Simmons First National Corporation

Good day and thank you for standing by. Welcome to the Simmons First National Corporation's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ed Billick. Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining our third quarter earnings call. My name is Ed Billick, 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 on this conference call are in listen-only mode. A 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'd remind you that you should not place undue reliance on any forward-looking statement, as actual results could materially differ. from those projected 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, which 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 the company's earnings press release and third 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 third quarter 2021 earnings call. Simmons First National Corporation once again delivered solid results during the quarter, reflecting our ability to execute basic blocking and tackling fundamentals. Equally important, they demonstrate our continued focus on strategically navigating the current economic environment, without losing focus on our goal of creating long-term value for our shareholders. It goes without saying there are times, like now, when it's best to just take what the defense gives you rather than taking undue risks and stretching for short-term growth that ultimately creates future headwinds. Before I get to the numbers in the quarter, I'd like to spend a minute on our acquisitions of Landmark Community Bank and Triumph Bank. Shortly after the end of the quarter, we announced the closing and conversion of these banks, which means in approximately four months since the date we announced the signing of the definitive agreements, we were able to obtain all necessary regulatory approvals, shareholder approvals, close the transactions, and simultaneously complete systems conversion for both banks over Columbus Day weekend. So when they opened for business on October 12th, it was as Simmons Bank. Closing and converting a single bank is no small task, let alone two banks at the same time. To effectively complete this task took a Herculean effort and is truly a remarkable accomplishment by the Simmons associates who worked to make this happen, further proof of the outstanding team we've assembled here at Simmons. I'd also like to take this opportunity to welcome our new customers associates, and shareholders to the Simmons family. We're very glad to have you as part of our group. Now to the numbers for the quarter. Debt income for the quarter was $80.6 million, up $14.7 million, or 22%, compared to the third quarter a year ago. Deleted earnings per share were 74 cents, up 23% from the year-ago quarter. Core earnings for the quarter which excludes certain non-core items, were $79.4 million, or 73 cents, on a diluted per share basis. On a year-to-date basis, net income for the first nine months of 2021 was $223 million, up 10% from the same period a year ago, and on a diluted per share basis totaled $2.05, representing a 12% increase compared to the same period a year ago. In terms of key performance metrics during the quarter, return on average assets was 1.37%, return on average common equity was 10.42%, and return on average tangible common equity was 17.43%. Net interest income for the quarter on a fully taxable equivalent basis totaled $150.2 million compared to $151.1 million for the second quarter of 2021. Net interest margin in the quarter was 2.85%, down four basis points on a linked quarter basis. On a positive note, the yield on loans rose three basis points on a linked quarter basis, and we continue to have success in managing down our deposit costs, with total costs of deposits dropping four basis points during the quarter to 20 basis points. On a core basis, which excludes accretion, net interest income on a fully taxable equivalent basis totaled $146.1 million for the quarter, up from the $145.5 million reported in the second quarter of 2021. Non-interest income totaled $48.6 million for the third quarter of 2021, up 3% link quarter. Core non-interest income was $48.8 million, up 5% on a link quarter basis. Non-interest expense totaled $114.3 million for the quarter, flat on a link quarter basis and down 2% compared to a year ago. As previously announced, during the quarter we closed 13 branches across the franchise as part of our ongoing branch rationalization initiative. With the closing of Landmark and Triumph Bank acquisitions, there will be additional opportunities to right-size our branch structure in the Memphis and Nashville markets, which includes in certain cases the addition of new branches to better position us geographically while expanding our reach and allowing us to better serve our customers in terms of convenience. We continue to be steadfast in maintaining a strong credit culture, a cornerstone of our bank. Non-performing loans total $59.4 million, down $21.5 million on a linked quarter basis. This was the fourth consecutive quarter of marked improvement with non-performing loans now at their lowest levels since December of 2018. Debt charge-offs as a percentage of average total loans were 17 basis points in the quarter, heavily influenced by the partial charge-off of a single commercial credit. These positive trends, combined with improved economic modeling scenarios, resulted in a recapture of provision expense in the quarter totaling 19.9 million dollars, At the same time, all of our coverage ratios remain strong, with our allowance-to-loan ratio at 1.87% and our non-performing loan coverage ratio at 341%. With respect to the balance sheet, total assets ended the quarter at $23.2 billion, total loans were $10.8 billion, and total deposits were $18.1 billion. Loan production during the quarter was $1.5 billion, but was offset entirely by paydowns. On a positive note, our commercial loan pipeline rose for the fourth consecutive quarter to $1.5 billion, up 15% on a linked quarter basis. We're encouraged by this trend and other anecdotal evidence in the market that will translate into an increase in total loan. For this reason, amongst others, we're continuing to actively recruit loan producers across all business units throughout our franchise. Capital levels remain very strong and significantly above regulatory well-capitalized guidelines. Total risk-based capital was 17.4 percent, CET1 was 14.3 percent, and the leverage ratio was 9.1 percent. Importantly, these ratios also reflect increased activity under our share repurchase program authorized by our Board of Directors. During the quarter, we repurchased 1.8 million shares with remaining capacity under the program totaling approximately $98.5 million. As always, continuing to return excess capital to our shareholders in the form of share repurchases will be dependent upon market conditions and is part of our overall disciplined capital management process. On our website at SimmonsBank.com, we've shared an extensive presentation along with a press release and financial data which gives much more detail regarding our quarterly results and other important information about our company. In closing, we continue to be encouraged by our performance in 2021 while adapting to an ever-changing landscape and challenging economic environment. With the closing and conversions of Landmark and Triumph Bank behind us, we are working to ensure our new associates have the tools and resources in place to meet our customer needs, provide exceptional service, and capitalize on the growth opportunities afforded us in these markets. As we enter the final quarter of 2021, our focus remains on building on the positive momentum and finishing the year strong as we enter 2022. This concludes our prepared comments. I will now turn the line over to our operator and invite questions from our analysts and institutional investors. And thank you.