Simmons First National (SFNC) Q3 2026 earnings call transcript

Good morning, and welcome to SIMMONS FIRST NATIONAL CORPORATION'S 3RD QUARTER 2026 EARNINGS CALL. Joining me today are several members of our executive management team, including President and CEO, Jay Brogdon, and CFO, Daniel Hobbs. Today's call will be in a Q&A format. Before we begin, I would like to remind you that our third 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 end interest margin. 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.

Additional information concerning some of these factors is contained in our earnings release and investor presentation furnished with our Form 8K yesterday, as well as our Form 10K for the year-ended December 31, 2025, and our Form 10Q for the quarter-ended June 30, 2026, including the risk factors contained in those filings. 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 8K 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.

Good morning. I'm a pretty significant decline on an end-of-period basis. Can you just talk about how much of this was selective on your side in terms of not chasing after certain deals and just what the go-forward looks like from here? Yeah, thanks, Gary. This is Jay.

Let me start, and what I'd really like to do is maybe just sort of step back as part of answering that question, remind you sort of where we've been, what we're committed to, and then we'll talk about sort of growth and fundamentals and dynamics as we move forward. I think if you look back over the past year even or year plus, you've seen a lot of expressions of our commitment to a few strategic objectives in the business. And if I were to really even just try to, in our most essential way, describe those strategic objectives, I think the first thing I'd say is that we're narrowing our focus on the type of growth that we pursue.

And within that focus, again, in its simplest form, it is around driving very high value, high margin business into the bank. We have a good amount of that business in our bank. We know what that looks like, and we want to be consistently in pursuit of that. What that ultimately means is there are going to be periods of time where the front book origination and mix is going to look somewhat different than the back book. That doesn't even necessarily mean new products or new types of loans in the front book. It just means that the quality of the relationship, the quality of the profitability, and the level of the profitability look very, very different. And so that would be kind of strategic objective number one that we have been very resolute and committed to.

The second thing is really just what I would kind of call what we often refer to as continuous improvement. And what I would put into that category is, you know, every single day when we come into the bank, we're thinking about how can we do things more efficiently? How can we deliver the growth of high-quality, high-margin business in a very efficient and scalable way?

And again, I think if you looked over the past year, you'd see a lot of evidence of that commitment and of those types of outcomes.

And so when I get into the third quarter and look back at the results that we're talking about today And even look forward to sort of where we're headed. You know, there's a couple of dynamics coming to play. One is that continued expression of that commitment. The second thing is really alongside of that commitment, as you sort of indicated, I think, in your question, Gary, there are a number of environmental factors that don't make me all that optimistic about, you know, quality and profitable.

And what I mean by that is we see risk spreads compressing very meaningfully in a number of instances. We don't think in those instances we have the opportunity to be paid for the risk that we see in some of those situations. So we see risk spreads being competed away, and then at the same time, what we see in our own business and what we see just, again, in the market is significant demand for wholesale funding of any kind. And brokered deposit costs, as an example, are meaningfully higher given the demand for that type of funding. And so if we think about the commitment of high-quality, high-margin business in that type of an environment, I think what you saw in the third quarter is just an expression of that commitment.

The other thing that you saw in the third quarter that I want to acknowledge is, you know, I think our level of paydowns, and this is just a factor of timing, sort of timing of cash flows, maturity walls, et cetera. We had extremely outsized maturities and pay downs in the third quarter. Good news is, and you see it in our return metrics, those were a lot of the lower rate, fixed rate loans that had been originated some five years ago that are maturing. And so we're not going to have that level of pay down every quarter. And I think the confluence of all of those factors comes together to really express all of that. I want to just kind of – I'll maybe wrap this part of the question, Gary, with just a couple of other thoughts.

And here's what I'd say. I'd say that we fully understand that the formula for revenue in this business is both P times V. And we are competing for volume all day, every day. And where there's strong relationship and profitable quality business, we're going to exception price, and we do that, and compete and win in those areas every single day. But what I'd also say is we're just not going to dilute our standards along the way in doing that just to solve for the V side of the equation, the volume side of the equation. And so as we continue to do that, I think what you'll see us be able to accomplish is you'll see quality of the balance sheet continue to improve, the profitability of the business to continue to improve, and really the capital flexibility of our business to continue to improve.

And we are very optimistic in our ability to do that.

Let me jump in with a couple of comments. I know Daniel is going to want to talk about that more specifically, but what I'd just remind everyone is, you know, we put out an 8K, I think it was in early September. There are a number of initiatives underway in our business that fall into that category of continuous improvement, designing an efficient and scalable model, et cetera, that I talked about earlier. I believe we noted in that 8K that the one-time charges this quarter would range in that area of $40 million plus or minus, which came to fruition in the quarter. We also commented that we would have in that area $40 million of pre-provision net revenue improvement as a result of those initiatives.

So I think that's really clear evidence, again, of some of the things that we're committed to in the business. And I want to remind everyone, we commented in that 8K that a portion of those savings would be earmarked for reinvestment in the business. And that reinvestment, again, is designed for the growth that we're pursuing and the growth that we're confident in being able to generate over time in the business. The pace and timing of that investment is going to be opportunistic. We're going to be just as disciplined in that investment as we are in the investments of our capital into a new loan or new relationship in the business. And so those things are all very fluid.

There are environmental factors that will impact the timing and extent of those things. But in any scenario, I expect to see significant improvement in the run rate of our business and returns as a result of these initiatives that we've been working through and announced.

Daniel, I'll let you kind of click into that any way you want to. Gary I maybe just add to that I remind you back to our guidance that we gave for the year which was 2 to 3 expense growth in 26 over 25 As I think about where we are today and what left in the fourth quarter we have a real shot to kind of be flat maybe even slightly down depending on how the fourth quarter shapes up So a lot of the things that Jay talked about, he talked about continuous improvement. But even before the specific initiatives that we commented on in the 8K, we've had the continuous improvement self-funding mindset for years here.

And so if you go back and think about what the run rate would have been with a 2% to 3% guide, compare that to where we are for this year, we've already started to recognize some of those savings throughout the year. And then a number of these things that we talked about in AK haven't even made it in the run rate yet. So I don't want to give you a number yet. We're going to talk about that at our investor day on December the 10th. But we do expect improvement from here. And then on the investment side, a lot of that, we know what some of that investment is today, but some of that is going to be opportunistic as things come our way.

You know, buckets of those reinvestments, the number one thing that we've talked about here is deposit growth. That's an area that will probably get the highest reinvestment. The second thing would just be hiring good quality bankers, especially in that C&I space. And so we expect to have some meaningful investments here over time. Some will be opportunistic. So we'll come back to you on December 10th and give you a more hard number of what that could look like for 27 and beyond.

Good morning, David. I wanted to follow up maybe on some of your comments, Jay, with Gary's first question. You know, I mean, you know, just kind of given the different focus in production and some of the macro headwinds and competition, I mean, do you think, would you expect the balance sheet, I mean, to continue to contract and just talk about maybe demand for a second? I mean, production came down slightly, pipelines are down slightly, but still really good. Obviously, we're coming off a really strong quarter last quarter. I'm just curious how demand's trending, where you're seeing opportunity, and then maybe just how you think about the size of the balance sheet as you focus on profitability and maybe a smaller, more profitable bank.

Yeah, the thing I'd say is, David, we're wide open for business. So when I think about top of funnel, ability to generate production, I don't have concerns in that regard right now in terms of our posture. I do think there's a couple of dynamics. As I mentioned, one, Q3 was a very high level of maturities and paydowns. Q4 is going to be a reasonably high level. I don't expect it to be as high as Q3, but both of those quarters would be above sort of normal paydown quarters for us, maturity and paydown quarters. And again, that's just kind of a function of timing. So you do have that factor in there in Q3 that impacted us and could impact us to some degree in Q4.

But the bigger thing is just as I, you know, my confidence interval and top of funnel activity making its way into sort of, you know, committed and funding production is a bit lower right now, back to really just discipline and standards that we're going to, you know, we're not going to flex around. We're being reasonable. We're not being unreasonable about that, but at the same time, we just see risk spreads that don't make sense in a lot of production that's happening away from us, and I think we're just going to have a thick skin about that for whatever period of time that that lasts so that we are confident that, again, we're doing those high-value, high-margin things that are going to produce consistently strong outcomes over time.

Okay. And again, that book that you're talking about that you've been deleveraging, the lower-yielding, low-relationship credits, could you size that portfolio?

What's that low-rate fixed-rate loan book down to? I think you have that metric in here. I think it's probably – Or even just...

It's 2.1 billion, David, of weighted average, with a weighted average rate less than 4%. And that expands as you make that weighted average rate go up. So it's still pretty sizable. Q3 was probably one of the bigger paydowns of that portion. Q4 will be another one, as Jay mentioned. But we do expect that to continue to be a favorable tailwind for us. I'll just give you one metric here. The production that we put on in the third quarter versus that low-rate stuff had a meaningfully higher return on capital of over 300 basis points from what ran off versus what we put on. So you couple that along with the ability to grow deposits and to fund that long growth.

All those things come together to kind of create this narrative of where we feel like it's appropriate to focus on profitability.

The important thing to note there, David, is out of the loans that we're talking about that would be lower profitability loans, not all of that is going away. I mean, we're working hard to deepen those relationships, to reprice those relationships, and we have success doing that. That success varies, can vary quarter to quarter based on a variety of factors. But we are very committed to deepening those relationships, but at the same time we're very committed to allowing single-threaded loan relationships that don't shin a very high bar from a profitability perspective to find a home elsewhere.

Yeah, Dave, made one other just data point there that might help you contextualize this. You know, when you look at the volume of paydowns that we had, we took a look at the paydowns that were $5 million or greater, and there was over a billion dollars of that in terms of paydowns, and it only had a relationship of deposits of around less than $50 million. So to Jay's point around single-threaded, non-relationship stuff, that's the piece that we're either trying to deepen or figure out other places for it to go. And all of that gives us significant opportunity to recycle capital, right, recycle it back into higher margin growth, or provide capital flexibility. In either scenario, we think those things are going to point to an ability to, even if we're sort of deleveraging, or your original question was really around shrinking the balance sheet, if that's the environment we find ourselves in, an environment where the application of standards allows for further deleveraging, we're confident in our ability to not only expand returns, but to also grow earnings.

It's going to free up significant growth in capital, the ability to maybe be more aggressive from a share buyback point of view than we've been historically, etc. We're going to let the environment kind of drive that optionality for us, and we'll be opportunistic on either side.

Yeah, I'd say some of it is equipping and enabling. Daniel mentioned earlier just activities that we maybe haven't done historically in the category of driving deposits and deposit outcomes. And so that investment could be in the form and will be in the form of technology enablement. It could be in the form of direct marketing spend and campaigns that we would do. All of this will include spend in the category of continuing to invest in people and talent, both the strong talent we have here in the bank, as well as opportunities in the marketplace to grow talent. And then I do think, you know, we're spending a fair amount of time thinking about some of the efficiencies embedded in what we put in the 8K back in September include the benefits of some technology and automation that we're continuing to insert into the business.

And I think we're barely scratching the surface, as we sit here today, of what those continued opportunities will be. So I think that gives you some good flavor, David, around the main themes within the reinvestment buckets. That's great. Thanks, everybody. Thank you.

Yeah, so I'd say in terms of, again, I'll be more categorical, and we may further reveal some of these things in December at Investor Day. But I think what I would, with the first part of your question, Matt, what I would describe is a lot of our more recent kind of measurable return on investment It looks like faster turn time, speed, generation of capacity, elimination of redundancies and duplications in the business. When you think about an ability to sustainably grow organically, high margin, high value business, you've got to have really strong standards in terms of efficiency, turn times, etc. That's where some of the investments around some of the automation and tooling that we're doing are enabling our bankers and our back office teams.

I think front, middle, and back office really making the job much more consistent, easier, and freeing up time for higher value productivity. There a number of measures that we can look at and see that return on investment number of days to close and fund a loan et cetera There are of ways we can look at those things Those are big areas of investment Your point around talent is something that we get really really excited about and Candidly was one of our big motivators for going in and identifying capacity in the system A great example would be, while we've not exited any markets, we've announced that we're going to close 26 branches. In a number of those instances, the number of those markets are markets where over the past several years, we've actually built branches but didn't close any branches.

And so we are taking that, you know, we've observed customer behaviors, we've been patient, now we're pulling the lever in terms of optimizing the footprint. And that capacity allows us to reinvest back into what we think is an incredibly, incredibly robust environment from a talent acquisition point of view. We see tremendous dislocation already in our footprint. We expect more of that type of dislocation. And honestly, we're even benefiting in instances where there's not existing dislocation. There's either just threat of dislocation or dissatisfaction, et cetera. We're beginning to develop a bit of a reputation for ourselves in the marketplace in terms of willingness to do the things to improve and grow the business, and that's attractive to strong talent out there in the market.

The spigot is wide open in terms of our hiring, but again, we want to be disciplined in hiring the same way we want to be disciplined in underwriting or other things in the business. And so we're going to be thoughtful and measured as we move forward in that. But we think the field is very, very ripe for harvest in that category.

Matt, I would maybe just give you two investments that would be visible to you in the numbers. The first was being, if you recall, we did a lift out of St. Louis wealth team that has been very, very positive for us and has exceeded all the expectations that we've had. We've also made investments within the core wealth business, and you can see the non-interest revenue growing faster. So that's very visible. The other would be we've talked about the investments that we will be making in our deposit growth outlook, but we've made investments over the last year within that.

How we've reallocated some marketing dollars, we've self-funded some marketing dollars, We funded incentives to grow deposits, and you can see that when you look at the deposit number, you look at what we focused on, which has been that core customer transaction type account growth, whether it be NIV or whether it be money market. You can see that in the numbers. You can see it this quarter. When I look at consumer and the consumer book and I go back and look at every month this year, we have grown our core customer transaction account balances year over year, every single quarter. So all those things that we're focused on is showing some good early returns, and we will do more of that and at a bigger scale over the coming quarters and years.

Yeah, so Matt, let me back up just a second, and I'll get into that specific question. But one, I just wanted to comment on, you know, every quarter that goes by, the quality and durability of our balance sheet continues to improve with all the focus on profitability, the focus on, you know, some of the deleveraging that we've done. And our margin that sits today is 392, which is a very strong margin. We feel like that margin has meaningful upside as we continue to execute our strategy of growing core funding. You also got a rates-up environment that's in front of us. I think the outlook when we did our modeling was another rate increase in December, one in March, and one in June.

So we've got that ability to grow. We've also feel like from a durability standpoint, we continue to try to protect on the downside, and you will see that in the deck where we put on additional 550 million blocks to do that. It was a cheap, opportunistic time to do that. While we still have asset sensitivity, as rates go up, we want to be able to protect on the downside, given the strong M that we have. And then the other thing to think about that in conjunction is every quarter that goes by, we're adding asset sensitivity through the variable rate loan production mix increasing. So we need to do some of that hedging on the backside to keep our sensitivity tamp down a little bit.

So that's kind of the strategy behind that. As we look at the eight basis point growth, link quarter, about half of that was from deleveraging, and about half of that was from kind of core strategy around profitability, all the back book repricing and all of those things. So I would expect us to be able to continue to do that. The pace at which we do that will depend on the deleveraging that could potentially happen in the fourth quarter, and some of that will be opportunistic, but we still believe there's strong upside from the core things that are embedded in our strategy to grow NIM from here.

Yeah, I mean, I'd just say, Matt, I look back at the quarter and just sort of think about what happened in third quarter, right? I mean, NII grew length quarter compared to Q2. NIM expanded 8 bits. EPS grew by four pennies. ROA increased 12 basis points length quarter. And candidly, ROA is above our long-range target that we had previously published. Rossi improved 113 basis points. I kind of look at all of the mechanics of what we're talking about in our strategy and what we're focused on and sort of the benefits of discipline here beginning to pay off.

I think we're going to continue. You asked about margin, but I guess I'm expanding the conversation beyond just net interest margin. And I'm confident we can continue to see expansion in all of these returns as we execute forward from here.

Morning, Woody. I wanted to follow up on the margin and maybe focus on deposit costs. You know, it's great to see costs down about eight basis points, quarter over quarter. I know there's some moving pieces with the deleveraging, and then you had the rate hike in September. So I was curious if you all had a spot rate for the cost of deposits, just trying to kind of figure out the starting point for the fourth quarter.

Yeah. Hey, Woody. So there's a couple of things that went on within the quarter. We're down eight basis points. A function of that was the deleveraging. A function of that was transitioning some of the remaining broker deposits into FHLB. The story behind that, we talked about that, but broker deposit cost has outrun FHLB in large part due to the demand across the industry to fund volume. That's a J's P times V conversation. That has caused the cost of broker deposits to get about a 30 basis points ahead of what FHLB for us is. That's a piece that went in there. Then the other part is just we continue to optimize the existing customer interest-bearing deposit book.

I'll give you a real quick example, then I'll answer your question. But an example, in the third quarter, we did a pretty sizable test and control of consumer money market accounts, really looking at where the elasticity or the price sensitivity or rate sensitivity of customers are, kind of trying to get to a terminal value. We took a large portion of our money market book and reduced those by, call it 15, 20 basis points across a bunch of different markets, held out a control group, and looked at that over time. What we found is, in large part, almost all of that decline was nonsensitive to time. So what that did was that generated about a $2 million interest expense savings that we then put that back into money market promos to bring in new customers.

So we self-funded some of that. And there will probably be a little bit of timing difference as you think about that relative to Q3 to Q4. But specific to your question on cost of deposits, our exit rate for September was 183. And I will tell you that's probably going to be the bottom. We will go up from here primarily because we got the rate increase in September. We expect to get another one in December. But having said that, the betas that we've modeled for loan, beta, and deposit beta, we will significantly drive value through the margin because of our asset sensitivity. If you look through the entire cycle of the additional three rate cuts that we've got in there.

Rate hikes, yeah. I'm sorry, rate hikes, yes. The loan beta is going to be around 85%, and the total deposit beta is going to be, you know, 30 to 35%. That will give you a sense of how we're thinking about that.

Yeah.

Christian, you can jump into here in just a second. Well, go ahead.

I'd say, yeah, great question. And I think we seeing a fair mix of both deepening with existing relationships which is where we started out when we went down this journey last year and continue to expand that But where we really seen some positive returns is on the acquisition side So stepping into markets where we have both a long legacy as well as some of the markets we acquired into over the last decade we're seeing really good response rates, seeing good sticky relationships showing up as a result of that. So it's a nice mix of deepening with existing, which is always valuable. But the harder thing to do, and we're demonstrating that to our own satisfaction, is the ability to acquire in markets where we don't necessarily have the same brand depth and tenure that we have in some of our legacy markets.

Willie, I'd give you one more data point on that. On the example that I gave you around our campaign, the campaign was designed around new money to the bank. And that new money comes from deepening existing and new customers. And what we've seen so far is about 75% of that campaign is new money to the bank.

Yeah, I think the first thing I'd say is I don't think really anything has structurally changed in terms of like, you know, a reasonable expectation for terminal growth for our business. Nothing's really changed there and nothing changed in the quarter from that point of view in my mind. The couple of things that did maybe happen to a greater degree than I would have anticipated even 90 days ago, one is I knew there was a good-sized maturity wall in the third quarter. The level of early paydowns, again, was as great as it was at any point in two-plus years, maybe even longer than that. So the early paydown environment was underappreciated. So I think that's just one aspect of it.

But again, a lot of the paydowns that we saw in the quarter, whether they were maturities or paydowns, were low rate in nature. And there's nothing that changed from Q2 to Q3 in terms of our focus around either converting that business to more profitable business, deepening those relationships or allowing those relationships to walk out the door. So that's one part of it. The second part is, as I mentioned earlier, Stephen, we just saw risk spreads continue to compress all throughout the quarter. And I would say there was a shift, at least in my mindset, in the third quarter around appetite.

And that was purely a fun – rates moved a lot this quarter, and rates have been volatile. And the beta, if you will, on pricing for loans has not reflected that environment because spreads have compressed so much. And so that would be the only part that I would look to as kind of a mindset shift throughout the quarter. But again, overall, I just look at it as we understand P times V. We just think that sort of consistent, you know, premium valuation in any industry and in this industry comes from doing high-quality things repeatedly, and that's what we're focused on right now.

I think, again, our commitment to the discipline overlaid against the environment, as I said earlier, I'm less optimistic about growth in the immediate terms, like Q4 or Q1. This is the whole environmental piece. We don't control more influence, but it's real right now. And so I would say, yeah, there's some risk to that outlook from an immediate term kind of loan growth outlook in my mind as a result of those things. Again, none of that gives me concern about our ability to continue to expand returns meaningfully and to drive in that scenario, if that's the scenario we're in, to drive significant capital flexibility beyond, you know, what we would otherwise kind of model or expect in a more normal environment.

Really, the patience from a share repurchase point of view in the third quarter was a function of a couple of things. The primary one is we were just really earmarking capital. You can accuse us of being conservative here, but we were really earmarking capital around the one-time investments we made in the quarter. There were significant one-time charges. We sort of think of that as an investment in the business with a return associated with it, and we thought the returns associated with that investment were much stronger. I will now turn the call over to management for a while. The environment that we see evolving right now is increasing, and so I think what you saw as patients in the third quarter is not how I would extrapolate from here.

Thanks, Stephen.

Yeah, hey, Brian. So I kind of referred to this a little bit earlier. So if you look at wealth management was an area of strength for us, and that's a reflection of some of the investments that we've made early in the year and investments in the overall business. We're just seeing a lot of good momentum there, a lot of good customer acquisition. We're seeing some deposit growth there. So we would expect that to continue to inflect from here, and we would likely continue to make investments in that business. We feel like that business has an opportunity to be much bigger than it is today.

And then on service charges, that's really a function of just higher level of transaction volume that has service fees associated with that. So that's kind of what drove that. But we'll talk a bit more about how we're thinking about a go-forward run rate for us at Investor Day, but a good quarter for us. And, you know, it's an area that we continue to focus on investing.

Yeah, it is. It is, Brian. We still feel really confident about the high end of that range. So, yeah.

Yeah, and I would just say from an NII, that was an annual outlook. We feel very confident in that outlook. We had an annual outlook for operating leverage, and we're going to blow that one out of the park, I think, for this year. I think, again, back to NII and discipline and commitment, you know, we were able through really good discipline and commitment in the third quarter to grow NII length quarter While significantly expanding margin returns, look, if the environment doesn't change, that gets harder to do in the fourth quarter in my mind. I'm not saying that's not doable, but that gets more challenging in the immediate term if we don't see sort of risk spreads coming back into the business.

Again, I don't think that's a long-term concern from a terminal growth rate point of view for our business. But I want to be realistic about what we're seeing in the marketplace and very expressive around our commitment to the standards and discipline that we've talked about in the call today.

Yeah, just a few closing remarks today. First, what I'd really like to do, and out of everything we've talked about on this call, is just acknowledge things like instilling new discipline, setting higher standards, evolving an operating model. These things, they don't happen easily, and they don't happen overnight. And we just, you know, I couldn't be more proud of how we've been tackling some very difficult decisions head on in our business. And we're producing results that indicate real progress toward our goals.

So with that acknowledgement, what I really want to do is just thank every single associate at SIMMONS Bank for the dedication and for the loyalty to our customers, to our teammates, and of course to our shareholders. And then just one final reminder as we wrap up here, again, we're going to be in New York on December 10th for Investor Day.

We really look forward to sharing more about our strategy, more about our outlook, and we hope to see you there. Thanks for your time today, and have a great day.