit, probably a little less obvious, but maybe even ties back to some of the volume conversations from a loan perspective. But we've been incredibly proactive this year and continue to be really proactive on loans that we perceive as maybe lower quality than what our general expectation would be in terms of how those loans are performing. And arguably, we had some really good success on that in the third quarter. And I would argue that maybe even muted some of our loan growth statistics that you would look at. We had much higher volume than usual in terms of moving some of those relationships out to other banks in the third quarter. We're going to continue to do that. As we look to Q4, again, we're going to push hard toward resolution on the larger loans. We'll continue to push hard on any kind of relationships that we think aren't the quality that we want in the book. And as we move toward kind of 2026 and beyond, our focus is to have a balance sheet that is incredibly sound, incredibly profitable and positions us really well moving forward.

I just wanted to wish George, congrats on his upcoming retirement.

And the next question comes from Jordan Ghent with Stephens.

I would like to revisit the topic of deposits, specifically concerning broker deposits. We experienced significant declines in balances during the third quarter, dropping to $1.8 billion at the end of the quarter. Can you discuss what your expectations are for these deposits moving forward? Additionally, if there's still work to be done in 2026, I believe broker deposits represent 9% of total deposits. Are you comfortable maintaining that percentage, or is there a chance it could decrease?

Jordan, I appreciate the question. Maybe first, just if you go back to the balance sheet restructure, we talked about reducing wholesale funding and brokered as part of that discussion. One of the things that we did in the quarter was we had identified a meaningful tranche of public funds deposits that were effectively wholesale funding at a wholesale funding rate. And we chose to exit those relationships as opposed to reducing more brokered deposits because, one, there's collateral that's involved there. The pricing is about the same and duration management between those 2 was part of that. So we'll continue to, as we go forward from here, manage how that balance a little bit. So specific to brokered, our goal is to get that to 0 over the long term. And we will do that through growing core deposits. And we're doing a number of things within our customer base, within marketing campaigns that we have historically not done that we're doing now. That would be the goal over time is to grow core deposits. Within the quarter, commercial actually grew a little bit. Last quarter was the first time we grew NIB. Consumer was a little bit down this quarter. We're seeing some stress in the industry with the consumer that Jay kind of referred to. But overall, we would expect and within our strategic plan that we're going to grow NIB deposits and core customer deposits to help reduce the need for brokered.

Yes. I'd just chime back in, Jordan, too. I've said this many times before, but you heard me talk earlier about some of the loan repricing dynamics on the loan side. I think that's a big part of the story. On the deposit side, it continues to be definitely a bit of a repricing story, but also a remixing story. I think we've got a lot of good opportunity to grow the core customer book there. And all of those things would be really further accretive to both NII and margin.

Got it. Okay. Could you discuss the competitive dynamics you are observing in the loan market, particularly concerning loan pricing? What are your overall thoughts on rates and structure? Is there anything that raises concerns for you?

Yes, Jordan, you’re likely going to get me started on a bit of a rant here this morning. I mentioned competition earlier, and to some extent, we're noticing structural issues that are not as prominent or severe in terms of competition as the pricing aspect is. That is definitely the biggest challenge we’re facing. We are committed to generating strong returns on capital and robust risk-adjusted returns. For instance, in the past few days, we were working on a pipeline opportunity where a larger bank in our area proposed a loan term sheet at 4.5% and Fed funds minus 25 basis points for the deposit relationship. That approach does not seem wise to us. We do not operate that way. When discussing the various dynamics I referred to earlier in the call, we believe we can grow our profitability and returns without needing that volume, which, in turn, enhances shareholder value. We will maintain a long-term perspective when we encounter such activities in the market, and unfortunately, we are seeing them. The positive news is that pipeline activity remains exceptionally strong, and production is solid. My outlook for growth as we approach next year is better, not worse, from my current standpoint. Unfortunately, I think some of the competitive behavior we observe could be categorized as either irrational or simply unwise, or possibly both.

Got it. Following up on that, you mentioned the pipeline and that unfunded commitments are continuing to increase while the commercial pipeline appears to be stable. Is there a target you are anticipating for 2026 regarding loan growth?

Not yet. We'll provide a more formal outlook in January. Looking at the last few quarters of production, ongoing activity in the pipeline, timing of fund-ups, and expectations for paydowns, I would anticipate a more positive growth outlook compared to our recent performance. However, the key factor will depend on the competitive environment. I can assure you that we will maintain our discipline in that environment.

And the next question comes from Gary Tenner with D.A. Davidson.

Just had a couple of more follow-ups on the deposit questions. Given the moving parts in the quarter and the reduction of the index deposits, et cetera, can you give us like a September 30 spot rate as a jumping off point, just given the kind of period end versus average differences in the quarter?

Gary, we can follow up on that. I don't have a specific spot rate available, but you can reference what we shared regarding the September margin and the interest rate sensitivity slides that detail the repricing dynamics in both our loan and deposit portfolios.

Okay. And then kind of the follow-up, I guess, on that is, in terms of the CD repricing, I mean, a big chunk of CD maturities in the fourth quarter between customer and brokered CDs. Any thoughts on kind of particularly on the customer CD side, where your rates are now and the type of repricing benefit you might expect in those CDs?

Yes, Gary, this is Daniel. In the last 90 days, the customer CDs that matured had an average rate of 3.77%, while the new ones we issued were at 3.53%. Looking ahead, we previously mentioned that the repricing benefit would begin to slow down, and that trend continued this quarter. I anticipate that moderation will persist, although it will depend on how the rate cuts and the competitive landscape evolve among banks. This situation could present opportunities for us, but we won't have clarity on that until more information is available. Overall, I expect the repricing to continue moderating, but hopefully, we will benefit from any future rate cuts.

The good news is that when we experienced previous cuts, even going back to last year, we saw positive behavior regarding deposits. However, we have lost some of that. On the loan pricing side, when I refer to we, I'm talking about the industry as a whole. Deposit behavior looked good in retrospect, and I hope that will continue as we experience rate cuts going forward.

Yes. And one other thing there, Gary, that's broader than just the CD rate is as those CDs mature, about 75% of those we retain within the bank. The other 25% are kind of CD-only relationships that go elsewhere. So of the 75% that are retained, there is a portion of those that go out of CDs into core deposits. So there's a remixing story there that doesn't necessarily show up in the 3.77%, 3.53% math. So that is going to continue, I think. That's been the trend for the last few quarters. And I think that will continue to provide additional deposit pricing benefit for us moving forward.

Yes, pricing and mix benefit.

Yes.

I appreciate that. As we move further away from last year's rate cuts, the changes in deposit pricing have moderated. Most banks have been waiting for more rate cuts to impact this. I'm hopeful that there will be continued discipline regarding deposit pricing.

This concludes our question-and-answer session. I would like to turn the conference back over to George Makris for any closing remarks.

Okay. Thank you very much. Well, as we've discussed in our earnings release and here today on the call, third quarter reflected some pretty bold moves on the part of Simmons, which were possible because of the strength of our company. As a banking friend said to me after we announced the sale of the bonds, what you all did really took guts. And while I agree, took guts, it also took exceptional planning and execution by the folks in this room, and I want to acknowledge what they were able to accomplish for our company because it was, quite honestly, a bold and exceptional move. As we've said, we're well positioned to produce exceptional organic growth from this point forward. Our succession plan is firmly established, and I'm really optimistic about the future opportunities for Simmons. Today will be my last earnings call at Simmons Bank. And I want to take this opportunity to thank our analysts for all of your hard work during my tenure to tell our story, which seems to have changed just about every quarter during the last 12 years. So we have a major job very easy. But I also want to point out that Matt Olney has been saddled with us since I've been here. And we really appreciate Matt's persistence and friendship and all of your advice during that period of time. And before we close, I'll leave you with one thought, which reflects my optimism, and that is that 1 year from now, I fully expect the media headlines to read something like this. Simmons Bank earnings up $650 million from the previous year. So thank you for joining us this morning, and have a great day.

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