Simmons First National Corporation

Hello, thank you for standing by and welcome to the Simmons First National Corporation second quarter earnings call and webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ed Billick. Please go ahead.

Good morning, and thank you for joining our second quarter earnings call. My name is Ed Billick, and I serve as Director of Investor Relations at Simmons First National Corporation. Joining me today are George Macris, Chairman and Chief Executive Officer, Bob Feldman, President and Chief Operating Officer, Jay Brogdon, Chief Financial Officer and Treasurer, Steve Massinelli, Chief Administrative Officer, Matt Redden, Chief Banking Officer, and David Gardner, Chief Accounting Officer. The purpose of our call is to discuss the information and data provided by the company in its quarterly earnings release issued this morning and to discuss the company's outlook for the remainder of 2021. We will begin with prepared comments followed by a Q&A session. We have invited institutional investors and analysts from the equity firms that provide research on the company to participate in the Q&A session. All other guests in this conference call are in listen-only mode. Recording of today's call, including our prepared remarks and the Q&A session, will be posted on our website, SimmonsBank.com, under the Investor Relations page for at least 60 days. During today's call, we will make forward-looking statements about our future plans, goals, expectations, estimates, projections, and outlook. I remind you that you should not place undue reliance on any forward-looking statement as actual results could differ materially from those projected in or implied by the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in the company's SEC filings, including, without limitation, the description of certain risk factors contained in the company's Form 10-K for the year ended December 31, 2020, and the forward-looking information section of the company's earnings release issued this morning. The company 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. Please note that the additional disclosures regarding non-GAAP metrics, including the reconciliations of these non-GAAP metrics to GAAP, are contained in the company's earnings press release and second quarter investor presentation, which are included as exhibits to the company's current report filed this morning with the SEC on Form 8K, and available on the investor relations page of the company's website, SimmonsBank.com. I will now turn the call over to George Makris.

Thanks, Ed, and welcome once again to our second quarter 2021 earnings call. Overall, we're very pleased with our results for the quarter as we delivered solid performance in multiple areas while continuing to navigate the challenging environment. That income for the quarter was $74.9 million, up $16.1 million, or 27 percent compared to the second quarter a year ago. Diluted earnings per share were 69 cents, up 28 percent from the year-ago quarter. Core earnings for the quarter, which excludes certain non-core items, were $75.4 million, or 69 cents on a per-share basis. In terms of key performance metrics, return on average assets was 1.3 percent, return on average common equity was 10.1 percent, and return on tangible common equity was 17.3 percent. That interest income for the quarter totaled $146.5 million, flat versus first quarter 2021 levels, as we were able to offset a 10 basis point decrease in our percent net interest margin by holding loan yields steady, continuing to actively manage deposit costs, and reinvesting excess cash into variable rate short-term securities. As a result of these actions, core net interest income, which excludes accretion, increased 1 percent on the lead quarter basis. Non-interest income totaled $47.9 million for the second quarter. Core non-interest income was $47.5 million, up 6% on a linked quarter basis. Expenses were well contained as total non-interest expense, both on a reported basis and on a core basis were up 1% from first quarter 2021 levels. Our efficiency ratio was 56.9%, an improvement of 50 basis points on a linked quarter basis. Credit quality trends over the past three quarters continued to show marked improvement as certain concerns during the pandemic failed to materialize. Non-performing loans totaled $80.9 million, down $34.6 million from first quarter 2021. In addition, during the quarter, we reported net recoveries of seven basis points. These positive trends combined with improved economic modeling scenarios resulting in a recapture of provision expense in the quarter totaling $13 million. At the same time, our allowance to loan ratio ended the quarter at 2%, up seven basis points on a linked quarter basis, and our non-performing loan coverage ratio stood at 281%. With respect to the balance sheet, total assets ended the quarter at $23.4 billion, Total loans were $11.4 billion, and total deposits were $18.3 billion. While the extensive stimulus programs provided support to those in need of assistance, high levels of liquidity also creates a challenge to the financial services industry in terms of loan growth, and we have not been immune. Total loan production during the first half of 2021 totaled $1.8 billion. putting us on pace to significantly exceed loan origination volume reported for the full year of 2020. While we would normally expect higher loan production volume to translate into an increase in total loans, that has not occurred as we continue to experience a higher than normal level of paydowns. On a positive note, our commercial loan pipeline rose for the third consecutive quarter to $1.3 billion, and deposit generation continues to be strong as total deposits increased $1.3 billion during the first half of 2021. Our capital remains very strong. Total risk-based capital was 17.5 percent, CET1 was 14.2 percent, and the leverage ratio was 9 percent. Given this strong position, our board of directors increased the authorization of and extended the timeline for our stock repurchase program, thus increasing our remaining capacity under the program to approximately $150 million. On our website at SimmonsBank.com, we share an extensive presentation along with press release and financial data, which gives much more detail regarding our quarterly results and other important information about our company. Finally, the second quarter also marked a return of M&A activity as we announced agreements to acquire two Tennessee-based financial institutions, Landmark Community Bank and Triumph Bank Shares, Inc. Both of these organizations are successful local community banking groups who share our philosophy of a strong credit culture, significant community involvement, and a passion for delivering excellent customer service. In addition to the cultural synergies These acquisitions highly complement our existing footprint in Tennessee and enhance our scale in two of our key growth markets, Memphis and Nashville, while creating the ninth largest bank in Tennessee. We're on target to complete these acquisitions during the fourth quarter, subject, of course, to satisfaction of closing conditions, including receipt of regulatory approval, and we look forward to welcoming these associates and customers to Simmons. While we're encouraged by our performance during the first half of 2021, we also recognize the backdrop of economic uncertainty as we navigate the second half of the year. As such, our focus remains on executing basic blocking and tackling fundamentals, taking care of our clients, and meeting the needs of the communities we serve. Our strategic plan has a number of initiatives designed to help us finish the year on a high note while placing us in position to continue to grow our bank in the future. Given the investments we have made to transform our company, coupled with the discipline and strong culture we have in place, we're confident in our ability to implement these initiatives while adapting to the ever-changing landscape. This concludes our prepared comments. I will now turn the line over to our operator and invite questions from our analysts and institutional investors.