Simmons First National Corp Q4 FY2025 Earnings Call

Good day, and welcome to the Simmons First National Corporation's Fourth Quarter Earnings Conference Call and Webcast. Please note today's event is being recorded. I would now like to turn the conference over to Ed Bilek, Director of Investor Relations.

Good morning, and welcome to Simmons First National Corporation's Fourth Quarter 2025 Earnings Call. Joining me today are several members of our executive management team, including President and CEO, 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 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 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 yesterday as well as our Form 10-K for the year ended December 31, 2024 and Form 10-Q for the quarter ended September 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 reconciliation 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.

Our first question today comes from Matt Olney at Stephens.

I want to start on the loan growth front, loan growth took a nice step forward in the fourth quarter. Any more color on the drivers? And then the second part, I just want to understand the pipeline discussion disclosures. It looks like the approved and ready-to-close pipeline moved up nicely, but the overall pipeline was still flattish. So just trying to appreciate maybe the various components of that pipeline and then what that means for growth in 2026?

Yes. Thanks, Matt. So I'd say a few things to comment first on the quarter, and then we can talk about pipelines in 2026. So we were certainly pleased with the pace of growth for loans in the fourth quarter. The quarter really had the highest level of production, I think, that we've seen in at least a couple of years. At the same time, we still had elevated paydowns in the quarter, but the level of production was more than enough obviously to offset that level of paydowns and drive some meaningful growth. I would also call out for the fourth quarter, in case it's not obvious to you, there are some arguably some seasonal adjustments to the fourth quarter. Fourth quarter growth for us tends to be slower on the agri side and agri loans were down. Mortgage warehouse loans were down. We obviously divested some loans and had some charge-offs in the quarter. And so really, when you think about fourth quarter underlying growth rate, it was well in excess of the 7% annualized that we disclosed on a total loan basis. So again, I think it demonstrates the ability for us to really move the needle from a loan growth perspective. At the same time, your question on pipeline and kind of 2026 outlook, our guide is not to have sort of sustained that level of growth. We just had some good timing of some things and pipelines coming out of Q3 and early Q4 that pulled through and led to some really nice funded commitments throughout the quarter. Rate ready-to-close, as you commented on, that's a very, very firm high likelihood area of our pipeline, is also at a multi-quarter high. So I think that points to probably some good production and funded growth as well in the early part of the year. And then as I think about the rest of the pipeline, our pipeline ranging in that mid kind of between $1 billion and $2 billion, $1.5 billion to $2 billion is a pretty normal pipeline for us. We're certainly active in seeing a tremendous amount of opportunities all across our footprint. And so we feel very, very confident when we put all those things together in our outlook for something that's probably a little more optimistic in loan growth than what we've had over the last couple of years. But we're still going to be very, very cautious around the credit and underwriting environment, and then also just from a pricing and profitability perspective, the competitive environment in there. And all that kind of balances out to what we saw us guide for '26 is kind of low to mid-single-digit growth.

Okay. Perfect. Appreciate the details there, Jay. And then pivoting over curious about your thoughts on the margin from here in the fourth quarter, I think it was at 3.81% margin. Just trying to appreciate how clean that number is? Anything you would call out as unusual in the fourth quarter? And then I think the deck mentions the back book should provide some nice tailwinds for the margin in 2026. Would you expect that to support margin expansion from here? Just trying to appreciate maybe the puts and takes on the margin from here.

Yes. Matt, this is Daniel. I'll comment on that. So the linked quarter margin growth of 31 basis points. I'll break that down for you, give you an appreciation for that. So of that 31 basis points, about 19, call it, 19 to 20 of that is from the partial quarter impact of the balance sheet restructure that we did last quarter. But then the rest of that is really from core NIM expansion from this business practices, so 11 basis points from that. And of that 11 basis points, about 3 basis points is related to loan growth and 8 basis points is related to rate and mix. So a couple of things to understand from that is we had the 3 rate cuts in the back half of the year, September, October and December. Post balance sheet restructure, we did move from liability sensitive to asset sensitive. But a nuance to that is as you think about our sensitivity along the curve, we're still a little bit liability sensitive on the short end of that curve. So call it, day 1 to 3 months, we're a little bit liability sensitive. So we got some benefit from those rate cuts in the fourth quarter. We will shift to asset sensitive once you get past 3 months and towards the long end of the curve. So as you think about kind of the guide and specifically Q1, we would expect Q1 to be relatively stable to the 3.81%. There might be a basis point or two of benefit there. And then as you think about the full year, we're probably pretty stable, maybe a couple of basis points to get to the mid-3.80s by fourth quarter. Your comment on the back book repricing. So yes, that's still a benefit for us, and we expect that to be a benefit for us as we move on. That benefit lessens a little bit as we get rate cuts. We've talked historically about a 200 basis point pickup before the 3 rate cuts that we got in the back half of the year. So that will come down a little bit. But we still have, Matt, over $2.5 billion of loans that will reprice over the next 2 years that have a rate less than 4%. So that tailwind will continue to exist. Maybe a couple of points about the guide. Our rate forecast that's embedded in our guide is a rate cut in May and one in August. And so as you think about loan yields repricing. When you look at the fourth quarter, loan yields were down 8 basis points. Even if you go back to second quarter, we're only down about 3 basis points. So we're that back book repricing is offsetting some of the impact from the rate cuts that we've had. And if you flip to the deposit side, you think about the beta there. Our beta cumulatively is 64%. We do expect that beta to moderate some into 2025 primarily because a couple of things. Number one is our deposit book is different than it was pre-balance sheet restructure. We've got about $1.4 billion less brokered deposits, which have a 100% beta. So that's embedded in that 64% cumulative beta today. What we think is the incremental beta for future rate cuts is probably around 50%. And so by the end of '26, we think the cumulative beta kind of settles in that kind of that high 50 range. So still some opportunity there, but we do expect the beta to moderate a little bit. And then just maybe connecting the NIM discussion with your question on loan growth, we still believe and feel like that we can grow NII without significant growth in the loan portfolio just because of the things that I just talked about. So our 9% to 11% guide on NII, we feel pretty good about it.

Matt, I will just chime in. I mean, I'd echo everything Daniel said there. Bottom line for me is I think my outlook for NIM for '26 is relatively stable, as Daniel said. I think the back book reprice on loans as well as the deposit beta and our ability to continue to do things we've been doing from administered rates, etc. Those are all tailwinds that will offset any additional rate cuts to the extent they come through and allow for that more stable NIM. I think the opportunity in excess of what we've guided, right? Our outlook is what our outlook is. The opportunity though, and what we're focused on strategically is really on the remix on the deposit side. Our biggest opportunity to even further exceed the guide is really built around our ability to organically grow some low-cost deposits, and we're very, very focused on that and think that, to the extent we're successful there, we've already got, I think, very strong growth embedded in the guide, but that would be the area that would provide upside to the guide.

Okay. That's great commentary. I appreciate all the details there. And maybe just one more follow-up with this discussion. Any commentary about what you're seeing in markets around deposit competition, loan pricing competition? I think last quarter, you flagged the loan side was getting more competitive. Just in general, updated thoughts on both sides there.

Yes, Matt, this is really a continuation of the same theme. On the deposit side, I think we feel there’s pretty good behavior around the rate cuts in the industry. Betas are relatively high in my mind, and the lags are short following the recent rate cuts, which feels positive. Most of the irrational competition on deposits is coming from smaller banks. The good news is that in many of those markets, we have a dominant market share, allowing us to be flexible. This area remains very competitive, but it’s not as intense as the pressure we're observing in loan pricing. As mentioned in previous discussions, much of our loan growth in the fourth quarter was in commercial real estate, and we are dedicated to commercial and industrial lending. We have solid C&I opportunities in our pipeline and have seen good production there. However, the returns on a risk-adjusted basis have been significantly better recently for commercial real estate due to what we believe is irrational pricing that erodes profitability, even in cases where deposits and treasury management services are included. The yields on these loans are puzzling, especially on a risk-adjusted basis. We hope to see improvement in that competitive dynamic. While it doesn’t discourage us, it does relate to our overall growth outlook, and this is currently the biggest competitive factor we are facing.

And our next question comes from David Feaster at Raymond James.

I wanted to maybe shift gears to asset quality. Nice to see the resolution of those two problem credits and with less impact than initially expected, also saw the sale of the equipment finance business, and you guys did the deep dive into the NPAs. I'm just curious maybe whether there's anything else that you're considering divesting? And as you did that deep dive, whether you found anything else of note that maybe has shifted underwriting at all? Or just kind of curious kind of what you're thinking on asset quality and anything that's come out of this whole process?

Yes, David, I'll jump in on this one. So you did a great job summarizing the actions that we took in the quarter. And we feel very, very good that our reserve levels and what we had done kind of on a specific reserve basis was more than adequate for the actions that we're taking, particularly on the larger credits and the equipment finance portfolio. Really, as I think kind of read through credit and the results of the deep dive, again, I feel credit is very stable right now. Those situations were very unique, each of them. They've been around for a while, particularly with the equipment finance portfolio, been in runoff for a long period of time. We hadn't originated a loan there in several years that came from historical acquisition. And so the credit read for us as we did the deep dive was really cleaning up some of those legacy type nonperformers that have been in there. We were able to identify the loss content, got the full resolution on several of those credits and moved on and took the charge-off in other instances; still working toward very rigorous resolution processes in a couple of those instances. However, we had done enough work to know what the loss content was and went ahead and moved on those. So really underlying, I think it's just a continued stable outlook in all of our kind of early indicators or predictive indicators around credit, I would fall into that characterization of just in the stable category.

Okay. And obviously, there's been a lot of disruption across your footprint in the market broadly. Just wanted to get your thoughts on where you see the most opportunity and how you're positioning to capitalize on that. And then just specifically on the hiring side, it looks like you did add some talent this quarter. Just curious your appetite for hires, where you're hiring and maybe what segments or markets you're focused on?

Yes. I don't want to be overly generic in the answer, but it is a somewhat generic answer in that. We are seeing great opportunities all across the footprint. Southwest part of our footprint, the Midwest, the Southeast parts, really just footprint wide, we are very active. Pipelines from a talent perspective are very strong. And I would suspect that you'll see us being successful in continuing to upgrade talent, add talent, and it's across all areas of our business, again, not trying to be overly generic. It is somewhat heavily focused in our revenue areas where we are adding talent, but it's not just there. A lot of our support areas where we can bring in strong talent to help us innovate, automate and drive some of our efficiency and scale initiatives forward, we're seeing some really good talent come out of some of the disruption in those areas as well. So we're very, very excited. That's probably one of the most exciting things going on in our business right now is the prospects that we're talking to from a talent perspective and the success that I think we're going to have in that regard.

That's great. Maybe just last one, Jay. One of the things that we've discussed pretty in-depth previously has been as a part of the Better Bank Initiative, the focus on improving processes and procedures, and there's still kind of in the middle innings of that maybe a quarter or two ago. I'm just kind of curious if you could kind of give an update on where we are there on improving again the processes and procedures in some of the business lines. And kind of maybe what's your most focused on near term?

Yes. I think from a noninterest expense and just overall kind of efficiency and scale point of view, I really think it's still fair to characterize us as in the middle innings of that journey. I also think that the latter innings are much harder to get than those early innings were because we attack the lower-hanging fruit first. There's a slide on this in the presentation. I want to remind everyone, our expenses in 2025 were below our run rate for expenses in the fourth quarter of 2022. So 3 years of inflation, merit increases, investing in the business, etc., and we've been very, very disciplined in our ability to keep expenses down throughout all of that. And that is a function of, I think, us demonstrating success in executing these efficiency initiatives. We have brought a tremendous amount of automation to processes and continue to do that. We've centralized and standardized around best practices in a lot of areas of the bank. And so you might think of a decade of acquisitions and really taking the time over the last few years to fully, fully integrate and digest all across the footprint. And so I think there's still, David, some very meaningful opportunities for us there. As I think about the expense outlook, maybe a little more tactically, not exactly embedded in your question. But if I think about an expense outlook, I'll tie it back to your question around talent opportunities. We continue just to try to fund our investments. So I think a lot of the work that we're doing in these middle and later innings on the efficiency side are geared around kind of freeing up the investment, to bring in talent, to invest and improve in the technology stack and better innovate around the bank. And so I think you saw our expense guide is up 2% to 3% year-over-year. That's really reflective, I think, of kind of a balanced view of success in these initiatives paired against the opportunities we see, maybe even on an accelerated basis to invest in our business.

Yes. David, I want to add a couple of points to what Jay mentioned. When we evaluate our entire business, from back office to front office, we've embraced a mindset of continuous improvement by examining everything we do. In many instances, we need to make some adjustments, while in others, we need to completely overhaul and rebuild. Recently, a customer suggested that if it isn't broken, we should break it, and we’ve taken that approach in certain areas. There remains significant opportunity for us. We’ve discussed our vendor spending and the procurement group we established about two years ago, which has yielded considerable success. We believe there are still opportunities in that area over the next 12 to 24 months for further progress. Additionally, this year we reduced our square footage by 6%. This reduction brings direct savings to our bottom line and decreases future maintenance costs we would have otherwise incurred. The reduction is roughly 60% from retail and 40% from corporate locations, meaning it isn’t solely from branches, which is positive. These are examples of the initiatives we are exploring across our business in alignment with Jay’s earlier comment about self-funding our growth investments.

And our next question today comes from Woody Lay at KBW.

I wanted to start on your comment on the loan production, and you noted it was the highest level over the past couple of years. I just wanted to get your opinion, is that more a reflection of you all being more aggressive on growth now that the balance sheet restructure is behind you and you have more flexibility? Or is that a reflection of customers being more optimistic? Or is that a combo of both?

I believe it's accurate to describe the situation as a combination of factors. It's likely that the recent growth is more due to improved opportunities rather than just a push to lower rates or compromise on profitability standards. The significant reduction in wholesale funding from our balance sheet adjustments, along with better overall agility, has indirectly aided in accelerating loan growth. More fundamentally, we've noticed stronger opportunities with our pipelines improving throughout last year. It's important to assess the quality of the pipeline, not just the overall numbers, as we observed an enhancement in the quality of opportunities throughout the year. There was a peak in activity late in Q3 and early in Q4, leading to successful pull-throughs. Even as we entered January, the quality of the pipeline remained strong, aligning with expectations for year-end. So, while I think the recent growth reflects more of the latter aspect you mentioned, there is definitely a mix of both factors at play.

Got it. That's helpful. And then maybe circling back on the NIM. I believe last earnings call, you all gave a sort of a longer-term NIM range of 3.50% to 3.75%, and you're now above that. And it feels like, as you mentioned, the loan repricing over the next 2 years is very real. So has that a longer-term target? Do you think it's shifted upwards a little bit?

Yes. The context of the 3.50% to 3.75% range is that we aim to manage within that limit regardless of the interest rate environment. Rates are still fairly high. We have adjusted to be more asset sensitive. I would suggest that the upper end of the range at 3.75% has likely increased slightly. However, if rates were to decrease significantly, we intend to maintain at least 3.50% in that scenario. Therefore, it’s reasonable to say that the upper end of that range has probably shifted upwards a bit.

Yes. And I think the forward curve has shifted as well. So that range was really embedded on an outlook that had a lot more rate cuts in it than what we're expecting today. So all of that is very fair, Woody. And good news is rates are higher for longer, I think, better for us and better for the industry right now and gives us upward bias on how we think about the NIM range.

All right. And then just last for me. In terms of capital, I mean, you just printed a quarter of a ROTCE over almost core 16%. You're going to be building capital over the next year. How do you think about sort of where excess capital stands and opportunities to deploy it?

Yes. Our main priorities remain focused on organic growth, with a clear emphasis on investing in the business for sustainable and profitable expansion. The second priority is our established dividend. Beyond that, we will consider share buybacks as the year progresses. Currently, we do not have any share buyback plans included in our budgets or forecasts. We will remain flexible and look for opportunities based on the growth environment and stock valuation. If it makes economic sense, we will take action, but for now, our focus is primarily on the first two priorities I mentioned.

And our next question today comes from Brian Wilczynski with Morgan Stanley.

Maybe going back to the ROTCE for a moment. Clearly, a very strong quarter, 16% ROTCE. If we zoom out a bit, how do you think about the trajectory of ROTCE as we move forward? And how much of it will depend on the environment versus some of the other strategic levers that you talked about earlier?

Yes. I'll start on that, Brian. Daniel will likely have some comments as well. When considering ROA or ROTCE, there are a few important aspects to note regarding the transition from the fourth quarter to the first quarter. Firstly, as we enter the first quarter of any year, we encounter seasonal expense elements, such as payroll taxes and merit increases, which are not present in the fourth quarter. The early part of the year exhibits these seasonal characteristics. In terms of fee income from a noninterest revenue perspective, we significantly surpassed the top range of what we typically achieve, largely due to strong performance in some of our fee businesses. Over $3 million of that came from BOLI gains, which won't be replicated every quarter, so we need to consider that in our run rate. Another significant aspect to highlight is the effective tax rate. Our balance sheet underwent considerable changes due to the repositioning in Q3. The tax rate for the fourth quarter is lower than what we project for 2026, which we expect to be closer to around 20%. From an ROA perspective, which I find more readily accessible, we reported a 1.29% ROA for the quarter. On a more sustainable run rate basis, I believe ROA is at least in the mid-1 teens, which I see as a more accurate reflection as we head into 2026, considering all the supporting factors and growth opportunities we've discussed on this call.

Yes. And Brian, the only thing I'd add to all that Jay said in terms of the seasonality, when you think about Q1, the additional one there, is that there are 2 fewer less days. So the NII raw dollar amount is impacted by that by about $3.5 million. So when you think about the fourth quarter returns relative to the first quarter, there will be a downward shift. But then over the long term, we think about ROTCE somewhere needs to be kind of mid-teens is where we'd like to be. And we've talked about an ROA of 1.25% and above. And we feel like we got a really good path to get there. And to Jay's point, kind of our maybe normalized rate is in the high 1-teens right now, but we feel like we've got a really good path to get there throughout the year and towards the end of '26.

Yes. Last comment I'd make on this, Brian, is just when we did the balance sheet repositioning, we thought some of those targets from ROA and ROTCE were probably more achievable in 2027 on a run rate basis. And our jumping off point at the beginning of '26 is several basis points higher than where we thought it would be and all of that indicates kind of similar to Woody's question earlier on NIM, maybe a bit of a parallel shift up in either in what those run rates should be or in kind of accelerating the achievability of those targets.

That's really helpful. And maybe one follow-up on the funding base. That's clearly been a big area of improvement over the past 12 months. As we look forward, can you just elaborate a bit more on the strategy to grow customer deposits over the course of 2026 and beyond?

I’d like to add to that and others may want to contribute as well, Brian. From a line of business perspective, we are undertaking numerous initiatives, some of which are new for the bank, not necessarily for the industry, as we start to implement industry best practices for the first time, particularly in our consumer banking segment. This applies to all customer demographics, and we are witnessing early successes that we expect to continue throughout 2025, while also creating better discipline and consistency in our consumer banking activities. This has been a significant focus for our talent strategy. Additionally, I want to highlight our expansion efforts in private banking, which we really launched in 2024 but have significantly enhanced in 2025. We are seeing promising early results in this area, and we have numerous opportunities to synchronize our business offerings with more competitive products. We have developed these products and are bringing in private bankers and offering incentives, which makes us very optimistic about this sector. Lastly, on the commercial side, we have been focused on strengthening our business and middle market commercial and industrial capabilities, which includes developing tools, processes, and hiring talent. This has been a multiyear investment, and we are well along in that journey. We have undertaken significant initiatives in this area and have brought strong sales talent into the bank over the past couple of years. This will continue to be a key investment area for us in the commercial sector. To sum it up, I believe our noninterest-bearing deposits as a percentage of total deposits are below our peers and should be higher, highlighting a substantial opportunity for us to accelerate growth beyond our current projections into the future, particularly through successful implementation of these strategies.

Brian, it's Chris. I'll add to that. I think Jay mentioned some things that are not necessarily new to the industry, but they are new to us. As we prove to ourselves that we are effective in these areas, our focus shifts from experimentation and piloting to accelerating and scaling. We are learning quickly from our successes and even from things we didn't like, allowing us to shorten our cycle each time so we can move from concept to execution and achieve results much faster, while incorporating those lessons. One area Jay didn't mention is the small business segment where we have significant opportunities within our existing relationships and various prospects. We can attract deposit-rich customers with limited credit needs but substantial requirements for deposits and transactions. We have already shown our ability to meet these needs, and we will continue to emphasize this area going forward.

And our next question today comes from Gary Tenner at D.A. Davidson.

I just had one follow-up question. Just as I'm looking at the interplay between growth on both sides of the balance sheet based on the guide. I guess, two questions come to mind. One, is there any kind of anchor on the loan-deposit ratio to think about now that you're up in the mid-80s there the last couple of quarters? And then the second, just to the degree that loan growth outstrips deposit growth over the course of the year, is that funded with runoff from the securities portfolio? Or what are the broad thoughts around that?

Yes. I believe you are correct, Gary. Currently, the main constraint on our business growth is not related to loans but rather to deposits, specifically core customer deposits. This highlights the importance of this area in our strategic plans moving forward. If we see loan growth surpassing deposit growth, we can utilize cash flows from our balance sheet as our top investment priority. Additionally, we may become more competitive on the customer side by offering promotional CD rates to help support this. Ultimately, if needed, we could also consider options in the wholesale market.

And that concludes the question-and-answer session. I'd like to turn the conference back over to Jay Brogdon, President and CEO, for any closing remarks.

Thanks. I'd like to conclude with a few final thoughts. Reflecting on the past year, I remember that we were announcing our fourth quarter 2024 results then, with a net interest margin in the 2 range, which had improved from the previous quarter but was still low. Our return on assets was just above 70 basis points, and our efficiency ratio was in the mid-60s. Fast forward to today, and considering the results of our balance sheet repositioning along with our strong commitment to sustainable and profitable growth, the decisions we're making show our discipline. We've established a much stronger position now. Our net interest margin has risen by 94 basis points compared to last year, our expenses have decreased as we've noted in this call, reflecting a multiyear trend. This has contributed to a nearly 20% increase in our revenue for the fourth quarter compared to last year, with pre-provision net revenue soaring by 60%. As we look ahead to 2026, we are leaving behind many challenges and entering a phase of significant momentum. I want to emphasize that we are not at all satisfied with our current state. As we've discussed, we're actively working on several strategic initiatives that we believe will enhance our already strong momentum. Our talent acquisition pipelines are the strongest they've ever been. Moving into 2026 and beyond, we are eager to showcase our progress and remain dedicated to delivering value for our customers, our associates who make this possible, and our shareholders. Thank you all for your support, and have a great day.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.