Good morning, and welcome to the Simmons First National Corporation Second Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ed Bilek, Director of Investor Relations. Please go ahead. Edward J

Good morning, and welcome to Simmons First National Corporation's Second Quarter 2025 Earnings Call. Joining me today are several members of our executive management team, including Chairman and CEO, George Makris; President, Jay Brogdon; CFO, Daniel Hobbs; and Chief Operating Officer, Chris Van Steenberg. 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 risks and uncertainties, and you should therefore not place undue reliance on any forward-looking statements as actual results could differ materially from those expressed in or implied by the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8-K yesterday and our Form 10-K for the year ended December 31, 2024, 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 furnished as exhibits to the Form 8-K we filed yesterday 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.

[Operator Instructions] The first question comes from Woody Lay with KBW.

I wanted to start on guidance. And just looking through the slide deck, I didn't see the -- any guidance slide like that's been featured over the past couple of quarters. So I was just curious if any of your expectations for 2025 have changed for the back half relative to where we sort of started the year?

Yes. Woody, I appreciate the question. And I may just insert a reminder to you and everyone. Historically, we've really only provided guidance or outlook commentary in January each year, given sort of uncertainties around tariffs, the outlook for growth, some of the nonrecurring items in our first quarter that put noise in the numbers. We brought that back forward in our first quarter announcement. But I'd say, when you think about our outlook for our business, I think the trends in the quarter or this quarter sort of speak for themselves. We continue to be very, very pleased with the ongoing trends in our business. We have some performance targets that we've outlined with you and others before, and we're very ambitious in those targets. And I think the acceleration in our performance improvement and the pace of that improvement continues to exceed even our internal expectations. So I'd just say with that in turn, we're pretty confident and maybe as confident as ever about our ability to execute and execute toward achieving those target levels.

Yes, that's helpful. And yes, definitely, I mean, it looks like NII and expenses both beat it would only be positive from here. Maybe looking at the NIM, you sort of hit the 3% level ahead of schedule and kind of jumped over that line. Do you think there's room to continue to see expansion from here? And is there more juice to squeeze on the deposit base? Or would you expect deposit costs to be -- to sort of start stabilizing from here?

Yes. So let me just kind of describe, again, what we observed throughout the second quarter, and we'll talk about it maybe both ways that you posed it there. As I think about -- we'll talk about the asset side and then the deposit or liability side. I think on the asset side, we continue to primarily be a repricing story in terms of the performance that you're seeing and the expansion in the NIM. And I think there's still a lot of opportunity for us from that repricing dynamic point of view, particularly on the lower rate fixed-rate loan repricing that we have experienced over the past several quarters. And again, we continue to expect that. The thing that maybe gets a little bit overlooked is our loan pipeline and production continues to be strong. The headwinds to overall growth are -- some elevated level of paydowns, permanent market financings that we see out there, but also just are sticking to our pricing discipline. And so we're very willing to see lower growth rate in loans as we are maintaining that discipline around credit as well as that discipline around pricing. And we think that, that competitive market for loan pricing is one that's pretty high for what we're seeing in the industry right now. And so competition and loan pricing and our ability to sort of stick to our discipline is going to be a factor on the overall level of loan growth. But again, pipelines are strong and production is strong for us. So I think those factors come to play on the asset side of what's driving NII and NIM. On the flip side of the balance sheet, deposits is probably more primarily at this point, a remixing story. And we're seeing really -- we saw it in the second quarter, very good continued trends in terms of remixing from higher cost deposits to lower cost deposits. And there still is an element of a repricing story in there as well. But I think your question basically alluded to kind of how we feel about that repricing dynamic. I often say of late, the air is kind of coming out of that balloon, every day that goes by from the most recent Fed rate cut, there's less and less repricing opportunity. So we had some of that opportunity in the second quarter, particularly as we think about the kind of core customer base, and that's probably not as compelling. There still may be some opportunity there, but not as compelling as the reprice dynamics on the loan side of the balance sheet.

Yes. And Woody, this is Daniel. I'll maybe put a couple of finer points on that. On the loan yield side, kind of that pricing and remixing story, if you think about -- we talked about this before, but in that fixed rate book, our total book is about 46% fixed rate. Last quarter, it was 48.5%. Those fixed rate loans continue to reprice every quarter at near 100 -- excuse me, 200 basis point spread. That trend has been pretty consistent over the last couple of quarters. We would expect that trend to continue that plus or minus some basis points there, but we feel good that, that's going to continue for a period of time. And then just the remixing of the portfolio, the production we put on 75% variable production this quarter. Quarter before that, it was 80%. So you'll continue to see that remix towards variable and the spread between the fixed matured and the variable repricing is around 175 basis points. So both of those, we feel like that's a positive tailwind for us that will continue. And to Jay's point, on the funding side, that's probably going to be tougher and tougher as we move from here. Just one point on that. If you look at the CD schedule and our IP, you'll see that quarter view of the rate of the CDs that are maturing over the next couple of quarters is coming down. So that's where some of that repricing opportunity begins to fade in the next couple of quarters. We do expect some level of repricing, but maybe not the levels that we've seen historically.

Right. That's really helpful. And then maybe just last for me. As you noted, payoffs were a little bit of a headwind to growth this quarter. Just any expectation for the payoff outlook over the back half of the year?

We saw really elevated payoffs in Q1. Nothing that really exceeded our expectations in Q2. So I think it's just -- it's an environment where we're seeing good healthy paydowns, particularly on the construction side and permanent market activity. So I don't see anything on the outlook that is -- that really changes our thoughts around our expectations from a paydown environment point of view. But I think over the next couple of quarters, we would expect something consistent with the first half of the year, maybe not even at as high level as what we saw in the first half of the year from that perspective.

The next question comes from Gary Tenner with D.A. Davidson.

I want to ask a follow-up on kind of the pipeline, I guess. And with modestly lower than last quarter, but still well above where it was certainly a year ago and even at the end of 2024. I'm just curious about the dynamics kind of intra-quarter in terms of, a, the pull- through on the first quarter pipeline looks that like it was pretty good. Is the lower -- what would you attribute the lower pipeline to, given where we are today versus 3 months ago?

Yes, Gary, this is something that I believe I alluded to in our first quarter call. And at that point, it was probably more of a theory. At this point, I think it's something that more has proven itself out. And that is that we just -- we experienced some pull forward late in the first quarter. Again, I go back to a comment I made earlier. I think some of the tariff and other threats that were coming into the line of sight late in the first quarter, we had some opportunities where those opportunities were a little further baked and there was some pretty significant pull forward in the first quarter as it related to those items. And so I think when I -- I kind of almost adjust for that, even when I look at the slide in the IP, there's probably a more normal -- absent that pull through, a more normal kind of view when you go from fourth quarter to first quarter to second quarter if you imagine that acceleration of some of those opportunities. The other thing to keep in mind about our business is there is some seasonality, and we're having a tremendous amount of success in the agri area. And we've been doing that for over 120 years, and that's a sector that's not -- that has some headwinds to it for sure. We feel incredibly good about that industry from a credit perspective. We are very, very selective about how we think about that business, but it does have normal seasonality to it. And so you see some of that pipeline growth in the early parts of the year. And I think that's a piece of what you're seeing in the pipeline trends as well.

Great. Appreciate the thoughts on that. And then in terms of the comments about continuing to recruit and kind of open for business in terms of adding talent, which I don't know if you've said today, but you certainly have in the past. It seems like it's a very competitive environment for bringing on talent. I think in the past, you flagged Nashville, particularly as a market that it could be very competitive. What's the hiring environment look like right now? And certainly, in Texas, there's been a lot of recent merger announcements. So wondering what your thoughts are around potential opportunities there.

Yes, Gary, I really appreciate the question. Let me back up for a second and then kind of come back closer to the questions you're asking there. The first thing I want to say is we're pretty proud of what we've been able to do from an expense discipline point of view over the last few years, saw really, really good evidence of our continued progress there this quarter. And we don't think we're finished in terms of being able to do that. Daniel would say we're never going to be finished doing that, just that continuous improvement mindset. But at the same time, what I really want to underscore is we're making some significant investments in our business. And I would maybe broadly at a tactical level, think about those investments as talent and technology and really enabling the business through things like automation and just things that are driving both associate and customer experience, but really generating capacity in our business. And we're able to free up that capacity and the savings from those investments and a large part of the deployment of that is back into talent. And so we have been really pleased with kind of the upskilling, upgrading and attraction of talent as well as our sort of retention and investment in talent in our business. And so I'd say that the hiring environment has been very, very good. We feel like we've got a proven track record there at all levels of the business and in all areas of the business, from the back side to the front side and everywhere in between. And then my maybe bottom line comment would be when we think about our footprint and we think about, to your point in your question, the sort of disruption that even this week is being announced, our expectation is that, that disruption is nowhere near finished throughout our footprint. And we are very ambitious in pursuing a reputation in our marketplace of one where talent and customer opportunities from that dislocation that we're in a great place, a great landing spot for that. And again, we're seeing success there. I think the environment is only getting better.

The next question comes from Jordan Ghent with Stephens.

I just had a kind of a quick question, kind of going back to the loan growth. So it looks like your unfunded commitments have had a steady upward drive. And can we kind of interpret this as loan growth going into the back half of the year, maybe even to 2026 is setting up pretty nicely?

Yes. I think that's exactly the way to think about that, Jordan. And I would just -- one comment that we haven't made, you actually see it borne out not in the pipeline and unfunded commitment chart, but you see it in the quarterly sort of loan growth mix. There are still elements of CRE growth that you've seen historically make up those unfunded commitments. But we are seeing success at maybe at the most leading indicator in the pipeline of growing mix of C&I in our pipeline. We saw commercial activity kind of stand out relative to commercial real estate in the quarter in terms of production and growth. And we think that some of the ability to build C&I relationships will also be a factor there as we think about unused lines and lines with opcos that we'll have out there. So I think all of that points towards success of some of our strategic priorities as well as the ability to have some funded growth as we look to the coming quarters.

Perfect. And then maybe just kind of one follow-up, talking about that CRE kind of looks like classifieds, just ticked up a little bit this quarter. Is there any color you could provide on that?

Yes. There's nothing that stands out. We looked at those metrics very, very closely. And really nothing that stands out in kind of nonperformers, classifieds, past dues, charge-offs, all the metrics that we see are very indicative of all of our most recent quarters trends, but for the 2 large credits we talked about last quarter, sort of the underlying credit picture still feels, I think, stable and normalizing would be still good words for how we think about credit. And there's nothing that kind of stands out beyond that in our mind. And again, I go back to one of the numbers I focus on. Obviously, we look at what migrates in and out of NPLs, but we also pay a lot of attention to both classifieds and past dues and thinking of those as leading indicators and had very, very good trends in past dues on a linked-quarter basis. And even just the aggregate number is a very low number for us in that category. So I think that helps kind of paint the picture overall how we think about credit.

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

Well, thank you very much for joining us this quarter. I want to reiterate one thing that Jay said earlier, and that has to do with our talent. We are extremely proud of our team whose discipline is demonstrated in our results. We have exceptional employee engagement, folks who can and want to do more and it's our job to make sure that we give them the resources for them to be successful. So I just want to reiterate our position on talent acquisition and current talent that we have today. We're awfully encouraged by the momentum that we show going into the second half of the year. We're looking for continued profitability improvement going forward. I think that was clearly defined for you this morning by Daniel and Jay. So thank you very much for joining us this morning. Hope you have a great day and a great weekend.

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