Q2 2024 Simmons First National Corp Earnings Call

Good day and welcome to the Simmons First National Corporation Q2 earnings conference call.

Operator: of the Foundation, Q2 Earnings Conference Call. All participants will be in the lesson-only mode.

Operator: Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchstone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded.

Speaker Change: All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star, then 1, on your touchtone phone.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: Please note that this event is being recorded.

Ed Bilek: I would now like to turn the conference over to Ed Bilek. Please go ahead.

Speaker Change: I would now like to turn the conference over to Edward Bilek.

Edward J. Bilek: Good morning and welcome to Simmons First National Corporation's second quarter 2024 earnings call. Joining me today are several members of our Executive Management Team, including our Executive Chairman, George Makris, CEO, Bob Fehlman, President, Jay Brogdon, and CFO, Daniel Hobbs.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your touchtone phone. To withdraw your question, please press star again. Please note that this event is being recorded. I would now like to turn the conference over to Ed Bilek. Please go ahead. Good morning and welcome to Simmons First National Corporation's second quarter 2024.

Ed Bilek: Good morning and welcome to Simmons First National Corporation's second quarter 2024 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.

Speaker Change: Please go ahead.

Edward J. Bilek: Good morning and welcome to Simmons First National Corporation's second quarter 2024 earnings call. Joining me today are several members of our executive management team, including our Executive Chairman George Makris, CEO Bob Fehlman, President Jay Brogdon, and CFO Daniel Hobbs.

Edward J. Bilek: Today's call will be in a Q&A format. Before we begin, I would like to remind you that our second quarter earnings materials, including the earnings release and presentation deck, are available on our website at SimmonsBank.com under the Investor Relations tab. Today, 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 Bilek: Today's call will be in a Q&A format. Before we begin, I would like to remind you that our second 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 risking 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.

Speaker Change: Today's call will be in a Q&A format. Before we begin, I would like to remind you that our second quarter earnings materials, including the earnings release and presentation deck, are available on our website at SimmonsBank.com under the Investor Relations tab.

Edward J. Bilek: 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. Additional information concerning some of these factors is contained in our earnings release and investor presentation accompanying our Form 8K today and our Form 10K for the year ended December 31st, 2023, including the risk factors contained in that Form 10K.

Speaker Change: During today's call, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections, and outlooks, including, among others,

Edward J. Bilek: 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 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 this morning with the SEC and are also available on the Investor Relations page of our website, SimmonsBank.com. Operator, we are ready to begin the Q&A session. Thank you very much.

Speaker Change: Our outlook regarding future economic conditions, interest rates, lending and deposit activity, credit quality, liquidity, and net interest margin.

Speaker Change: 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 statements due to a variety of factors.

Ed Bilek: Additional information concerning some of these factors is contained in our earnings release and investor presentation, furnished with our Form 8-K today, and our Form 10-K for the year ended December 31st, 2023, including the risk factors contained in that Form 10-K. These forward-looking statements speak only as of the date they are made, and Simmons assumes no obligation to update or revise any forward-looking statements or other information.

Speaker Change: Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8K today and our Form 10K for the year ended December 31st, 2023, including the risk factors contained in that Form 10K.

Speaker Change: 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.

Ed Bilek: 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 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 this morning with the SEC and are also available on the investor relations page of our website, SimmonsBank.com.

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

Speaker Change: Additional disclosures regarding non-GAP metrics.

Speaker Change: Including the reconciliation of these non-GAAP metrics to GAAP.

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

Operator: Operator, we are ready to begin the Q&A session. Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then one, on your touch-done phone. If you are using a speaker phone, 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.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from the line of Woody Lay from KBW, please go ahead.

Speaker Change: Thank you very much.

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

Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Operator: At this time, we will pause momentarily to assemble our office.

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

Woody Lay: Our first question is from the line of Woody Lay from KBW. Please go ahead.

Speaker Change: Our first question is from the line of Woody Lay from KBW, please go ahead.

Wood Neblett Lay: Hey, good morning, guys. Morning. I wanted to start on the NIM. It was great to see it inflect a little bit higher. Can you talk about what went right in the quarter? And do you think you can sort of carry this momentum into the back half of the year, where we could see some further NIM expansion?

Woody Lay: Good morning, guys. Wanted to start on the name. It was great to see it and flex a little bit higher. Can you talk about what went right in the quarter?

Wood Neblett Lay: Hey, good morning guys. Good morning.

Wood Neblett Lay: Wanted to start on the NIM. It was great to see it inflect a little bit higher. Can you talk about what went right in the quarter and do you think you can sort of carry this momentum into the into the back half of the year where we could see some further NIM expansion?

Woody Lay: And do you think you can sort of carry this momentum into the back of the year where we could see some further name expansion?

James M. Brogdon: Let me let me start on that Woody. This is Jay and I think Daniel may have some additional comments as well here but what I want to maybe just start with kind of a reminder we have for a few quarters now basically highlighted that we feel like our NIM is in you know kind of a stable stable or range bound area and I think our last three quarters of NIM or you know the prints were 268, 266, 269 so I you know I feel like you know we've been sort of right in that expectation and generally speaking you know I think that's that's a continued theme for us here we were we some things definitely went right for us in the quarter again I'm gonna flip it to Daniel here in a second to maybe unpack a couple of those items that are drivers to NIM I think we're very very poised for favorable asset repricing we're seeing some stability on the deposit side still a very competitive macro backdrop and I think we're very very poised for you know a rates down or liability sensitivity top environment given you know given our balance sheet dynamics so that's kind of the big picture of you know where I think we've been and where I think we're headed from a NIM and NIM trajectory point of view but Daniel you may talk a little bit about a couple of the dynamics within the quarter here and your expectations yeah good morning Woody so let's start on the asset side of the balance sheet so if you look at the loan yields our loan yields increased 15 basis points quarter over quarter you know it's been a trend for us that you know in this this rising rate environment that our loan yields have portfolio yields have been increasing relative to prior periods and that we expect that to continue of that 15 basis points I'd tell you you know I wouldn't expect that for q3 or q4 there was some timing in that relative to q1 and q2 with some loan fees you know on both sides of that it's about three basis points so if you think about what the what the normalized increase of the loan yield was it's around nine basis points so you know good momentum there we expect that tail wind to continue Also, in loans, you know, we had good deposit growth, 1%, quarter over quarter, or 4% annualized.

Jay Brogdon: Let me start on that, Woody.

Jay Brogdon: This is Jay, and I think Daniel may have some additional comments as well here. But what I want to maybe just start with, kind of a reminder. We have for a few quarters now basically highlighted that we feel like our men is in kind of a stable or range bound area. And I think our last three quarters of them are the Prince were 268, 266, 269. So I feel like we've been sort of right in that expectation. And generally speaking, I think that's a continued theme for us here. We were some things definitely went right for us in the quarter.

Wood Neblett Lay: Let me start on that. Woody, this is Jay, and I think Daniel may have some additional comments as well here, but I want to maybe just start with kind of a reminder.

James M. Brogdon: That's kind of in the middle of the fairway for us. You know, we're keenly focused on soundness, profitability, growth, and in that order. And we're focused on every loan that we put on has that profitability hurdle and mindset that is going to help us improve our ROA. So, you know, as you think about where that's headed, you know, I would tell you probably the loan demand may be a little bit tepid out there, but we're not going to sacrifice our profitability and reach there.

Speaker Change: We have, for a few quarters now, basically highlighted that we feel like our NIM is in, you know, kind of a stable or range-bound area, and I think our last three quarters of NIM are

Speaker Change: You know, the prints were 268, 266, 269, so I, you know, I feel like...

Speaker Change: We've been sort of right in that expectation. And generally speaking, I think that's a continued theme for us here. Some things definitely went right for us in the quarter.

Jay Brogdon: Again, I'm going to flip it to Daniel here in a second to maybe unpack a couple of those items that are drivers to them. I think we're very, very poised for favorable asset repricing. We're seeing some stability on the deposit side. Still a very competitive macro backdrop. And I think we're very, very poised for a race down or liability sensitivity top environment given our balance sheet dynamics. So that's kind of the big picture of where I think we've been and where I think we're headed from an them and them trajectory point of view.

Speaker Change: Again, I'm going to flip it to Daniel here in a second to maybe unpack a couple of those items that are drivers to NIM. I think we're very, very poised for favorable asset repricing. We're seeing some stability on the deposit side.

Daniel: Still a very competitive macro backdrop, and I think we're very, very poised for, you know, a rates down or liability sensitivity type environment given, you know, given our balance sheet dynamics. So that's kind of the big picture of

Daniel: You know, where I think we've been and where I think we're headed from a NIM and NIM trajectory point of view. But, Daniel, you may talk a little bit about a couple of the dynamics within the quarter here and your expectations. Yeah. Good morning, Woody. So, let's start on the asset side, the balance sheet.

Daniel Hobbs: But Daniel, you may talk a little bit about a couple of the dynamics within the quarter here and your expectations. Yeah.

Charles Daniel Hobbs: So that 1% quarter over quarter is a good number for us. Maybe if you flip to the liability side of the balance sheet deposits, I think, you know, for the quarter, I think it was a good story for us, you know, because you see kind of the ending balance was down, you know, $500 million. It can sometimes skew the numbers when you look at a quarter end versus a prior quarter end. You've got businesses taking positions on their balance sheets that affect us, and then you've got some timing of public funds and seasonality there.

Daniel Hobbs: Good morning, Woody. So let's start on the asset side of the balance sheet. So if you look at the long yields, our loan yields increased 15 basis points quarter over quarter. You know, it's been a trend for us that, you know, in this rising rate environment that our long yields have. Our portfolio yields have been increasing relative to prior periods, and that we expect that to continue of that 15 basis points.

Daniel: So if you look at the loan yields, our loan yields increased 15 basis points quarter over quarter.

Daniel: You know, it's been a trend for us that, you know, in this this rising rate environment, that our long yields have.

Wood Neblett Lay: All right.

Speaker Change: Portfolio yields have been increasing relative to

Speaker Change: prior periods and that.

Daniel Hobbs: I tell you, you know, I wouldn't expect that for Q three or Q four. There were some timing in that relative to Q one and Q two with some loan fees, you know, on those sides of that's about three basis points. So if you think about what the normalized increase of the loan yield was, it's around nine basis points. So, you know, good momentum there. We expect that tailwind to continue also in loans. You know, we had good deposit growth. 1% quarter over quarter or 4% annualize. That's kind of middle of the fairway for us.

Speaker Change: We expect that to continue. Of that 15 basis points, I'd tell you, you know, I wouldn't expect that for Q3 or Q4.

Speaker Change: There was some timing in that relative to Q1 and Q2 with some loan fees.

Speaker Change: You know, on both sides of that, it's about three basis points, so if you think about what the normalized increase of the loan yield was, it's around nine basis points. So, you know, good momentum there. We expect that tailwind to continue.

Speaker Change: Also in loans, you know, we had good deposit growth.

Speaker Change: 1% quarter-over-quarter or 4% annualized, that's kind of middle of the fairway for us.

Daniel Hobbs: You know, we're keenly focused on soundness, profitability growth, and, within that order, we're focused on every loan that we put on has that profitability hurdle in mindset that that is going to help us improve our RLA. So, you know, as you think about where that's headed.

Speaker Change: We're keenly focused on soundness, profitability, growth, and in that order, and we're focused on every loan that we put on has that profitability hurdle and mindset that is going to help us improve our ROA.

Speaker Change: So, you know, as you think about where that's headed, you know,

Daniel Hobbs: would tell you probably the loan demands, maybe a little bit, kept it out there, but we're not going to sacrifice on our profitability and reach there, so that 1% quarter of a quarter is a good number for us. Maybe if you flip to the liability side of the balance sheet deposit, I think for the quarter, I think it was a good story for us. You see kind of the ending balance was down, you know, 500 million. It can sometimes skew the number when you look at a quarter end versus a prior quarter end. You've got businesses taking positions on their balance sheet, that effect us, and then you've got some timing of public funds, seasonality there. You've got counties and schools building balances in the first quarter, and then they start to disperse that in the second quarter. But if you look at average balances, we were down 189 million quarter over quarter, and specifically maybe more importantly, if you look at non-interest bearing accounts, we were only down 29 million in balances there, and that's probably one of the best quarters we've had in a while in terms of just the ease of remixing in that base. And so, you know, fast forward, that had a positive impact for us in terms of deposit cost. We were only up four basis points in our deposit cost, and that's significantly lower than where we had been in the past. Last quarter we were up 17, the quarter before that, 21, for that 41. And so, the pace of increased slow dramatically, and that was primarily driven by non-interest bearing deposits. The other thing I would tell you that is a positive for us is CDs. In April, we had our first month where our going on CD renewals were at lower rates than the maturing rates, and that theme carried forward for the entire quarter. So, you know, as we think about headed forward, that hopefully is flipping from a headwind to somewhat of a neutral and maybe even slightly positive transport. So, you know, deposits helped us with our name and the quarter, you know, as you think about J.

Speaker Change: I would tell you probably the loan demand may be a little bit tepid out there, but we're not going to sacrifice on our profitability and reach there. So that 1% quarter over quarter is a good number for us.

Speaker Change: Maybe if you flip to the liability side of the balance sheet deposits, I think, you know,

Speaker Change: I think it was a good story for us, you know, you see...

Speaker Change: kind of the ending balance was down.

Speaker Change: It can sometimes skew the number when you look at a quarter end versus a prior quarter end. You've got businesses taking positions on their balance sheet that affect us, and then you've got some timing of public funds.

Charles Daniel Hobbs: You've got counties and schools building balances in the first quarter, then they start to disperse that in the second quarter. But if you look at average balances, we were down $189 million quarter over quarter. And, specifically, and maybe more importantly, if you look at non-interest-bearing accounts, we were only down $29 million in balances there. And that's probably one of the best quarters we've had in a while in terms of just the ease of... mixing in that base.

Speaker Change: seasonality there. You've got counties and schools building balances in the first quarter, then they start to disperse that in the second quarter. But if you look at average balances, we were down 189 million quarter over quarter.

Speaker Change: And specifically, maybe more importantly, if you look at non-interest bearing accounts, we're only down $29 million in balances there, and that's probably one of the best quarters we've had in a while in terms of just the ease of remixing in that base.

Charles Daniel Hobbs: And so, you know, Fast forward. That had a positive impact on us in terms of deposit cost. We were only up four basis points in our deposit cost, and that's significantly lower than where we had been in the past. Last quarter we were up 17, the quarter before that, 21, the quarter before that, 41. And so the pace of increase slowed dramatically. And that was primarily driven by non-experience-bearing deposits. The other thing I would tell you that is positive for us is CDs. In April, we had our first month where our going on CD renewals were at lower rates than the maturing rates, and that theme carried forward for the entire quarter.

Speaker Change: You know, fast forward that that had a positive impact for us in terms of deposit cost. We were only up four basis points.

Speaker Change: And that was primarily driven by non-experience bearing deposits. The other thing I would tell you that is a positive for us is CD's.

Speaker Change: In April , we had our first month where our going on CD renewals were at lower rates than the maturing rates.

Charles Daniel Hobbs: So, you know, as we think about going forward, that hopefully is flipping from a headwind to somewhat of a neutral and maybe even slightly positive trend for us. So, you know, deposits helped us with our NIM in the quarter. Jay mentioned this a little bit, but, you know, as you think about that forward, it's still very competitive. That competitiveness is not easing. There's some irrational pricing out there.

Speaker Change: And that theme carried forward for the entire quarter. So, you know, as we think about headed forward, that hopefully is flipping from a headwind to somewhat of a neutral and maybe even slightly positive trend for us.

Woody Lay: Mint, we're mentioning this a little bit, but you know as you think about that forward, it's still very competitive. That competitiveness is not easing; there's some irrational pricing out there. You've got some competitors offering CDs above what our whole self-funding cost is, and so you know we're going to continue to battle that. But you know we're keenly focused on maintaining core relationships, profitable relationships. And one last thing I would tell you is from a deposit account standpoint, a number of accounts, we're still growing our customer checking accounts here to date, and so that's a meaningful thing for us. A big focus for us is that we continue to grow our customer base to provide that core stable funding force. That's really helpful color, thanks for that. Maybe shifting over to the security portfolio, you know we've seen some pullback in the long-term race throughout the quarter. Does it make you get a little more constructive on the way you view potential bond sales?

Charles Daniel Hobbs: You've got some competitors offering CDs above what our wholesale funding cost is, and so, you know, we're going to continue to battle that, but, you know, we're keenly focused on maintaining core relationships, profitable relationships. And one last thing I would tell you is, from a deposit account standpoint, number of accounts, we're still growing our customer checking accounts year-to-date, and so that's a meaningful thing for us. A big focus for us is that we continue to grow our customer base to provide that core stable funding for us.

Speaker Change: It's still very competitive. That competitiveness is not...

Speaker Change: easing.

Speaker Change: There's some irrational pricing out there. You've got some some competitors.

Speaker Change: offering CDs above what our wholesale funding costs is. And so, you know, we're going to continue to battle that. But, you know, we're keenly focused on maintaining core relationships, profitable relationships.

Speaker Change: And one last thing I would tell you is from a deposit account standpoint, number of accounts, we're still growing our customer checking accounts year to date. And so that's a meaningful thing for us. A big focus for us is that we continue to grow our customer base.

Speaker Change: to provide that core stable funding for us.

Wood Neblett Lay: That's a really helpful caller. Thanks for that. Maybe shifting over to the securities portfolio, you know, we've seen some pullback in longer-term rates throughout the quarter. Does that make you get a little more constructive in the way you view potential bond sales?

Collar: That's really helpful, Collar. Thanks for that.

Collar: Maybe shifting over to the securities portfolio, you know, we've seen some pullback in the longer term rates throughout the quarter. Does it make you get a little more constructive on the way you view potential bond sales?

Jay Brogdon: Yeah, it does. I mean, I think that's something you saw us do in the past year. Our approach thus far has really been a patient. I kind of maybe called an incremental approach. We haven't, you know, taken sort of a rip-the-bandaid-off approach in the bond portfolio. And really, as we look at it, we, you know, we really want to kind of maintain the optionality. We're very focused and disciplined around the track. We've played offs between, you know, kind of, capital and earnings as we think about those two things. And in one of my maintain our focus on on the earnback as well.

James M. Brogdon: Yeah, it does. I mean, I think that's something you saw us do in Q4 last year. Our approach thus far has really been a patient, I kind of maybe call it an incremental approach. We haven't, you know, taken sort of a rip the Band-Aid off approach in the bond portfolio.

Speaker Change: Yeah, it does. I mean, I think that's something you saw us do in Q4 last year. Our approach thus far has really been a patient, I kind of maybe call it an incremental approach. We haven't...

Speaker Change: You know, taking sort of a rip the band-aid off approach in the bond portfolio.

James M. Brogdon: And really, as we look at it, we, you know, we really want to kind of maintain the optionality. We're very focused and disciplined around the trade-offs between, you know, capital and earnings as we think about those two things, and we want to maintain our focus on the earn-back as well. So, no doubt with the, you know, the movement in the, I'll just kind of call it the movement in the 10 year, I'll associate it to the 10 year, we do get more constructive.

Speaker Change: And really, as we look at it, we really want to kind of maintain the optionality. We're very focused and disciplined around the trade-offs between, you know, kind of capital and earnings, as we think about those two things, and want to maintain our focus on the earn-back as well.

Jay Brogdon: So, no doubt with the, you know, the movement and the, I'm just kind of called the movement in the 10 year. I'll associate it to the 10 year. We do get more constructive. You guys have heard me say before. I'll continue to say it. We are very scenario rich. We look at a lot of different, you know, opportunities and alternatives within the bond portfolio. So, I, I don't want to get us out over the skis because, again, we've demonstrated a lot of patients around that. I think you'll continue to see us very disciplined, but no doubt rates have come or direction as it relates to your question there.

Speaker Change: No doubt with

Speaker Change: I'll just kind of call it the movement in the 10-year, I'll associate it to the 10-year. We do get more constructive. You guys have heard me say before, I'll continue to say it, we are very scenario-rich. We look at a lot of different...

James M. Brogdon: You guys have heard me say before, and I'll continue to say it, we are very scenario rich. We look at a lot of different, you know, opportunities and alternatives within the bond portfolio. So, I don't want to get us out of the skis, because again, we've demonstrated a lot of patience around that. I think you'll continue to see us very disciplined, but no doubt rates have come our way as it relates to your question there. Yep. All right. That's all for me.

Speaker Change: You know, opportunities and alternatives within the bond portfolio. So, I don't want to get us out over the skis because, again, we've demonstrated a lot of patience around that. I think you'll continue to see us very disciplined, but no doubt rates have come our direction as it relates to your question there.

Unknown Executive: Yep.

Wood Neblett Lay: Yep. All right. That's all for me. Thanks for taking my questions.

Unknown Executive: All right.

Unknown Executive: That's all for me. Thanks for taking my questions.

Speaker Change: All right, that's all from me. Thanks for taking my questions.

Unknown Executive: Thanks for the thank you.

Speaker Change: Thank you.

David Garner: The next question is from the line of a week free store from Raymond James, please go ahead. Good morning, everybody. Good morning, David.

Operator: The next question is from the line of David Feaster from Raymond James; please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of David Feaster from Raymond James. Please go ahead.

David Pipkin Feaster: Good morning, everybody.

Unknown Executive: Morning, David. Hey, David. Oh.

David Pipkin Feaster: I wanted to touch maybe a bit on the expense line. You know, you've been very active with the Better Bank Initiative. It's paying off. Expenses have gone better than we've expected. I'm curious, what's left from that program, and how you think about expenses? We're obviously continuing to invest in the franchise, but I'm just curious, how do you think about, you know, balancing investing and new hires and other things like that versus, you know, cutting costs to help fund some of that and managing that expense trajectory?

David Pipkin Feaster: Hey, good morning everybody.

David Garner: I wanted to touch maybe a bit on the expense line. You know, you've been very active with the Better Bank initiative. It's paying off, you know; expenses has done better than we've expected.

Speaker Change: David, I wanted to touch maybe a bit on the expense line, you know, you've been very active with the Better Bank Initiative, it's paying off, you know, expenses has done better than we've expected. I'm curious.

Jay Brogdon: I'm curious, what's left in that program and how you think about expenses, you know, we're obviously continuing to invest in the franchise. But I'm just curious, how do you think about balancing investing in new hires and other things like that versus, you know, cutting costs to help fund some of that and managing that expense trajectory.

Speaker Change: What's left from that program and how you think about expenses, you know, you know.

Speaker Change: We're obviously continuing to invest in the franchise, but I'm just curious, how do you think about, you know, balancing investing and new hires and other things like that versus, you know, cutting costs to help fund some of that and managing that expense trajectory?

James M. Brogdon: Big picture, I'll jump in on that one again, and Bob or Daniel or others may have some comments here too as well, David, but I'd just say, you know, the big picture focus is, continues to be, to have a lot of, you know, discipline on the expense side. I think we have additional opportunities on the expense side. We're very pleased with the, you know, the results from ongoing expense initiatives, but you hit on a theme that's really important that we always try to reinforce, and that is that we are continuing to invest in the business. That means investing in people and systems all across the board.

Jay Brogdon: Big picture, I'll jump in on that one again, and if Father Daniel or others may have some comments here too, as well as David, but I'd just say, you know, the big picture focus continues to be to have a lot of, you know, discipline on the expense side. I think we have additional opportunities on the expense side. We're very pleased with the, you know, the results from ongoing expense initiatives.

Speaker Change: Big picture, I'll jump in on that one again, and Bob or Daniel or others may have some comments here too as well, David, but I'd just say, you know, the big picture focus is

Speaker Change: continues to have a lot of discipline on the expense side. I think we have additional opportunities.

Speaker Change: On the expense side, we're very pleased with the results from ongoing expense initiatives.

Jay Brogdon: But you hit on a theme that's really important that we always try to reinforce, and that is that we are continuing to invest in the business. That's that's been in people and systems all across the board. We have had a really good, you know, past year at least in terms of what I'd call the talent upgrade category. Very pleased with the talent that we're attracting to the bank. Some of the initiatives that we have going on, you know, include evaluating current systems and new systems, but really the overall, the overall mindset that we have adopted is to try to fund, you know, as much, if not all, of those investments as possible.

Speaker Change: But you hit on a theme that's really important that we always try to reinforce, and that is that we are continuing to invest in the business.

James M. Brogdon: We have had a really good past year, at least in terms of what I'd kind of call the talent upgrade category. Very pleased with the talent that we're attracting to the bank. Some of the initiatives that we have going on include evaluating current systems and new systems, but really, the overall mindset that we have adopted is to try to fund as much, if not all, of those investments as possible, and thus far, we have been successful in doing that.

Speaker Change: That's been in people, in systems, all across the board. We have had a really good past year, at least, in terms of what I'd kind of call the talent upgrade category. Very pleased with the talent that we're attracting to the bank.

Speaker Change: Some of the initiatives that we have going on.

Speaker Change: You know, include evaluating current systems and new systems, but really the overall mindset that we have adopted is to try to fund as much, if not all, of those investments as possible.

Jay Brogdon: And thus far, we have been successful in doing that. The inflationary environment, the wage inflation environment may not be quite as severe as it was a few quarters ago a year ago, but it's still, it's still pretty tough out there. And so I think for us to, you know, to produce the results that we have thus far in the face of that is, you know, is a compelling piece of the story. The last thing I'd say to it is just that, you know, the same way that we, you know, have looked at initiatives going back a year plus ago.

James M. Brogdon: The inflationary environment, the wage inflation environment, may not be quite as severe as it was a few quarters ago, a year ago, but it's still pretty tough out there, and so I think for us to, you know, produce the results that we have thus far in the face of that is, you know, a compelling piece of the story. The last thing I'd say about that is just that, you know, the same way that we, you know, have looked at initiatives going back a year plus ago, we're still doing that today.

Speaker Change: We have been successful in doing that. The inflationary environment, the wage inflation environment, may not be quite as severe as it was.

Speaker Change: A few quarters ago, a year ago, but it's still pretty tough out there. And so I think for us to produce the results that we have thus far in the face of that is a compelling piece of the story.

Speaker Change: The last thing I'd say to it

Speaker Change: is just that.

Speaker Change: You know, the same way that we, you know, have looked at initiatives going back a year plus ago, we're still doing that today. I mean, we're trying to identify other opportunities, we're, you know, we're taking a hard look at everything in the franchise from the branch network to, you know, the deep back areas of the bank and everything in between to identify where there are redundancies, where there are opportunities to, you know, better serve our customers, better serve our associates.

Jay Brogdon: We're still doing that today. I mean, we're trying to identify other opportunities. We're, you know, we're taking a hard look at everything in the franchise, from the branch network to, you know, the deep back areas of the bank and everything in between. To identify where there are redundancies, where there are opportunities to, you know, better serve customers, better serve associates in the most efficient and scalable way. And, and I think we'll continue to identify some opportunities as we do that.

James M. Brogdon: I mean, we're trying to identify other opportunities. We're, you know, taking a hard look at everything in the franchise from the branch network to, you know, the deep back areas of the bank and everything in between to identify where there are redundancies, where there are opportunities to, you know, better serve our customers, and better serve our associates in the most efficient and scalable way, and I think we'll continue to identify some opportunities as we do that.

Speaker Change: in the most efficient and scalable way, and I think we'll continue to identify some opportunities as we do that. You know, one point I want to make, David, is...

Daniel Hobbs: You know, one, one point I want to make, David, is it kind of gets lost out there, but if you remember back to last year, we did say, I think it was $18 million. We've targeted about 15, is what we thought. All of this through a Better Bank initiative. It's not being forced out there. One number I think is very important to look at is our head count size in that period of time when we started this Better Bank initiative. We, we're down 275 head count during that period of time in 8.5. This was not just layoffs.

Unknown Executive: You know, one point I want to make, David, is that it kind of gets lost out there, but if you remember back to last year, we did save $18 million. We targeted about 15 banks, that's what we thought. All of this through our Better Bank Initiative. It's not being forced out there.

Speaker Change: It kind of gets lost out there, but if you remember back to last year, we did save, I think it was $18 million, we targeted about $15 million is what we thought. All of this through our Better Bank Initiative, it's not being forced out there. One number I think is very important to look at is our headcount size in that period of time when we started this Better Bank Initiative. We're down 275 headcounted during that period of time and 8.5. This was not just layoffs, this was not, this was just...

Unknown Executive: One number I think is very important to look at is our headcount size in that period of time when we started this Better Bank Initiative. We're down 275 headcounts during that period of time and 8.5. This was not just layoffs. This was just becoming a better bank through the process after digesting some of our M&A. So I'm very proud of the team where we are, and as Jay said too, we're at a good point now. There will be more down the road. Not ready to say when or how much, but we're very encouraged with the progress thus far and more to come.

Daniel Hobbs: This was not; this was just becoming a better bank through the process after digesting some of our M&A. So, very proud of the team where we are there, and as Jay said, too, we're good point now.

Speaker Change: becoming a better bank through the process after digesting some of our M&A. So, very proud of the team where we are there, and as Jay said too, we're at a good point now. There will be more down the road. I'm not ready to say when or how much.

Daniel Hobbs: There will be more down the road, and not ready to say winner or how much. But we're very encouraged with the progress thus far, and more to come.

Jay: But we're very encouraged with the progress thus far and more to come.

Unknown Executive: And I'd maybe just say one final thing on that is, you know, at the end of every one of our executive council meetings, we say focus on the things that we can control. We can't control the rate environment.

Jay Brogdon: I'd maybe just say one final thing on that is, at the end of every one of our executive council meetings, we say focus on the things that we can control. We can't control the rate environment; there are other things we can't control, but the thing we can't control is expenses. And we are focused on that day in and day out; maybe just give you one example of where an investment is paying off.

Jay: Yeah, I'd maybe just say one final thing on that is...

Speaker Change: You know, at the end of every one of our executive council meetings, we say, focus on the things that we can control. We can't control the rate environment. You know, there are other things we can't control, but the thing we can control is expenses.

Unknown Executive: You know, there are other things we can't control, but the thing we can control is our expenses, and we are focused on that day in and day out. Maybe just give you one example of where an investment is paying off. You know, we never had a procurement department. We invested in a head of procurement, and we are looking at all of our contracts. And you know, we just renegotiated our largest vendor contract, and we have about an 8% savings on that.

Speaker Change: and we are focused on that day in and day out. Maybe just give you one example of where an investment is paying off.

Jay Brogdon: We never had a procurement department; we invested in a head of procurement, and we are looking at all of our contracts. We just renegotiated our largest vendor contract, and we have about 8% savings on that. Our second largest contract; we are in the process of renegotiating that. We expect to get some meaningful savings there, and then just going down the list.

Speaker Change: We never had a procurement department. We invested in a head of procurement, and we are looking at all of our contracts. We just renegotiated our largest vendor contract.

Unknown Executive: Our second largest contract; we are in the process of renegotiating that, and we expect to get some meaningful savings there. And then just going down the list, and so there are a lot of things that we're focused on. One is the retail network, and you know, that may be efficiency, and there are two sides of that. There's the investment side, and there's the cost-saving side. So you know, I think we've still got an opportunity, and we'll continue to focus on that.

Speaker Change: And we have about an 8% savings on that. Our second largest contract, we are in the process of renegotiating that. We expect to get some meaningful savings there. And then just going down the list.

Jay Brogdon: There are a lot of things that we are focused on, Jay mentioned, the retail network and that may be efficiency, and there are two sides of that. There is the investment side, and there is the cost saving side. I think we still have opportunity, and we will continue to focus on that.

Speaker Change: There's a lot of things that we're focused on. Jay mentioned the retail network, and that may be efficiency, and there's two sides of that. There's the investment side, and there's the cost-saving side. I think we've still got opportunity, and we'll continue to focus on that.

David Pipkin Feaster: That's great. Thanks for that color!

Unknown Executive: That's great. Thanks for that color.

David Garner: And then maybe switching gears to credit, you know, the issue is seeing primarily isolated to the runoff book, but I'm curious maybe you look at the overall portfolio, what you're seeing, what you're watching more closely, any thoughts on what drove the increase in classified. It looks like it might be CRE, but you know maybe just any thoughts on credit broadly and your approach to managing asset quality.

Jay: That's great.

Speaker Change: Thanks for that color. And then maybe switching gears to credit, you know, the issues seem primarily isolated to the runoff book, but I'm curious maybe, as you look at the overall portfolio, what you're seeing, what you're watching more closely, any thoughts on what drove the increase in classified? It looks like it might be CRE, but

David Pipkin Feaster: And then maybe switching gears to credit, you know, the issues seem primarily isolated to the runoff book. But I'm curious, maybe, as you look at the overall portfolio, what you're seeing, what you're watching more closely, any thoughts on what drove the increase in classified? It looks like it might be CRE, but, you know, maybe just any thoughts on credit broadly and your approach to managing asset quality?

Speaker Change: You know, maybe just any thoughts on credit broadly and your approach to managing asset quality.

Daniel Hobbs: Fortunately, David, I think your initial comment is exactly how we feel about it thus far. We've talked a lot about normalization credit; we're seeing that, but from a statistical or percentage basis, the overall majority of that for us is in a very isolated portion of the balance sheet, a small area of the balance sheet. We've identified that as kind of runoff portfolios; those have been in runoff for a period of time. But we're seeing some good success and working through that portfolio and continuing to, you know, focus on shortening the duration and working through those as very low loss rates.

James M. Brogdon: Fortunately, David, I think your initial comment is exactly how we feel about it thus far. We've talked a lot about normalization credit. We're seeing that, but from a statistical or percentage basis, the overwhelming majority of that for us is in a very isolated portion of the balance sheet, a small area of the balance sheet. We've identified that as kind of runoff portfolios. Those have been in runoff for a period of

Speaker Change: Fortunately, David, I think your initial comment is exactly how we feel about it thus far. We've talked a lot about normalization credit, we're seeing that, but from a statistical or percentage basis, the overwhelming majority of that for us is in a very isolated area.

Speaker Change: A portion of the balance sheet, a small area of the balance sheet, we've identified that as kind of runoff portfolios, those have been in runoff for a period of time.

James M. Brogdon: So we're seeing some good success in working through that portfolio and continuing to focus on shortening the duration and working through those at very low loss rates. When I look beyond that, you asked kind of what we are focused on. Man, we are searching high and low.

Speaker Change: But we're seeing some good success and, you know, working through that portfolio and continuing to, you know,

Speaker Change: folks on shortening the duration and working through those at very low loss rates.

Daniel Hobbs: When I look beyond that, you've asked kind of what are we focused on. Man, we are searching high and low; we are being proactive as we can to identify, you know, any kind of problem credits. That would of course include the significant focus just around, you know, stress on borrowers from a reprising point of view. You know, you've got maturity events, you've got loans that are reprising at a lot higher rates. Does that generate stress? So, you know, we've done a lot of deep dives in that scenario; we continue to do that. And that's not resulting in anything that's causing any kind of broad-based concern for us.

Speaker Change: When I look beyond that, you ask, kind of, what are we focused on?

James M. Brogdon: We are being as proactive as we can to identify any kind of problem credits. That would, of course, include the significant focus just around stress on borrowers from a repricing point of view. You've got maturity events. You've got loans that are repricing at a lot higher rates. Does that generate stress?

Speaker Change: Man, we are searching high and low. We are being as proactive as we can to identify.

Speaker Change: you know, any kind of problem credits, that would of course include the significant focus just around, you know, stress on on borrowers from a repricing point of view, you know, you got maturity events, you've got loans that are repricing at a lot higher rates, does that generate stress?

James M. Brogdon: So we've done a lot of deep dives into that scenario, and we will continue to do that. And that's not resulting in anything that's causing any kind of broad-based concern for us. And so we'll continue to be proactive there. There aren't any other sectors that we haven't identified previously or put into that runoff portfolio that kind of stand out to us within our portfolio that we're particularly concerned about. And generally speaking, when I look at overall credit, including some kind of leading indicators, I like to focus on past dues.

Speaker Change: So, you know, we've done a lot of deep dives in that scenario, we continue to do that, and that's not resulting in anything that's causing any kind of broad-based concern for us. And so we'll continue to be proactive there.

Daniel Hobbs: And so we'll continue to be proactive there. There aren't any other sectors that we haven't, you know, identified previously or put into that runoff portfolio that kind of stand out as us within our portfolio that we're particularly concerned about. And generally speaking, when I look at overall credit, including some kind of leading indicators, I like to focus on past dues. You know, even on a link quarter basis, we have pretty positive trends from a credit perspective this quarter. So we're very, you know, conservative as we think about the macroeconomic environment. There's a lot of uncertainty in the marketplace.

Speaker Change: There aren't any other sectors that we haven't, you know, identified previously or put into that runoff portfolio that kind of stand out at us.

Speaker Change: Within our portfolio that we're

Speaker Change: You know, particularly concerned about, and generally speaking, when I look at overall credit, including some kind of the leading indicators, I like to focus on past dues.

James M. Brogdon: Even on a linked quarter basis, we have pretty positive trends from a credit perspective this quarter. So we're very conservative as we think about the macroeconomic environment. There's a lot of uncertainty in the marketplace, but at the same time, we feel pretty good right now about where we are from a credit perspective.

Speaker Change: You know, even on a linked quarter basis, we have pretty positive trends from a credit perspective this quarter. So we're very, you know, conservative as we think about the macroeconomic environment. There's a lot of uncertainty in the marketplace, but at the same time, we feel pretty good right now about where we are from a credit perspective.

Daniel Hobbs: But at the same time, we feel pretty good right now about where we are from a credit perspective.

Unknown Executive: That's great.

David Pipkin Feaster: That's great. And maybe, switching gears to capital, you've got a really strong balance sheet. You know, obviously, you're a proven acquirer commentary in the industries where conversations are picking up expectations are for more consolidation. I'm just curious, maybe how you expect to participate in that? I mean, we've talked in the past about focusing more on organic growth, but I'm curious about your appetite for a deal and how activity is from your perspective, or any other capital priorities that maybe you have ahead of you.

David Garner: And maybe switching gears to capital, we've got a really strong balance sheet. You know, obviously you're a proven acquire commentary in the industries that conversations are picking up; expectations are for more consolidation.

Speaker Change: That's great. And maybe switching gears to capital, you've got a really strong balance sheet. Obviously you're a proven acquirer. Commentary in the industry is that conversations are picking up, expectations are for more consolidation.

Daniel Hobbs: I'm just curious, maybe, how do you expect to participate in that? I mean, we've talked in the past about focusing more on organic growth, but I'm curious your appetite through a deal and how activity is from your perspective or any other capital priorities that maybe you have ahead of it today?

Speaker Change: I'm just curious, maybe, how do you expect to participate in that? I mean, we've talked in the past about focusing more on organic growth, but I'm curious your appetite for a deal and how activity is from your perspective, or any other capital priorities that maybe you have ahead of M&A.

Unknown Executive: Well, David, I'll start off on that. I'll tell you, first off, our capital priorities, number one, would be our payment of dividends to shareholders and the long history we have of that. We then focus on our organic growth. As we've talked about through our Better Bank Initiative, we think we have a really good footprint to be able to grow organically, especially as rates hopefully moderate at some point, and that brings some of our borrowers back into the line.

Daniel Hobbs: Well, David, I'll start off on that. I would, I'd say, first off our capital priorities number one would be in our payment of dividends to shareholders, the long history we have of that. We then focused on our organic growth, as we've talked about through our better bank initiative. We think we have a really good footprint to be able to grow organically, especially as rates hopefully moderate at some point and that brings some of our borrowers back into the line. So we think there's a lot of opportunity there. The other is we talked about with wood earlier is on our measured balance sheet optimization.

Speaker Change: Well, David, I'll start off on that. I'd tell you, first off, our capital priorities, number one, would be in our payment of dividends to shareholders, the long history we have of that. We then focus on our organic growth. As we've talked about through our Better Bank Initiative, we think we have a really good footprint.

Speaker Change: to be able to grow organically, especially as rates hopefully moderate at some point, and that brings some of our borrowers back into the line. So we think there's a lot of opportunity there. The other is we talked about with wood earlier is on our measured balance sheet optimization. That's a piece of it that we would use if the timing is appropriate.

Unknown Executive: So we think there's a lot of opportunity there. The other thing we talked about with Wood earlier is our measured balance sheet optimization. That's a piece of it that we would use if the timing is appropriate. Outside of that, there are other priorities, and it would just be measured over time.

Daniel Hobbs: That's a piece of it that we would use if the timing is appropriate.

Unknown Executive: We look at stock buybacks in that mix. We think there are better opportunities to use our capital right now than for stock buybacks, so that's on the lower end of our priorities. As we've talked about a lot right now on the M&A side, it's the lower end of our priority list. As we've talked about, we sat around a room in 2022, George, Jay, and I, and said, this is really a time to really focus on our bank and becoming a better bank and making all the acquisitions we put together and really focus on that. So that doesn't mean we say we're not going to do M&A at some point down the road, but that's right now not in our focus of our strategy at the current time. Doubtful. Thanks, everybody.

Daniel Hobbs: Outside of that, there are other priorities, and it would just be measured over time. We'd look at stock buybacks in that mix. We're really, we think there's better opportunities to use our capital right now than stock buybacks. So that's on the lower end of our priorities. And as we've talked a lot right now on the M&A side, it's a lower end on our priority.

Speaker Change: Outside of that, there are other priorities and it would just be measured over time. We'd look at stock buybacks in that mix. We're really, we think there's better opportunities to use our capital right now than stock buybacks. So that's on the lower end of our priorities. And as we've talked about a lot right now on the M&A side.

Daniel Hobbs: We really, as we talked about, sat around the room in 2022. George, Jay, and I said, you know, this is really a time to really focus on our bank and become a better bank and put in all the acquisitions we put together and really focus on that. So that doesn't mean we say we're not going to do M&A at some point down the road, but that's right now not in our focus of our strategy at the current time.

Speaker Change: You know, it's a lower end on our priority. We really, as we talked about, we sat around a room in 2022, George,

Jay: Jay and I said, you know, this is really a time to really focus on our bank and becoming a better bank and putting all the acquisitions we put together and really focus on that. So that doesn't mean we say we're not going to do M&A at some point down the road, but that's right now, not in our focus of our strategy at the current time.

Unknown Executive: Don't fall. Thanks, everybody.

David Pipkin Feaster: Thanks, everybody.

Unknown Executive: Thanks, David. Thank you.

Jay: Thanks, everybody.

David Pipkin Feaster: Thanks, David.

Matthew Olney: The next question is from the line of the match already from Stephen's Free School head. Good morning. Thanks, take in the question.

Operator: This question is from the line of Matt Olney. Good morning.

David Pipkin Feaster: Thank you.

Speaker Change: The next question is from the line of Matt Olney from Stephen.

Matthew Covington Olney: Thanks for taking the question. Daniel already mentioned a good summary of the deposit strategy and seeing pricing pressure ease there. What about on the borrowing side? I think we did see a big step up in the borrowing position in 2Q, especially at the end of the quarter. What's the overall strategy for funding for the back half of the year? Are we going to continue to see borrowings and securities cash flow?

Speaker Change: Please go ahead.

Matthew Covington Olney: Good morning, thanks for taking the question. Daniel already mentioned a good summary of the...

Matthew Olney: Daniel already mentioned a good summary of the deposit strategy, and, you know, seeing pricing pressure is there.

Speaker Change: Deposit Strategy and seeing pricing pressure ease there.

Matthew Olney: What about on the borrowing side? I think we did see a big step up in the borrowing position in 2Q, especially at the end of the period into the quarter.

Matthew Covington Olney: What about on the borrowing side? I think we did see a big step up in the borrowing position in 2Q, especially...

Daniel Hobbs: What's the overall strategy for funding for the back half the year? Are we going to continue to see borrowings and then increase cash flow, just any color there?

Speaker Change: At the end of the period, end of the quarter, what's the overall strategy for funding for the back half of the year? Are we going to continue to see...

Matthew Covington Olney: Yeah, Matt, I think, as much as anything, I really think the way to think about ending balance is just timing. I think, really, when you look at period over period ending balances, there's probably just some timing noise in there.

Speaker Change: Borrowings, and then Securities Cash Flow, just any color there.

Daniel Hobbs: Yeah, Matt. I think, as much as anything, I really think the way to think about ending balances is just, it's just timing. I think really when you look at period over period ending balances, there's prices and timing the weeds in there. We're opportunistic in how we think about wholesale funding generally, right? And so, and that the overall priority for wholesale funding is to reduce it. Whether it's an FHLB advance or a broker CD or anything else out there, you'll see us be opportunistic in and out of that. You'll have some timing; it might relate to some public funds or other things, but really the strategy is just to be as efficient as possible in and out of the wholesale funding.

Speaker Change: Yeah, Matt, I think, as much as anything, I really think the way to think about ending balance is just timing. I think, really, when you look at period over period ending balances, there's probably just some timing noise in there.

James M. Brogdon: We're opportunistic in how we think about wholesale funding, generally, right? And so, the overall priority for wholesale funding is to reduce it, whether it's an FHLB advance or a brokered CD or anything else out there, but you'll see us be opportunistic in and out of that. You'll have some timing as it might relate to some public funds or other things, but really, the strategy is just to be as efficient as possible in and out of wholesale funding in terms of kind of protecting net interest income and net interest margin in that area.

Speaker Change: We're opportunistic in how we think about wholesale funding generally, right, and so the overall priority for wholesale funding is to reduce it, whether it's an FHLB advance or a brokered CD or anything else out there, but you'll see us be opportunistic in and out of that. You'll have some timing as it might relate to some public funds or other things, but really the strategy is just to be as efficient as possible in and out of the wholesale funding.

Daniel Hobbs: In terms of kind of protecting that interest income and that, of course, margin in that area.

Speaker Change: in terms of kind of protecting net interest income and net interest margin in that area. Stepping back more broadly, just what I would want to focus on, Daniel touched on it earlier, but you know, we're really, really focused on driving core customer accounts. And, you know, the

Jay Brogdon: Stepping back more broadly, just as what I would want to focus on, Daniel touched on it earlier, but we're really, really focused on driving core customer accounts and the factors that are driving deposits, whether you want to think about quantitative tightening, whether you want to think about inflation, and the impact that has on average balances, or consumer customers, etc. Those go into those categories that we don't control, but what we do control is sort of maximizing our retail network. Deepening relationships in the, you know, in the commercial areas of the bank, with commercial treasury management and other products, that's really the primary focus that we have now in going forward.

James M. Brogdon: Stepping back more broadly, just what I would want to focus on, Daniel touched on it earlier, but we're really, really focused on driving core customer accounts and the factors that are driving deposits. Whether you want to think about quantitative tightening, whether you want to think about inflation and the impact that has on average balances of our consumer customers, et cetera, those go into those categories that we don't control, but what we do control is That's really the primary focus that we have now and going forward.

Daniel: The factors that are driving deposits, whether you want to think about...

Speaker Change: quantitative tightening, whether you want to think about inflation and the impact that has on average balances of our consumer customers, etc.

Daniel: Those go into those categories that we don't control, but what we do control is sort of maximizing our retail network.

Daniel: Deepening relationships in the commercial areas of the bank with commercial treasury management and other products. That's really the primary focus that we have now and going forward.

Matthew Covington Olney: Okay, appreciate that. Let me ask you maybe the same topic, just a different way, on the... Securities portfolio, you've been allowing that to contract and kind of allowing that to fund some of the loan growth of the last quarter or two. And I think you disclosed $120 million of expected cash flows per quarter over next year. Can we just assume this continues to cash flow, and then that continues to fund the loan growth?

Matthew Olney: Okay, appreciate that.

Matthew Olney: Let me ask you; it may be the same topic, just a different way on the security portfolio. You've been allowing that to contract and kind of allow that to fund some of the long growth of the last quarter or two. And I think you disclosed $120 million expected cash flows per quarter over the next year. Can we just assume this continues to cash flow and then that continues to fund the long growth? Yes, yeah, I think that would be exactly the way to think about it. So our priorities would be funding long growth and reducing wholesale funding with any cash flow from the balance sheet, in that order.

Speaker Change: Okay, appreciate that. Let me ask you maybe the same topic, just a different way.

Speaker Change: Securities Portfolio, you've been allowing that to contract and kind of allow that to fund some of the loan growth of last...

Speaker Change: quarter two. And I think you you disclosed $120 million of expected cash flows per quarter over next year. Can we just assume this continues to cash flow and then that continues to fund the loan growth?

James M. Brogdon: Yes, yeah, I think that would be exactly the way to think about it. So, our priorities would be funding loan growth and reducing wholesale funding with any cash flow from the balance sheet in that order.

Speaker Change: Yes, yeah, I think that would be exactly the way to think about it.

Speaker Change: And our priorities would be funding loan growth and reducing wholesale funding with any cash flow from the balance sheet in that order.

Matthew Olney: Okay, perfect.

Matthew Covington Olney: Okay, perfect. Thanks for that. And then switching gears, you guys give a great disclosure on, I think it's page 26 on the unfunded commitments. And those continue to move, move lower. And we've talked about this now for a few quarters, as far as kind of, you know, why that is, just any color on where you expect this to ultimately land in the next few quarters. Thanks.

Matthew Olney: Thanks for that.

Matthew Olney: And then switching gears, you guys give a great disclosure on, I think it's page 26 on the unfunded commitments, and those continue to move lower. And we've talked about this now for a few quarters as far as kind of, you know, why that is.

Speaker Change: Okay, perfect. Thanks for that.

Speaker Change: And then switching gears, you guys give a great disclosure on, I think it's page 26.

Speaker Change: on the unfunded commitments and those continue to move lower. And we've talked about this now for a few quarters as far as kind of, you know, why that is. Just any color on where you expect this to ultimately land over the next few quarters? Thanks.

Matthew Olney: Just any color on where you expect this to ultimately land of next few quarters. Thanks.

Matthew Covington Olney: Matt, are you, just to clarify, are you asking about where we'd land from an unfunded commitment level point of view? Matt, are you, just to clarify, are you asking about where we'd land on an unfunded commitment?

Daniel Hobbs: Matt, are you just to clarify, are you asking about where we'd land from an unfunded commitment level point of view? Correct, correct. Yeah, I'd say, you know, given where our pipeline is, and I think Daniel used the phrase earlier, sort of more tepid outlook from a loan growth perspective. You know, I think that it's going to be unfunded commitments, kind of have a floor in them somewhere in there. We have that floor now, you know; probably not, but we're getting closer to it. And the reason I say that is a lot of those unfunded commitments are, you know, lines of credit with commercial borrowers, et cetera, that we wouldn't expect necessarily to fund up.

Speaker Change: Matt, are you, just to clarify, are you asking about where we'd land from an unfunded commitment level point of view? Correct, correct.

Matthew Covington Olney: Correct. Correct.

James M. Brogdon: Yeah, I'd say, you know, Given where our pipeline is, and I think Daniel used the phrase earlier, sort of a more tepid outlook from a loan growth perspective, I think that unfunded commitments kind of have a floor in them somewhere. Are we at that floor now? Probably not, but we're getting closer to it.

Speaker Change: Yeah, I'd say, you know,

Speaker Change: Given where our pipeline is, and I think Daniel used the phrase earlier, sort of more tepid outlook from a loan growth perspective.

Speaker Change: I think that it's going to be, unfunded commitments kind of have a floor in them somewhere in there. Are we at that floor now? Probably not, but we're getting closer to it. And the reason I say that is a lot of those unfunded commitments are...

Matthew Covington Olney: The reason I say that is a lot of those unfunded commitments are lines of credit with commercial borrowers, et cetera, that we wouldn't necessarily expect to fund. If there's a trend out there among borrowers right now, it's that they kind of have a lot of the similar conservatism that we have, whether it's patient for lower rates or just fortressing up the balance sheet. You see more trends on the commercial side of paying off their lines of credit and their borrowings to the extent that they have excess cash laying around in the bank or elsewhere.

Speaker Change: You know, a lot of credits with commercial borrowers, et cetera, that we wouldn't expect necessarily to fund up. If there's a trend out there among borrowers right now, it's that...

Daniel Hobbs: If there's a trend out there among borrowers right now, it's that they've kind of got a lot of a lot of similar conservatism that we have, whether it's patient for lower rates, or just, you know, forcing up the balance sheet. You see more trends on the commercial side of paying off their plons of credit and their borrowings to the extent they have excess cash laying around in the bank or elsewhere. And so, you know, as I look at some of that, I think you're going to have a floor in unfunded commitments. When I look at our pipeline, you know, and I look at what I expect in terms of normal course and healthy pay downs of loans that fund up, go to the permanent market, et cetera.

Speaker Change: They've kind of got a lot of similar conservatism that we have, whether it's patient for lower rates or...

Speaker Change: Just, you know, fortressing up the balance sheet, you see more trends on the commercial side of...

Speaker Change: [inaudible]

Matthew Covington Olney: As I look at some of that, I think you're going to have a floor in unfunded commitments. When I look at our pipeline and I look at what I expect in terms of normal course and healthy paydowns of loans that fund up, go to the permanent market, et cetera, it's going to be difficult to see, in this current environment, unfunded commitments sort of spike up from here. Okay, that makes sense.

Speaker Change: You know, and I look at what I expect in terms of normal course and healthy paydowns of loans that fund up, go to the permanent market, etc.

Matthew Olney: You know, it's going to be difficult to see in this current environment; unfunded commitments sort of spike up from here. But I don't expect them to just, you know, go to Z-row, right, because of the Don Amex I just described. Okay, that makes sense.

Speaker Change: It's going to be difficult to see, in this current environment, unfunded commitments sort of spike up from here. But I don't expect them to just go to zero, right, because of the dynamics I just described.

Unknown Executive: All right, thanks, guys. Thank you.

Speaker Change: Okay, that makes sense.

Speaker Change: Alright, thanks guys. Thank you.

Gary Tenner: The next question is from the line of Gary Denner from D. A. Davidson.

Operator: The next question is from the line of Gary Tenner from D.A. Davidson. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Gary Tenner from D.A. Davidson. Please go ahead.

Gary Tenner: Please go ahead. Thanks. Good morning.

Gary Peter Tenner: Thanks. Good morning. I have to call a few minutes late. Hey, I have to call a few minutes late, and you just mentioned a previous comment, I think, around the more accepted long growth outlook. I just wonder if you could revisit that for a second and then maybe talk about that relative to what's been a pretty stable pipeline, you know, on that kind of growing over the course of the last several quarters, obviously below where it had been in the more distant past, but maybe just kind of juxtapose those two thoughts.

Gary Tenner: I have to call a few minutes.

Jay Brogdon: Hey, I have to call a few minutes late, and you just mentioned a previous kind of thing around the more technical growth outlook. I just wonder if you could revisit that for a second, and then maybe talk about that relative to what's been a pretty stable pipeline, you know, on that kind of growing over the course of less several quarters, obviously below where it had been in a more distant past. But maybe just kind of to present those two, you know. Yeah, I think what I would add is color there, Gary, is, you know, I think more from a long growth kind of aspiration or normal environment point of view.

Gary Peter Tenner: Thanks, good morning.

Gary Peter Tenner: I hope I can call a few minutes, hey, I hope I can call a few minutes late and you just mentioned a previous comment I think around the more accepted loan growth outlook. I just wonder if you could revisit that for a second and then maybe talk about that relative to what's been a pretty stable pipeline.

Speaker Change: On that kind of growing over the course of the last several quarters, obviously below where it had been in the more distant past, but maybe just kind of juxtapose those two thoughts.

James M. Brogdon: Yeah, I think what I would add is some color there, Gary. I think we're from a long growth kind of aspiration or normal environment point of view; I think we'd be a lot closer to double digit long growth, you know, aspirations for a healthy macro environment. Our outlook for the year from the beginning of the year this year was low single digit. I think that was at the beginning of the year and all the way back in January, just an acknowledgment that this isn't that kind of environment.

Speaker Change: Yeah, I think what I would add as color there, Gary, is, you know, I think more from a

Gary Peter Tenner: I think we'd be a lot closer to double-digit loan growth aspirations for a healthy macro environment. Our outlook for the year, from the beginning of the year this year, was low single digits.

Jay Brogdon: I think we'd be a lot closer to double digit long growth, you know, aspirations for the healthy macro environment or outlook for the year. From the beginning of the year, this year was low single digits. I think that was at the beginning of the year and all the way back in January, just an acknowledgement that this isn't that kind of environment. And we're seeing that play out, you know, through the first half of the year. We are seeing that lower single digit type of growth, and we're pleased with that in this environment. I just think that as we continue to look out there, I look at maturities across the portfolio, expected pay downs, expected cash flows or flows to come in from the permanent market for some of the projects that our borrowers are working on, et cetera.

Gary Peter Tenner: I think that was at the beginning of the year and all the way back in January , just an acknowledgment that this isn't that kind of environment, and we're seeing that play out.

James M. Brogdon: And we're seeing that play out, you know, through the first half of the year. We are seeing that lower single-digit type of growth, and we're pleased with that in this environment. I just think that as we continue to look out there, I look at maturities across the portfolio, expected paydowns, expected cash flows or flows to come in from the permanent market for some of the projects that our borrowers are working on, etc., we'll need to see an uptick in those pipelines to maintain a good kind of healthy single-digit level of loan growth.

Gary Peter Tenner: You know, through the first half of the year, we are seeing that lower single-digit type of growth, and we're pleased with that in this environment. I just think that as we continue to look out there, I look at maturities across the portfolio, expected paydowns, expected cash flows or flows to come in from the permanent market for some of the projects that our borrowers are working on, et cetera.

Jay Brogdon: You know, we'll need to see an uptick in those pipelines to maintain a good kind of healthy single-digit level of long growth. I'm not, as I sit here today, I'm not calling necessarily for loans to start declining or anything like that. I just think that this rate environment, which is really, really recently shifted back to kind of a rate down theme. You know, most of the second quarter was a rate up theme. And our borrowers were, I think, just broadly demand is impacted in that rate up theme scenario. And so we're just, we're just keeping a pretty cautious outlook.

Gary Peter Tenner: You know, we'll need to see an uptick in those pipelines.

Gary Peter Tenner: to maintain a good kind of healthy single digit level of loan growth. I'm not as I sit here today, I'm not calling necessarily for loans to start declining or anything like that. I just think that this rate environment, which is really, really recently shifted back to kind of a rates down theme, you know, most of the second quarter was a rate up thing. And our borrowers were

James M. Brogdon: As I sit here today, I'm not necessarily calling for loans to start declining or anything like that. I just think that this rate environment, which has really, really recently shifted back to kind of a rates-down theme. You know, most of the second quarter was a rates-up theme, and our borrowers were, I think just broadly, demand is impacted in that rates-up theme scenario. And so we're just keeping a pretty cautious outlook as it relates to loan growth.

Gary Peter Tenner: And I think just broadly, demand is impacted in that rates-up theme scenario. And so we're just keeping a pretty cautious outlook as it relates to loan growth.

Jay Brogdon: As it relates to loan growth, you guys continue to hear us say it. Daniel said this earlier in the call, we're not going to sacrifice our standards around, you know, credit or soundness, nor our standards around profitability to chase loan growth right now. And so all of those things come together and influence our outlook from a demand point of view.

James M. Brogdon: You guys continue to hear us say it. Daniel said this earlier in the call. We're not going to sacrifice our standards around, you know, credit or soundness, nor our standards around profitability to chase loan growth right now. And so all of those things come together and influence our outlook from a demand point of view.

Gary Peter Tenner: You guys continue to hear us say it, Daniel said this earlier in the call, we're not going to sacrifice our standards around credit or soundness, nor our standards around profitability to chase loan growth right now. And so all of those things come together and influence our outlook from a demand point of view.

Matthew Olney: You're going to appreciate the thoughts there. And then just as it relates to that pipeline slide, you know, kind of highlighted a 30 basis point increase in the rate on rate of close commercial loans.

Gary Peter Tenner: Great, I appreciate the thoughts there. And then just as it relates to that pipeline slide, you know, kind of highlighted a 30 basis point increase in the rate on ready-to-close commercial loans. Is that a pretty healthy mix based on that rate of fixed employing loans at this point? It is, it's, there's probably more focus on recent pipeline activity.

Speaker Change: Great, I appreciate the thoughts there. And then, just as it relates to that pipeline slide, you know, kind of highlighted the 30 basis point increase and the rate on ready-to-close commercial loans. Is that a pretty healthy mix based on that rate of fixed-employment loans at this point?

Matthew Olney: Is that a pretty healthy mix based on that rate of fixed and floating loans at this point? It is. It's a, you know, there's probably more, more focus in recent pipeline activity, the last few quarters around floating relative to where, you know, variable rate loan hours of percentage of the total mix today.

James M. Brogdon: It is. It's probably more focus in recent pipeline activity in the last few quarters around floating relative to where, you know, variable rate loans are as a percentage of the total mix today, but it is, it's definitely a good mix of both. We're seeing some opportunities. We've been focused even on some opportunities in the, you know, with some loans that generate some swap fees and have had some success there. But again, all of that's just a function of the overall and total demand that's out there in the marketplace.

Speaker Change: It is. It's a, you know, there's probably more, more focus in recent pipeline activity the last few quarters around floating relative to where, you know, variable rate loans are as a percentage of the total mix today. But it is, it's definitely a good mix of both.

Matthew Olney: But it is; it's definitely a good mix of both. We're seeing some opportunities. We've been focused even on some opportunities in the, you know, with some loans that generate some swap fees and have had some success there. But again, all of that's just a function of the overall and total demand that's out there in the marketplace.

Speaker Change: We're seeing some opportunities. We've been focused even on some opportunities in the, you know, with some loans that generate some swap fees and have had some success there. But again, all of that's just a function of the overall and total demand that's out there in the marketplace.

Unknown Executive: Thank you.

Unknown Executive: You bet. Thank you.

Speaker Change: Thank you. You bet.

George Makris: Ladies and gentlemen, this concludes our question-and-answer session.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen,

George A. Makris: Question and Answer Session. I would like to turn the conference back over to George Makris for any closing comments.

Speaker Change: This concludes.

George Makris: I would like to turn the conference back over to George McGrath for any closing comments.

Speaker Change: Question and Answer Session

Speaker Change: I would like to turn the conference back over to George Makris for any closing comments.

George Makris: Good morning. I'd like to start my comments by recognizing Daniel, Ed, Jay, Bob, and team for the information that they put together each quarter on our bank, and you haven't looked at it. I would encourage you to go to our website at Simmonsbank.com under the Invest Relations tab. A lot of great information about Simmons Bank and our performance, and what I think it really points out is a stable condition of the bank, which is traditional here. We continue to be pleased with our solid all-around performance. We are encouraged by favorable economic data, which seems to indicate future interest rate reductions and eventually return to a nuclear aid environment, which will be conducive to our long-gain strategy.

George A. Makris: Good morning. I'd like to start my comments by recognizing Daniel, Ed, Jay, Bob, and the team for the information that they put together each quarter on our bank. And if you haven't looked at it, I would encourage you to go to our website at SimmonsBank.com under the Investor Relations tab. There is a lot of great information about Simmons Bank and our performance. And what I think it really points out is a stable condition of the bank, which is traditional fear.

George A. Makris: Good morning. I'd like to start my comments by recognizing Daniel, Ed, Jay, Bob, and the team for the information that they put together each quarter on our bank. And if you haven't looked at it,

Speaker Change: I would encourage you to go to our website at SimmonsBank.com under the Investor Relations tab. A lot of great information about Simmons Bank and our performance.

George A. Makris: What I think it really points out is the stable condition of the bank, which is traditional here.

George A. Makris: You know, we continue to be pleased with our solid all-around performance. We are encouraged by favorable economic data that seems to indicate future interest rate reductions and eventually a return to a neutral rate environment, which will be conducive to our long-term strategy. However, in the meantime, we'll continue to be patient while focusing on fulfilling the needs of our customers and supporting the careers of our associates.

George A. Makris: You know, we continue to be pleased with our solid all-around performance.

George A. Makris: We are encouraged by favorable economic data, which seems to indicate future interest rate reductions and eventually a return to a neutral rate environment, which will be conducive to our long-game strategy.

George Makris: However, in the meantime, we'll continue to be patient while focusing on filming the needs of our customers, hence forwarding the careers of our customers.

George A. Makris: However, in the meantime, we'll continue to be patient while focusing on fulfilling the needs of our customers and supporting the careers of our associates. So thank you very much for joining us this morning, and have a great day.

George A. Makris: So, thank you very much for joining us this morning. Have a great day. Thank you.

George Makris: So, thank you very much for joining us this morning, and have a great day.

Operator: Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation.

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

Speaker Change: Thank you.

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

Operator: You may now disconnect. .

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