Q4 2023 Simmons First National Corporation Earnings Call

Good morning, and welcome to the Simmons first National Corporation fourth quarter earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions to ask you. A question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Ed Tilly.

Of Investor Relations. Please go ahead.

Ed Tilly: Good morning, and welcome to Simmons first National Corporation 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 HOPPS.

Ed Tilly: 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 Simmons Bank Dot com under the Investor Relations tab.

Ed Tilly: 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.

Ed Tilly: 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.

Ed Tilly: 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 31st 2022, including the risk factors contained in that Form 10-K.

Ed Tilly: These forward looking statements speak only as of the date. They are made and <unk> assumes no obligation to update or revise any forward looking statements or other information.

Ed Tilly: Finally in this presentation, we will discuss certain non-GAAP financial metrics, we believe provide useful information to investors.

Ed Tilly: 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.

Ed Tilly: And are also available on the Investor Relations page of our website.

Ed Tilly: Simmons Bank dotcom.

Speaker Change: Operator, we are ready to begin the Q&A session.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from David Feaster with Raymond James. Please go ahead.

David W. Garner: Hi, good morning, everybody.

David W. Garner: Good morning, David Good morning, David 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.

David W. Garner: The screen more rate neutral today, but just wanted to clarify some of the points on the 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.

David W. Garner: And then just maybe some discussion on 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 I'm 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.

David W. Garner: The margin expansion.

David W. Garner: Over the course of the year, but just kind of wanted to get your sense on how you think about the margin trajectory in it that was kind of Jive and with the way you were thinking.

David W. Garner: Yeah. David This is Jay let me take a crack at answering some of those questions first of all I'll talk about you know what our assumptions or we are probably a little more conservative than the forward curve.

Jay Brogdon: I have three rate cuts embedded in you know our budgeting and forecasting right now for the year of course, the borrower to those rate cuts would be pretty late in the year. So youre not going to see a lot of impact from that in the year of 2024.

Jay Brogdon: So that's kind of how we're looking at the.

Jay Brogdon: The rate assumptions for the year, when I think about just NIM and NIM trajectory to your second question there.

Jay Brogdon: I'm going to kind of stick with the guidance that we gave you in the third quarter. We were when we were obviously pleased with some of the trends are 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.

Jay Brogdon: But there are still a lot of puts and takes you. You know we were pleased with some of the flows in deposits this quarter, they're seasonal seasonal attributes to our 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.

Jay Brogdon: Are we still got some.

Jay Brogdon: Term deposits are a fair amount of them in Q1 that will reprice still again in Q2, but to a lot lesser degrees in Q1, so again optimistic around noon 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 depart.

Speaker Change: Brian as we move past kind of the immediate term move through the balance of the year this year.

Speaker Change: We feel good that the repricing of assets.

Speaker Change: Again, assuming that the rate assumptions that are out there or are good assumptions.

Speaker Change: We feel confident that the repricing of assets and.

Speaker Change: <unk> efforts, we have around optimizing the balance sheet will help us to to see some expansion in the margin in <unk> and in net interest income. So that's that's kind of our expectations as we look to the immediate term and then through the balance of the year.

Speaker Change: That's great that makes that makes sense and then maybe just touching.

Speaker Change: Touching on the loan growth side, you know you talked about in the press release about demand slowing in that you guys are taking a very conservative approach. Obviously, just looking at the new origination yields and the pipeline yields youre doing a great job pushing pricing, but at the same time, we've seen the pipeline grow for two straight quarters.

Speaker Change: I'm just curious.

Speaker Change: Maybe what's driving some of the growth and the improvement in the pipeline. Despite slowing demand and you continue to push pricing, where you see an opportunity to gain market share and maybe just some color on what segments and geographies are kind of driving that grill.

Yeah, 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 in that I would argue that's even masked a little bit in the fourth quarter.

Speaker Change: You know we have a.

Speaker Change: Very good AG production team in history here at the bank and were seasonally low you know AG loans were down in the fourth quarter. Despite that we still had some growth.

Speaker Change: And we will see those AG loans, you know begin to pick back up in the early part of the year here and so I think 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 I'm really on two fronts are of course, the credit front.

All of our underwriting are staying very disciplined there on what we learnt through the system and then also continuing to be relentlessly focused on pricing and profitability. So you know even with that focus we saw in the fourth quarter.

Speaker Change: Some expansion in the loan pipeline and.

Speaker Change: And we will continue to you know to.

Speaker Change: Make a push to see that you know 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 I'll use that same term I used earlier. We're you know we're optimistic but we're cautiously optimistic about that and we'll stay disciplined on all fronts that are important to us there.

Speaker Change: Okay. That's helpful. And then maybe just touching on the other side on the funding side of the coin you you've done a great job driving core deposits in the quarter a reduced reliance on wholesale funding I'm curious maybe you know you talked about kind of you know.

Speaker Change: Deposits being down modestly focusing on the Remixing, just curious where are you seeing opportunities to drive core deposit growth how is pricing on on new core deposits that youre seeing in that interest bearing side and then.

Speaker Change:

Speaker Change: Just kind of how quickly do you think you're going to be able to replace some of these if rates do you get caught like you're talking about how quickly do you expect to be able to reprice. Some of these relationships lower.

Speaker Change: Yes, some good questions there David So I'd say this on you know we again, we were very pleased with the results and some of the underlying trends on the deposit side in Ibs were down again in the fourth quarter, but at a.

Speaker Change: A slower pace of moderating pace, we hope that trend will continue here early in the year. So we'd love to see that in a b level trough ing out but but.

Speaker Change: You know on the interest bearing side savings accounts money market accounts et cetera had an incredibly strong quarter, there that really bucked the trend relative to other recent quarters I'd tell you. If you unpack that that piece of the deposit growth for the quarter the consumer fraud.

Speaker Change: It remains very very stable as candidly it has been for some period of time, you know you have a little bit maybe a downward pressure in the quarter, but its very modest and its probably nothing more than just kind of holiday spending if you will on the consumer side. So.

Speaker Change: So feel really stable there, but we saw some good growth on the commercial side, that's been a key focus for us.

Speaker Change: Is to continue to grow in the commercial area and so we had some we had some nice wins in that regard in the quarter. Some of that'll be timing related. Some you know we want and at 100% of those dollars are going to be you know we're going to be sticky. Some of that is commercial customers planning for some things in the first part of the year et cetera.

Speaker Change: But again very very good indications and good results of strategically what we've been focused on there are.

Speaker Change: You know the results of that combined with the you know the portfolio sale in the quarter are allowed us to really pull down some of the higher cost wholesale funding that'll continue to be a focus for us.

You know all throughout the year here.

Speaker Change: On your other question.

Speaker Change: Kind of related to timing of in a rates down scenario, what that would look like.

We do you know screen, a little bit liability sensitive right now, especially if you look at it on a 12 month basis I think you'd see you know maybe a three month to six months a.

Speaker Change: Period in there where were more neutral to maybe even a little bit asset sensitive, but as you move past those first few months, you're going to you're going to see some liability sensitive sensitivity in our balance sheet and we have some information on that on page 16 of the slide deck.

Speaker Change: That's helpful. Thanks, everybody great quarter.

Speaker Change: Thanks, David Thank you David.

Speaker Change: The next question comes from Brady Gailey with K B W. Please go ahead.

Brady Gailey: Hey, Thank you good morning, guys.

Brady Gailey: Well remember 80.

Brady Gailey: I want to make sure I understand the expense guidance on slide 11, So you're basically looking at an adjusted.

Brady Gailey: Annualized expense base of $548 million, and saying that you could see you know roughly 1% growth so that would translate into your expected 'twenty 'twenty four expenses around that.

Speaker Change: $5 55, Mark is that the right way to think about total expenses.

Speaker Change: Brady I think I think you're all over it that's exactly right and again, that's another one where there were a lot of of puts and takes in 2023, particularly given some accrual adjustments and whatnot. We think you know what we really tried to outline on slide 11 is that when we.

Speaker Change: Launched into the better Bank initiative, our infrastructure, our you know the run.

Speaker Change: Run rate from a noninterest expense point of view was around 566 million, we guided to 15 million of savings as a result of those initiatives.

Speaker Change: Exceeded that really throughout the year this year and as we look at the guide you know that 2020 for God is sort of a two year out outlook from when we initiated the better Bank initiative, and we see expenses down kind of 1% to 2% on a two year outlook. There. So we're very proud of the progress we've made there.

Speaker Change: There I again, I don't want to.

Unnamed Host: Good morning, and welcome to the Simmons First National Corporation Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode.

Speaker Change: Call that sort of finished with a with a bow on top we are continuing.

Speaker Change: To focus on those initiatives, we've got some some as I've alluded to in prior conversations we have some investment opportunities that will continue to evaluate but we have a very strong continuous improvement mindset and and we think we'll be able to offset a lot of the inflationary pressures that are out there and all of this I think is going to result in some.

Unnamed Host: Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: Positive operating leverage for us as we move into the future here and Brady one thing I'd just reiterate what Jay just said is we showed our baseline of Q4 of 22.

Unnamed Host: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Ed Billick, Director of Investor Relations. Please go ahead.

Speaker Change: And the savings there, but the inflationary pressure was there in 'twenty three it will be there in 'twenty four but yet we're still showing that we're gonna relatively hold the line on the expenses.

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 Feldman, 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 margins. These statements involve risk 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 statement due to a variety of factors.

Speaker Change: Yep, that's great to see and then my next question on the $175 million buyback authorization I think that.

Speaker Change: If you repurchase it today would be about 7% of the company. So a fairly notable size or is that something that.

Speaker Change: That you have in place that you know.

Speaker Change: You could use on a rainy day or is that something that you really expect to be active in it and in 'twenty 'twenty four.

Speaker Change: Yeah Brady R R.

Speaker Change: Prior plan was coming to the end in January of this year. So this is really just re upping. It we have no different strategy than we did last quarter and in all of last year. You know, we still think we're in some challenging times in banking is trying to buy through.

Speaker Change: The NIM side, as we talked about Where's loan growth going.

Speaker Change: Whereas the capital where does it need to be deployed and what levels do you need to maintain so we focus on that and we think it's prudent to keep a stock buyback plan in place. This is a two year plan.

Speaker Change: But our strategy is still on our capital is to use it for first for organic growth loan growth second is to pay cash dividends to our shareholders. We've been paying it Ed for over 115 year hundred 15 years are we don't want to be the group to mess that up I'll tell you that and then and then after that it comes down to what is the best.

Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8K today, our Form 10-Q for the quarter ended March 31st, 2023, and our Form 10-K for the year ended December 31st, 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 attached as exhibits to the Form 8K we filed with the SEC and are also available on the Investor Relations page of our website, SimmonsBank.com.

Speaker Change: Use of that capital at that point in and one of them is stock buyback. Another is there opportunities on balance sheet optimization with bond sales like we had this quarter.

Speaker Change: And so we'll analyze it but I would tell you in the stock buyback our strategy is still to stay within the realm of our earnings for the quarter less cash dividends would be the maximum amount we would buyback.

Speaker Change: Okay, and then finally for me.

Speaker Change: If you look at full year 2023, and if you look at the or away on a core basis, there was running at about 75 basis points.

Speaker Change: Yeah, I think seventh in the past has talked about longer term wanting to get to an ROA of 150 basis points or about double that I realised profitability is under pressure for the entire industry. So you guys are not alone.

Unnamed Host: Operator, we are ready to begin the Q&A session. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: How do you think about the path to get to sit on this towards a higher ROA and Roe level.

Unnamed Host: If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from David Feaster with Raymond James. Please go ahead. Hey, good morning everybody. Good morning David. Good morning, David.

Speaker Change: Yeah, Brady I think a very first and biggest aspect of that goes back to our balance sheet optimization efforts again, we're pleased with the results in the fourth quarter and kind of chipping away at that that's a function of rate and Tom at the end of the day.

Speaker Change: But we are incredibly proactive and we will continue to be in our approach to accelerate that timeline, where we can and.

David W. Garner: 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 want to make sure that that was correct.

Speaker Change: So we will continue I think to be to be prudent and balanced in how we and how we look at that but when you. When you think about our ability to kind of get a loan to deposit ratio in the area of 90% plus or minus you think about our expense infrastructure and what we pencil out in terms of the results of the better bank.

Jay Brogdon: And then 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 curve, should see some margin expansion over the course of the year. But just kind of wanted to get your sense of how you think about the margin trajectory and if that was kind of jiving with the way you were thinking. Yeah, David, this is Jay.

Speaker Change: <unk> that we've worked on and the scalability that that's put into our system.

Speaker Change: You know I think those are are very realistic results for us to work toward the honestly when I think about that the biggest wildcard to me really is kind of on the fee side. The fees are under pressure are you. You know there are some things that are out there and being proposed but we'll just have to deal with and react to as an industry.

Speaker Change: But I still think that guidance that we've given in the past of you know our optimized balance sheet at Simmons bank and within our strategy and business model that that 125 to $1 50 range of ROA I E is what we ought to be focused on and where our goals are to be wrapped around.

Jay Brogdon: Let me take, you know, a crack at answering some of those questions. First of all, I'll talk about, you know, what our assumptions are. We are probably a little more conservative than the forward curve. We kind of have three rate cuts embedded in, you know, 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.

Speaker Change: Okay, great. Thanks for the color guys.

Speaker Change: Thanks, Brad.

Speaker Change: The next question comes from Jordan <unk> with Stephens, Inc. Please go ahead.

Jordan: Good morning, guys I just had a few questions on the securities restructure that took place could you guys give any insight on when the restructure took place and the impact it had for Q3 NII and then maybe what's remaining if there is any for <unk> 24.

Jay Brogdon: 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 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 in a very good direction.

Jordan: Yeah.

Speaker Change: So the the transaction that we consummated.

Speaker Change: Fully past tense nothing carries into the first quarter, albeit a good portion of the trade closed late in the quarter. So.

Speaker Change: Yeah, you know what that translates to is about one basis point of net interest margin impact in the fourth quarter. So you know I think our margin improved seven bips from $2 61 to $2 68 linked quarter, you can give about one basis point of credit to that as a result of the trade and again the <unk>.

Jay Brogdon: But there are still a lot of puts and takes. You know, we were pleased with some of the flows and deposits this quarter. There are seasonal seasonal attributes to our deposits in both the fourth quarter and early part of the year.

Jay Brogdon: 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, and still again in Q2, but to a much lesser degree than in Q1.

Speaker Change: And that it's only one basis point as a lot of the trade closed.

Speaker Change: In the latter part of the quarter.

Speaker Change: Perfect. Thanks, and then maybe just one follow up on that and there were just to clarify the word any securities repurchase with that.

Speaker Change: It was used to pay down we did.

Jay Brogdon: So again, optimistic around NIM overall, but I think in the near term, we're 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 and 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 That's great!

Speaker Change: 100% related I mean, we were selling securities at you know, a 1.81% and paying off wholesale funding at north of 5% that was the trade and I'd just point out a couple of things on that trade for our conservative Kurt Conservative nature for our company first off we did this in smaller sizes.

Speaker Change: We will continue to look at is there another opportunity to do another small size.

Speaker Change: You know, we're not a rip the band aid off and get it all done at once and take a big hit it's really measured over time is number one.

Speaker Change: And the other is we thought in this case it was very prudent to reduce the balance sheet by paying off some of our noncore funding. So that's what we did here we didn't take the money and go back and buy higher rate securities to offset it it was a better to reduce the balance sheet and take risk off the balance sheet effectively.

Jay Brogdon: That makes sense. And then maybe just, you know, touching on the loan growth side, you talked about in the press release about demand slowing and that 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 prices. 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 continuing to push pricing where you see an opportunity to gain market share, and maybe just some color on what segments and geographies are kind of driving that growth. Yeah, David.

Speaker Change: Perfect. Thanks for the answers.

Speaker Change: Thanks Jordan.

Speaker Change: Again, if you have a question press Star then one.

Speaker Change: The next question comes from Gary Tenner with D. A Davidson. Please go ahead.

Gary Peter Tenner: Thanks, Good morning, I had a couple of just questions about kind of the deposit guide and thoughts around the retail brokerage CD maturities in the first quarter as you kind of looking for you know down deposits in 2024 and given the amount of.

Gary Peter Tenner: Maturities in the first quarter should we think about kind of the run off there being a little bit Frontloaded and then more stable over the course of the year.

Jay Brogdon: One thing I want to point out as we kind of talk about loan growth is that while we are seeing some moderating growth, we're still experiencing growth. And I would argue that it was 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. Ag loans were down in the fourth quarter.

Gary Peter Tenner: Or do you expect to kind of renew the lion's share of maturities coming up in the first quarter.

Speaker Change: Yeah, I think I think a lot of that actually will be a function of of loan demand. You know if we've got loan demand in excess of other cash flows off the balance sheet. Etcetera. Then you know you'd see is you'd see it's more renewing a point you back to the fourth quarter that the ability to sell some securities in the quarter.

Jay Brogdon: 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, 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.

Speaker Change: <unk> as well as to have some some core deposit growth allowed us to.

Speaker Change: <unk> a lot of the wholesale funding so it's not going to be straight line. Gary is kind of the answer it's going to be a little bit dependent on factors such as seasonality you know timing of cash flows inherent our balance sheet loan demand it.

Jay Brogdon: Of course, on the credit front, all of our underwriting, staying very disciplined 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. 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. Okay, that's helpful.

Speaker Change: Et cetera, but I wouldn't I wouldn't think the right expectation is to believe that it's all going to be front end loaded it's going to be you know us.

Speaker Change: Waiting.

Speaker Change: Really through the profitability wins are the best opportunities to invest our capital and how we're going to fund those investments and if that is to shrink wholesale funding. That's what we will do if we have loan demand that we like the pricing and the and the credit aspects of then we may that may help us or require us to stay at somewhat more elevated.

Speaker Change: Levels in some of those areas.

Speaker Change: Great I appreciate it.

Speaker Change: I appreciate that on that same or similar topic as it comes to those renewals or the maturities do you think about trying to shorten the duration.

Jay Brogdon: Maybe just touching on the other side, touching on the funding side of the coin, you've done a great job driving core deposits in the quarter, reducing reliance on wholesale funding. I'm curious, maybe you talked about deposits being down modestly, focusing on the remixing. Just curious, where are you seeing opportunities to drive core deposit growth? How is the pricing on new core deposits that you're seeing on that interest-bearing side? How quickly do you think you're going to be able to reprice some of these if rates do get cut like you're talking about? How quickly do you expect to be able to reprice some of these relationships lower? Yeah, some good questions there, David.

Of what's rolling over so that you know assuming the fed does start to cut you could reprice those lower sooner.

Speaker Change: Yeah, Jack versus 12 months out or something.

Speaker Change: In fact, we've already done that and that was a decision. We have made at some point in the year last year, you know I'll go back to the fourth quarter of 2022.

Speaker Change: And early in 2023, and we were actually extending liabilities at that point, a little bit and that's why you see higher volumes in the fourth quarter and first quarter of some and some repricing around some of that funding. So where we were making decisions then to extend we're making decisions now are really prior to now to shorten on <unk>.

Speaker Change: Some of that for the reasons that you mentioned.

Jay Brogdon: So I'd say this on, you know, we were again very pleased with the results and some of the underlying trends on the deposit side. NIBs were down again in the fourth quarter, but at a slower pace, a moderating pace. We hope that trend will continue here early in the year. So we'd love to see that NIB level troughing out. But, you know, on the interest-bearing side, savings accounts, money market accounts, etc. had an incredibly strong quarter there.

Speaker Change: Great I appreciate that and I hopped on a mental age I apologize if I if I had missed that first question, but in terms of the rate.

Speaker Change: Utilities and you provided I think 25, 50, and 75 basis points cuts what are you what's the base case that you're using internally.

Speaker Change: In terms of where you actually think you know.

Speaker Change: The fed doesn't share.

Speaker Change: Three three cuts is what we're kind of modeling everything to internally and as I did mention this earlier.

Jay Brogdon: That really bucked the trend relative to other recent quarters. I tell you, if you unpack that piece of the deposit growth for the quarter, the consumer front remains very, very stable, as candidly it has been for some period of time. You know, you have a little bit, maybe of downward pressure in the quarter, but it's very modest, and it's probably nothing more than just kind of holiday spending, if you will, on the consumer side. So feel really stable there.

Speaker Change: I'll mention it again to you here Gary that that third cut comes really late in the year. So for all intents and purposes, it's kind of two cuts.

Speaker Change: If you think of it that way.

Speaker Change: Okay. So effectively in line with the top part is that about right. That's yeah, much more aligned where our thinking is much more aligned to the dot plot for internal assumptions then to the forward curves that's exactly right.

Speaker Change: Alright, great. Thanks, guys appreciate it.

Jay Brogdon: But we saw some good growth on the commercial side. That's been a key focus for us to continue to grow in the commercial area, and so we had some nice wins in that regard in the quarter.

Speaker Change: Thanks.

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

George Makris: Okay. Thank you very much I hope, it's understandable that we've tried to be real clear about our execution in this volatile market and I think our results reflect our success in just wanted to assure you that we will continue to conservatively manage our business and create as much flexibility.

Jay Brogdon: Some of that will be timing-related; some, you know, we want not 100 percent of those dollars to be, you know, are going to be sticky. Some of that is commercial customers planning for some things in the first part of the year, etc. But again, very, very good indications and good results of strategically what we've been focused on there. You know, the results of that, combined with the portfolio sale in the quarter, allowed us to really pull down some of the higher cost wholesale funding that'll continue to be a focus for us, you know, all throughout the year here. On your other question, kind of related to the timing of, you know, in a rates down scenario, what that would look like. We do screen a little bit liability sensitive right now, especially if you look at it on a 12 month basis.

To react.

George Makris: In these current market conditions.

As was just mentioned there are some discrepancy between the dot plot or curve and we're not betting on either one of them at this point in time so.

George Makris: We expect the same kind of conservative management that you.

George Makris: Come to recognize Simmons as we go forward.

George Makris: We look forward to having more good calls in the future. Thanks for joining us today and have a great day.

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

Jay Brogdon: I think you'd see, you know, maybe a three month to six month period where we're more neutral to maybe even a little bit asset sensitive. But as you move past those first few months, you're going to see some liability sensitivity on our balance sheet. And we have some information on that on page 16 of the slide deck. That's helpful. Thanks, everybody. A great quarter. Thank you, David. The next question comes from Brady Gailey with KBW. Please go ahead.

Speaker Change: Okay.

Speaker Change: Yeah.

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Brady Gailey: Hey, thank you. Good morning, guys. Number 80.

Brady Gailey: I want to make sure I understand the expense guidance on slide 11. So you're basically looking at an adjusted annualized expense base of $548 million and saying that you could see roughly 1% growth, so that would translate into expected 2024 expenses around that $555 mark. Is that the right way to think about total expenses? Brady, I think you're all over it.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.

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Jay Brogdon: That's exactly right. And again, that's another one where there were a lot of puts and takes in 2023, particularly given some accrual adjustments and whatnot. We think, you know, what we really tried to outline on slide 11 is that when we launched the Better Bank Initiative, our infrastructure, our, you know, run rate from a non-interest expense point of view was around $566 million. We got it to $15 million of savings as a result of those initiatives. I exceeded that really throughout the year this year.

Jay Brogdon: And as we look at the guide, you know, that 2024 guide is sort of a two-year outlook from when we initiated the Better Bank Initiative. And we see expenses down kind of one to two percent on a two-year outlook there. So we're very proud of the progress we've made there. Again, I don't want to, you know, call that sort of finished with a bow on top.

Jay Brogdon: We are continuing to focus on those initiatives. We've got some, as I've alluded to in prior conversations, we have some investment opportunities that we'll continue to evaluate. But we have a very strong continuous improvement mindset.

Jay Brogdon: And we think we'll be able to offset a lot of the inflationary pressures that are out there. And all of this, I think, is going to result in some positive operating leverage for us as we move into the future. And Brady, one thing I'd just reiterate on what Jay just said is we showed our baseline of Q4 of 2022 and the savings there, but the inflationary pressure was there in 2023. It will be there in 2024.

Jay Brogdon: But yet, we're still showing that we're going to relatively hold the line on the expenses. Yeah, that's great to see. And then my next question on the $175 million buyback authorization. I think that if you repurchased it today, it'd be about 7% of the company. So, fairly notable size. Was that something that you had in place that, you know, you could use on a rainy day?

Brady Gailey: Or is that something that you really expect to be active in in 2024? Yeah, Brady, our, um, our prior plan was coming to an end in January of this year, so this is really just re-upping it. We have no different strategy than we did last quarter and all of last year. You know, we still think we're in some challenging times in banking, it's trying to fight through on the NIM side, as we talked about. Where is loan growth going, where is the capital, where does it need to be deployed, and what levels do you need to maintain? So we focus on that, and we think it's prudent to keep a stock buyback plan in place. This is a two-year plan, but our strategy is still to use our capital first for organic growth, loan growth, and second to pay cash dividends to our shareholders. We've been paying for it, Ed, for over 115 years.

George Makris: We don't want to be the group to mess that up, I'll tell you that. And then after that, it comes down to what is the best use of that capital at that point. And one of them is the stock buyback. The answer is, are there opportunities for balance sheet optimization with bond sales like we had this quarter? And so we'll analyze it, but I would tell you in the stock buyback, our strategy is still to stay within the realm of our earnings for the quarter, less cash dividends would be the maximum amount we would buy back. And then, finally, for me, if you look at full year 2023 and if you look at the ROA on a core basis, it was running about 75 basis points. I think Simmons in the past has talked about longer term wanting to get to an ROA of 150 basis points, so about double that. I realize profitability is under pressure for the entire industry, so you guys are not alone.

Brady Gailey: But how do you think about the path to get Simmons towards a higher ROA and ROE level? Yeah, Brady, I think the very first and biggest aspect of that goes back to our balance sheet optimization efforts. Again, we're pleased with the results in the fourth quarter and chipping away at that. That's a function of rate and time at the end of the day, but we are incredibly proactive and will continue to be in our approach to accelerate that timeline where we can. We'll continue, I think, to be prudent and balanced in how we look at that, but when you think about our ability to kind of get a loan to deposit ratio in the area of 90% plus or minus, you think about our expense infrastructure and what we pencil out in terms of the results of the better bank initiatives that we've worked on and the scalability that that's put into our system. I think those are very realistic targets for us to work Honestly, when I think about that, the biggest wild card to me really is kind of on the fee side.

Jay Brogdon: Fees are under pressure. There are some things that are out there and being proposed that we'll just have to deal with and react to as an industry, but I still think that guidance that we've given in the past of an optimized balance sheet at Simmons Bank and within our strategy and business model that that 125 to 150 range of ROAA is what we ought to be focused on and where our goals ought to be wrapped around. Okay, great. Thanks for the call, guys, and Brady. The next question comes from Jordan Gent with Stevens Inc. Please go ahead. Good morning guys,

I just had a few questions on the securities restructure that took place. Could you guys give any insight on when the restructure took place and the impact it had on Q23 NII? And then maybe what's remaining, if there is any, for 1Q24? So, the transaction that we consummated in the fourth quarter is fully past tense; nothing carries into the first quarter, albeit a good portion of the trade closed late in the quarter, so what that translates to is about one basis point of net interest margin impact in the fourth quarter, so I think margin improved seven bips from 261 to 268 linked quarter You can give about one basis point of credit to that as a result of the trade, and again, the reason that it's only one basis point is that a lot of the trade closed in the latter part of the quarter. Perfect, thanks.

And then maybe just one follow-up on that. In their word, just to clarify the word, any securities repurchased with that? And Matt Olney.

Unnamed Host: Thanks for watching. We'll see you next time. It was used to pay for the... hundred percent related, I mean, we were selling securities at, you know, 1.81% and paying off wholesale funding at north of 5%. That was the trade. And I just point out a couple things on that trade for our conservative, conservative nature for our company. First off, we did this in smaller sizes. You know, we'll continue to look at whether there is another opportunity to do another small size. You know, we're not going to rip the bandaid off and get it all done at once and take a big hit. It's really measured over time and is number one.

George Makris: And the other thing is, we thought in this case, it was very prudent to reduce the balance sheet by paying off some of our non-core funding. So that's what we did here. We didn't take the money and go back and buy higher-rate securities to offset it.

George Makris: It was better to reduce the balance sheet and take risk off the balance sheet effectively. Perfect, thanks for the answers. Thanks Jordan. Again, if you have a question, press star, then 1. The next question comes from Gary Tenner with D.A. Davidson.

Gary Peter Tenner: Please go ahead. Thanks. Good morning. I had a couple of questions about the deposit guide and thoughts around, you know, the retail brokerage CD maturities in the first quarter, as you kind of looking for, you know, lower deposits in 2024. And given the amount of your maturities in the first quarter, should we think about kind of the runoff there being a little bit front loaded and then more stable over the course of the year? Or do you expect to kind of renew the lion's share of maturities coming up in the first quarter? Yeah, I think a lot of that actually will be a function of loan demand. If we've got loan demand in excess of other cash flows off the balance sheet, etc., then you'd see us more renewing.

Gary Peter Tenner: I point you back to the fourth quarter; the ability to sell some securities in the quarter as well as have some core deposit growth allowed us to reduce a lot of the wholesale funding. So, it's not going to be a straight line, Gary, is kind of the answer. It's going to be a little bit dependent on factors such as seasonality, you know, timing of cash flows inherent in our balance sheet, loan demand, etc., but I wouldn't think the right expectation is to believe that it's all going to be front and loaded. It's going to be, you know, us evaluating, really through a profitability lens, the best opportunities to invest our capital and how we're going to fund those investments, If we have loan demand that we like the pricing and the credit aspects of, then that may help us or require us to stay at somewhat higher levels in some of those areas.

Jay Brogdon: Great, I appreciate it. I appreciate that. On that same or similar topic, as it comes to those renewals or the maturities, do you think about trying to shorten the duration of what's rolling over so that, you know, assuming the Fed does start to cut, you could reprice those lower sooner? Yeah, it was here versus 12 months out or something. Yeah, in fact, we've already done that. And that was a decision we made at some point in the year last year, you know; I go back to the fourth quarter of 2022. And early in 2023,

Jay Brogdon: And we were actually extending liabilities at that point a little bit. And that's why you see higher volumes in the fourth quarter and first quarter of some and some repricing around some of that funding. So where we were making decisions then to extend, we're making decisions now, really prior to now, to shorten on on some of that for the reasons that you mentioned. Great, I appreciate that. And I hopped on a minute late, so I apologize if I missed that first question. But in terms of the rate sensitivities, and you provided, I think, 25, 15, 75 basis points cuts, what are you, what's the base case that you're using internally, you know, in terms of where you actually think, you know, the Fed does this year? Three cuts is what we're kind of modeling everything to internally. And I did mention this earlier. So I'll mention it again to you here, Gary, that that third cut comes, you know, really late in the year. So for all intents and purposes, it's kind of two cuts. If you think of it that way.

Jay Brogdon: Okay, so effectively in line with the dot plot, is that about right? That's, yeah, much more aligned, our thinking is much more aligned to the dot plot for internal assumptions than to the forward curves, that's exactly right. All right, great, thanks guys, appreciate it. 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. I hope it's understandable that we try to be real clear about our execution in this volatile market. And I think our results reflect our success. And I just want to assure you that we will continue to conservatively manage our business, create as much flexibility to react in these current market conditions, as was just mentioned there are some discrepancy between the dot plot and forward curve and we're not betting on either one of them at this point in time so expect the same kind of conservative management that you come to recognize at Simmons as we go forward, and we'll look forward to having more good calls in the future.

George Makris: Thanks for joining us today, and have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. transcript Emily Beynon and............... Thank you for watching! Thank you.