Simmons First National Corporation (NASDAQ:SFNC) Q3 2023 Earnings Call Transcript

Simmons First National Corporation (NASDAQ:SFNC) Q3 2023 Earnings Call Transcript October 24, 2023

Simmons First National Corporation beats earnings expectations. Reported EPS is $0.37, expectations were $0.34.

Operator: Good day and welcome to the Simmons First National Corporation Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ed Bilek. Please go ahead.

Ed Bilek: Good morning and welcome to Simmons First National Corporation’s Third Quarter 2023 Earnings Call. Joining me today are several members of our executive management team, including our Executive Chairman, George Makris; CEO, Bob Fehlman; and President and CFO, Jay Brogdon. Before we begin the Q&A, I would like to remind you that our third quarter earnings materials, including the press release and presentation deck are available on our website at simmonsbank.com under the Investor Relations tab. During today’s call, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections and outlook, including, among others, our outlook regarding future economic conditions, interest rates, lending and deposit activity, credit quality, liquidity and net interest margin.

These statements involve risks and uncertainties, and you should, therefore, not place undue reliance on any forward-looking statement as actual results could differ materially from those expressed in or implied by the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8-K 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 also 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. Operator, we’re ready to begin the Q&A session.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brady Gailey with KBW. Please go ahead.

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

Bob Fehlman: Good morning.

Jay Brogdon: Good morning, Brady.

Brady Gailey: Maybe if we can just start with credit quality. Your credit was still pretty clean, but there was a little bit of noise. You had a new $8 million commercial NPL and then the $10 million net charge-off from the nursing extended care loan. Maybe just a little extra color on what’s happening with those two loans?

Jay Brogdon: Hey, Brady. It’s Jay. I’ll jump in and let me kind of step back for a moment and describe some of the work we’ve done and our feelings around credit and then I’ll kind of home in on the credits you’ve asked about. But first I’d just say that we continue to feel very good about our overall credit picture. If you even go back to Q2, we did a deep dive on our office portfolio, no major changes coming out of that deep dive. And we continue to rotate through our portfolios, stressing for interest rates, stressing for any other type of activity that we see on a macro level or on a micro level with our own customers. And I’d say the results overall, when we look at any leading indicators or any of just our overall credit metrics continue to feel good to us and we have confidence in the quality of the portfolio.

We’ve talked a lot in Q3 about the deep dive on the nursing and extended care portfolio. That’s a sector that has had some difficulties going back to COVID ramifications, inflationary pressures, longer periods of time to reach stabilization, et cetera. It’s not a huge portfolio for us. It’s about a $300 million portfolio. But we wanted to get in there in the third quarter again and kind of deep dive that portfolio. The results of that bottom line at the end of the quarter, we have zero nonperformers in that portfolio, but we did go through the portfolio, identify one borrower, one project in particular that was not cash flowing for all the reasons I mentioned earlier. And we worked with the borrower, worked through some modifications that resulted in a $10 million or so charge-off for us on that credit.

That borrower, that project is now cash flowing. We feel very good about the modifications we’ve made to that loan. And again, overall, as it relates to that portfolio and the broader portfolio, I guess one more metric I’d give you on the nursing and extended care piece, in particular, at the conclusion of that deep dive, when we get to 9/30, we’ve got about a 4.9% reserve level on that portfolio. So again I feel like we were incredibly conservative which is true to our form, but very conservative in how we got in there and addressed that portfolio and feel good about it. Outside of that credit, when we look at other migrations within classifieds or nonperformers, there’s really nothing significant that I would call out. There’s some puts and takes in there.

We’ve had good results in working out some credits in there. We’ve got a few flowing in, but really nothing stands out other than just sort of normal course activity.

Brady Gailey: All right. That’s helpful. And then moving onto expenses. I know you guys have achieved the $50 million cost reduction plan. So if you look at core expenses in the quarter, they were around $130 million. So should we now think of expenses as flattish into the fourth quarter and into 2024 or will there be some creep? How do we think about the forward expense run rate?