U.S. Markets closed
  • S&P Futures

    3,276.25
    -26.00 (-0.79%)
     
  • Dow Futures

    26,399.00
    -158.00 (-0.59%)
     
  • Nasdaq Futures

    11,216.75
    -126.00 (-1.11%)
     
  • Russell 2000 Futures

    1,548.10
    -10.30 (-0.66%)
     
  • Crude Oil

    36.15
    -0.02 (-0.06%)
     
  • Gold

    1,868.50
    +0.50 (+0.03%)
     
  • Silver

    23.36
    +0.00 (+0.02%)
     
  • EUR/USD

    1.1673
    -0.0077 (-0.6537%)
     
  • 10-Yr Bond

    0.8350
    +0.0540 (+6.91%)
     
  • Vix

    37.59
    -2.69 (-6.68%)
     
  • GBP/USD

    1.2929
    -0.0058 (-0.4473%)
     
  • USD/JPY

    104.5320
    +0.2310 (+0.2215%)
     
  • BTC-USD

    13,445.58
    +13,445.58 (+0.00%)
     
  • CMC Crypto 200

    264.05
    +21.37 (+8.80%)
     
  • FTSE 100

    5,581.75
    -1.05 (-0.02%)
     
  • Nikkei 225

    23,331.94
    -86.57 (-0.37%)
     

Edited Transcript of SFNC earnings conference call or presentation 23-Jan-20 3:00pm GMT

·40 mins read

Q4 2019 Simmons First National Corp Earnings Call PINE BLUFF Jan 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Simmons First National Corp earnings conference call or presentation Thursday, January 23, 2020 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * George A. Makris Simmons First National Corporation - Chairman & CEO * Marty D. Casteel Simmons Bank - Chairman, President & CEO * Matthew Steven Reddin Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank * Robert A. Fehlman Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer * Stephen Christopher Massanelli Simmons First National Corporation - IR Officer & Executive VP ================================================================================ Conference Call Participants ================================================================================ * Brady Matthew Gailey Keefe, Bruyette, & Woods, Inc., Research Division - MD * David Pipkin Feaster Raymond James & Associates, Inc., Research Division - Research Analyst * Garrett Anthony Holland Robert W. Baird & Co. Incorporated, Research Division - Analyst * Gary Peter Tenner D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst * Matthew Covington Olney Stephens Inc., Research Division - MD * Stephen Kendall Scouten Piper Sandler & Co., Research Division - MD & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Simmons First National Corporation Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Steve Massanelli. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- Stephen Christopher Massanelli, Simmons First National Corporation - IR Officer & Executive VP [2] -------------------------------------------------------------------------------- Good morning, and thank you for joining our Fourth Quarter Earnings Call. My name is Steve Massanelli, and I serve as Chief Administrative Officer and Investor Relations Officer at Simmons First National Corporation. Joining me today are George Makris, Chairman and Chief Executive Officer; Bob Fehlman, Chief Financial Officer and Chief Operating Officer; David Garner, Executive Director of Finance and Accounting and Chief Accounting Officer; Marty Casteel, Chairman and CEO of Simmons Bank, our wholly owned bank subsidiary; and Matt Reddin, Chief Banking Officer of Simmons Bank. The purpose of this call is to discuss the information and data provided by the company in our quarterly earnings release issued this morning and to discuss the company's outlook for the future. We'll begin with prepared comments followed by a Q&A session. We've invited institutional investors and analysts from the equity firm to provide research on our company to participate in the Q&A session. (Operator Instructions) Transcript 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. During today's call, we'll make forward-looking statements about our future plans, goals, expectations, estimates, projections and outlook. I'll remind you that actual results could differ materially from those projected in the forward-looking statements due to a variety of factors. Additional information concerning some of these factors is contained in our SEC filings, including, without limitation, the description of certain risk factors contained in our most recent annual report on Form 10-K and the forward-looking information section of our earnings press release issued this morning. The company assumes no obligation to update or revise any forward-looking statements or other information. Lastly, in this presentation, we will discuss certain non-GAAP financial metrics we believe provide useful information to investors. Please note that the reconciliation of non-GAAP metrics to GAAP are contained in our current report filed this morning with the SEC on Form 8-K and available on the Investor Relations page of our website, simmonsbank.com. I will now turn the call over to George Makris. -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [3] -------------------------------------------------------------------------------- Thanks, Steve, and welcome to our Fourth Quarter and 2019 Annual Earnings Conference Call. I would first like to welcome the associates from Landmark Bank who became part of the Simmons team on October 31. Landmark Bank operations are included in our results for the months of November and December. In our press release, we reported net income of $238 million for 2019, an increase of $22 million or 10.3% compared to 2018. Diluted earnings per share were $2.41, an increase of $0.09 or 3.9% from the previous year. Included in 2019 earnings were $32 million in net after-tax merger-related early retirement program and branch rightsizing costs. Excluding the impact of these items, the company's core earnings were $270 million for 2019, an increase of $49 million or 22.4% compared to 2018. Core diluted earnings per share were $2.73, an increase of $0.36 or 15.2% from last year. During 2019, total assets grew $4.7 billion to $21.3 billion at December 31, 2019. Our return on average assets was 1.3%, while our core return on average assets was 1.5% for 2019. Our efficiency ratio was 50.3% for the year. Fourth quarter 2019 net income was $52.7 million and diluted earnings per share were $0.49. Included in fourth quarter earnings were $18.4 million in net after-tax noncore items. Excluding the impact of these items, the company's core earnings were $71 million for the fourth quarter of 2019 and core diluted earnings per share were $0.66. Our loan balance at the end of the quarter was $14.4 billion, an increase of $1.4 billion from last quarter and $2.7 billion from year-end 2018. In December, we entered into a branch purchase and assumption agreement to sell 5 branches in Austin, San Antonio and Tilden, Texas. In conjunction with this pending sale, approximately $260 million in loan balances were moved to loans held for sale. Our loan pipeline, which we define as loans approved and ready to close, was $394 million at the end of the quarter. On a consolidated basis, our concentration of construction and development loans was 98%, and our concentration of CRE loans was 293% at the end of the quarter. Total deposits at December 31 were $16.1 billion, increases of $2.6 billion from last quarter and $3.7 billion from year-end 2018. We also moved approximately $160 million in deposits to deposits held for sale in conjunction with the pending branch sale. Net interest income for the fourth quarter of 2019 was $168 million, a 21.7% increase from the same period in 2018. Accretion income from acquired loans during the quarter was $15 million. Of this amount, 52% was accretable credit mark related, and 48% was interest mark related. Total accretion income for 2019 was $41 million. For 2020, we're projecting approximately $32 million of accretion income. Net interest margin for the fourth quarter of 2019 was 3.76%. The company's core net interest margin, which excludes all accretion, was 3.43% for the quarter. Noninterest income for the year was $201.5 million, an increase of $57.6 million compared to last year. Noninterest income for the fourth quarter was $45 million, an increase of approximately $10.4 million compared to the same period last year. Increases in most categories for the quarter-over-quarter comparison are due to the 2019 acquisitions of The Landrum Company and Reliance Bank. Noninterest expense for the year was $461 million. Core noninterest expense was $418 million, which represented an increase of $32 million when compared to 2018. Noninterest expense for the fourth quarter of 2019 was $142 million, an increase of $47 million over the same quarter last year. Core noninterest expense for the quarter was $117 million, which represented an increase of $23 million when compared to the fourth quarter of 2018. Incremental increases in most operating areas are related to our 2019 acquisitions of The Landrum Company and Reliance Bank. Software and technology costs increased approximately $11.4 million in 2019 over the prior year related to our Next Generation Banking technology initiative. We continue to see results from our NGB investments. During fourth quarter, we launched our new mobile banking app as well as our new treasury management platform. These upgrades provide our customers a faster and more customizable experience. Our mobile banking users have increased 15% since the rollout, and the customer feedback remains very positive. At the end of the year, nonperforming assets were $92 million. This balance is primarily made up of $71 million in nonperforming loans and $21 million in other nonperforming assets, which includes approximately $6 million in closed bank branches held for sale. During 2019, our annualized year-to-date net charge-offs to total loans were 31 basis points. The provision for loan loss was $43 million for the year and was $5 million for the fourth quarter. Our capital position remained very strong throughout 2019. At year-end, common stockholders' equity was $3 billion. Our book value per share was $26.30, an increase of 8.1% from last year, while our tangible book value per share was $15.89, an increase of 12.1% from the same period. The ratio of tangible common equity to tangible assets was 9% at year-end compared to 8.4% at the previous year-end. Our total risk-based capital ratio at December 31 was 13.6%, while our Tier 1 leverage ratio was 9.6%. At December 31, the allowance for loan losses for legacy loans was $68 million with an additional $444,000 allowance for acquired loans. The loan discount mark was $87 million for a total of $155 million of coverage. In our press release, we updated our projection for the expected allowance for credit losses upon completion of the CECL accounting standard. We currently estimate that the ACL will be approximately 1.35% to 1.45% of total loans upon adoption. We have set our methodology and assumptions for the initial implementation. However, we will continue to monitor in any adjustment to future reserve levels will be based upon the forecast of economic conditions at that time and the composition of our portfolio among other factors that will be subject to change. From time to time, we tend to be focused more on specific metrics within our financial performance and lose sight of the bigger picture results. In retrospect, our performance in 2019 was remarkable. We achieved an ROA of 1.33% and a core ROA of 1.51%, which exceeded our target of 1.50%. We produced a 10% return on common equity with an 18% return on tangible common equity and a 20% core return on tangible common equity. We operated at an efficiency ratio of 50.3%, which is within our target range of 50% to 55%. Our construction and development concentration went from 105% at the end of the second quarter to 98% at year-end, while our commercial real estate concentration was lowered from 333% at the end of the second quarter to 293% at year-end, both ratios now below the regulatory guidelines. And importantly, our book value per share rose 8.1%, while our tangible book value per share rose 12.1% during the time when we completed 2 acquisitions, which added $4.9 billion in assets and we repurchased $10 million of our stock. During 2020, we will continue to implement our technology initiatives, including the expansion of our digital offerings, and adjust our business strategy to take advantage of our successful growth over the past few years. I am extremely optimistic about the future of Simmons Bank. This concludes our prepared comments. We'll now take questions from our research analysts and institutional investors. Operator, please review the instructions and open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) I show our first question comes from Brady Gailey from KBW. -------------------------------------------------------------------------------- Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2] -------------------------------------------------------------------------------- So you utilized $10 million of the $60 million from a buyback point of view. So you got $50 million left. Would you anticipate that $50 million to be repurchased fully in 2020? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [3] -------------------------------------------------------------------------------- Brady, it's very likely that we will. We have a systematic program that we put into place, and we expect to continue it throughout 2020. Obviously, market circumstances could change, and we could withdraw that systematic buyback. But right now, it's still in place, and we expect it to continue. -------------------------------------------------------------------------------- Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [4] -------------------------------------------------------------------------------- All right. And then from a loan growth perspective, it seems like this earnings season, we're seeing a lot of weakness in loan growth from all the banks. I know for you guys, we've talked about a low single-digit level of loan growth in 2020. Is that still the right way to think about loan growth for Simmons Bank share for this year? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [5] -------------------------------------------------------------------------------- Well, yes, it is. But we have to qualify that. So as we take a look at each one of our divisions, we see low to mid-single-digit growth numbers in their budgets. However, we have to remember that we have about $260 million that's going to come off the books when we complete the sale of the South Texas locations. We have also communicated our intention to roll down our exposure in our energy portfolio by about another $200 million during the year, hopefully, during the first 6 months of the year. So we've got that $460 million or so to overcome before we ever show any net growth. I think the important thing here is that we're still very active in the marketplace. We're still able to originate a lot of loans. We just need to understand that there are going to be other circumstances when we take a look at the net results of our loan growth. And Matt, you may have some more color. -------------------------------------------------------------------------------- Matthew Steven Reddin, Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank [6] -------------------------------------------------------------------------------- No, George, I think you hit that around the head. Brady, I think you've kind of heard us in the last couple of quarters and speak to kind of where we're taking our portfolio. I think we will have -- continue to have really good relationship opportunities. But I think the fourth quarter speaks to us executing on everything we've talked about doing. We had some nice runoff in our transactional CRE portfolio. We also had runoff in our energy portfolio as we're trying to execute. But at the same time, we had healthy production that was equally weighted between CRE and C&I. So I think George captured it right, and I think we'll see that continue into '20. -------------------------------------------------------------------------------- Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7] -------------------------------------------------------------------------------- All right. And then as it relates to the margin, clearly, accretable yield levels are going to be coming down next year, especially versus the elevated 4Q level. So I get that the reported NIM will see some downside, but stripping out accretable yield, you look at the core net interest margin at 3.43%. Do you expect that to be stable in 2020? Or could there be some additional downside to the core NIM? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [8] -------------------------------------------------------------------------------- Well, there were some unusual fourth quarter circumstances related to the Landrum acquisition. So a lot of the pressure on the core NIM in the fourth quarter was just a rebalancing of our earning assets, and that will continue, but I'm going to let Bob give you a little more specifics about the core net interest margin. -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [9] -------------------------------------------------------------------------------- Yes. And Brady, as you know, the Fed dropped the rates at the end of October. So we did have some loan repricing in the quarter. It was down probably, on the legacy Simmons, about 15 basis points. On the other side of it, we really worked the deposits on the legacy side pretty hard this quarter. We didn't really get the repricing done until the end of November. But we picked up about 18, 19 basis points on cost of interest-bearing deposits. So we -- this is the first time we saw a little swing there that our interest-bearing deposits went down a little more than our loans. As George said, for the quarter though, when you look at reported core NIM, we're down about 15 basis points. About 10 of that is related to the Landrum acquisition. Part of it is, is they had a lower loan-to-deposit ratio, and they have a lower margin. The other side of it is also they had about $1 billion in security portfolio. And with purchase accounting, you mark those to market on day 1. And we, historically, have liquidated the majority of that portfolio and reinvested at rates that are at that time -- you get the same effect from purchase accounting. It takes a period of time to reinvest $1 billion and with all the pledging that you have to move in and out. So for the quarter, we really didn't get reinvested till mostly towards the end of the quarter. And a lot of that was even in U.S. treasuries, which are obviously the lower yielding. So it will take us a period of time to find the right investments to get into our portfolio to build that back up. But I would agree with what George said. We think this was an unusual quarter. We would hope this is the low end of it, and we'll start building. We do have seasonably low in the first quarter. We should have less impact because of our size. But we would expect to have improvement, and we have been working the deposit side pretty hard. -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [10] -------------------------------------------------------------------------------- I'll mention one other thing that affects our margin in the fourth quarter, and it'll affect it again in the first quarter and that is our agra portfolio. So it paid down over $50 million in the fourth quarter. And it'll stay at a low level until we start funding next year's crop production toward the end of the first quarter. Those are usually good yielding loans, and when we take $50 million out at those higher yields, that has a negative effect on the margin. -------------------------------------------------------------------------------- Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [11] -------------------------------------------------------------------------------- Got it. And I guess this is Marty's last earnings conference call. So Marty, great working with you over the years and wish you all the best in retirement. -------------------------------------------------------------------------------- Marty D. Casteel, Simmons Bank - Chairman, President & CEO [12] -------------------------------------------------------------------------------- Brady, thank you very much. Transition time is appropriate, and we've got a great team of bankers. Just -- I feel very good about where we are as a bank and our leadership. But thank you very much. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question comes from David Feaster from Raymond James. -------------------------------------------------------------------------------- David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [14] -------------------------------------------------------------------------------- I'd like to echo Brady's comments. Congrats Marty on the retirement. I hope you enjoy that. But I just want to start on expenses. I know the conversion for Landrum is slated for President's Day weekend. Have any of the synergies been realized to date? And I guess just looking forward, obviously, there's a lot of moving parts, but just inclusive of additional expenses from NGB and other moving parts, how do you think about your noninterest expense in 2020? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [15] -------------------------------------------------------------------------------- Well, David, good question. I'm just going to go ahead and give you what we expect for this next year kind of on budgeting, and we're going to look to hit these numbers or beat them. But like you said, a lot of noise in this quarter. We had 2 months of The Landmark -- Landrum Company. Our expectation in the first quarter, it will be higher because of we haven't realized all the cost saves. And historically, the first quarter is higher with payroll taxes and other items that hit in that first quarter. So we would expect somewhere in the high -- the $124 million to $125 million for noninterest expense for Q1. For the balance of the year, will be -- it will be pushing to get it down to about -- in the low 120s by Q4. So I would say $124 million in the first quarter and migrating down to $120 million by the end of the year. That's going to be a major focus for us next year as we're rebalancing some of the company here, and some of it will be on the expense side. And so those are our target numbers going forward. -------------------------------------------------------------------------------- David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [16] -------------------------------------------------------------------------------- Okay. That's extremely helpful. And just staying on the NGB. I know you've got a lot going in NGB 2.0, I believe, should be starting now. Could you just talk about what you're investing in upcoming investments that you have and the expectations for potential improvements in efficiency from those? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [17] -------------------------------------------------------------------------------- David, sure, be glad to. So our focus in 2020 from an NGB 2 standpoint is going to be next generation of our digital offerings. So we just rolled out our digital app with great success. And our new Chief Digital Officer, Alex Carriles, has done a fantastic job. Our customers basically self-selected their timing for conversion from our old app to our new app. That number, even since we took a look at our script for this call, has grown even more. We're now up 19% in the number of users over where we were before conversion, which I think is excellent. I'll also mention that our users are logging in 1.4 times a day. And when you think about our ability to communicate with our customers now through our digital channels, the opportunities we have here as a bank and that our customers have to hear from us on a regular basis with opportunities has grown exponentially over traditional methods of walking into a branch or even logging into online banking. We'll continue to integrate more products and services in our digital offering this year. We're very proud that our rating for our digital app is 4.8 stars. And I will tell you, 4.8 stars is hard to achieve for any app, especially a banking app. So we're extremely excited about the future of our digital banking, and our focus for 2020 primarily will be on those new initiatives. Now we still have some hangover from NGB 1.0, and that is to realize the efficiencies and the revenue gains from our investment last year. And that includes the utilization of our data warehouse. We don't talk about that a whole heck of a lot, but we had a lot of disparate systems with a lot of information about our customers that we have now put together. And our ability to utilize that in marketing programs and product development is going to be a great benefit to us going forward from a revenue-generation perspective. So a lot of times, when we talk about efficiencies associated with these investments, we start thinking about expense cuts. Well, that's part of it, but the other side of the efficiency ratio is revenue generation. We believe that is our greatest opportunity associated with that. We're also continuing to build additional infrastructure within the bank. This year, we went to OutLink, which means that all of our processing is done by Jack Henry as a third party. And all that has been moved out of the Simmons organization. It's faster, more reliable and safer in that environment. We think that's a real benefit going forward. It's also very scalable. So we don't have to worry about, as we grow, whether or not we have the internal capacity to operate. So all those things are beneficial to us. 2020 will be to recognize the benefits of our initial investment and to continuing to invest in our digital offerings. It's a long answer to a short question. Sorry about that. -------------------------------------------------------------------------------- David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [18] -------------------------------------------------------------------------------- No, terrific. That's great color. And last one for me. Just your thoughts on M&A. I know you just closed the Landrum deal, but I know you just have a very good pulse on the market. How are conversations going? And just what's your appetite for a deal here? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [19] -------------------------------------------------------------------------------- Well, we're still very interested, and we're having some good conversations. As we've mentioned several times, our focus has really moved from focusing on new markets to expanding in current markets. So the conversations are a little bit different today. They're going to be a little more dicey because end market acquisitions require more cutting, if you will, of the expense side of the ledger. And that is a tough part of the M&A business. So we think we're having some very productive conversations. We're not in any rush. We want to see how CECL affects our cost of doing business going forward. And many of the banks that we're talking to aren't subject to CECL today. So it is an educational process also for us to let them know how a merger will affect the combined company from a CECL standpoint. So I think we're having really good discussions. We're still very interested in expanding our presence in the markets we serve today. So we're optimistic about the possibilities. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from Matt Olney from Stephens. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [21] -------------------------------------------------------------------------------- I want to go back to the discussion around loan balances. And I know you've been working to remix the loan portfolio, exiting certain loans that you acquired that are lower yielding. I'm curious how the progress was in the fourth quarter? And what's remaining? And then related to that, I think you're also exiting some energy shared national credits. Same thing there. How was the progress in the fourth quarter? And then what's remaining? -------------------------------------------------------------------------------- Matthew Steven Reddin, Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank [22] -------------------------------------------------------------------------------- Matt, this is Matt. I'll hit that one first. Yes, I think we've -- as I said earlier, I think in the fourth quarter, we executed on that pretty well. The energy loans, we took those down $41 million, and that was -- that's just 1 quarter of really good effort. And I think you'll continue to see that as George said. Really, the bulk of that will happen over the first 2 quarters of 2020. Also, we had really good planned payoffs in St. Louis and in Fort Worth that were pretty sizable to the tune of about $300 million that were planned non-relationship that we knew with Reliance or even with transactional loans in the Texas region that went off. And then you saw -- from that, you can see now we're below the $100 million, $300 million at the corporate level. So hopefully, that gives you a little color on kind of those planned declines in the loan portfolio. -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [23] -------------------------------------------------------------------------------- Matt, let me say one other thing about that. Because we're now below the regulatory guidelines and we expect a little more runoff to give us a little more capacity, we are now back in the game with regard to relationship, CRE lending in certain categories. So we still have some concentrations in certain business areas that we don't need to do any more of today. But I guess, the way I look at this is like a general manager of a pro football team who has a fixed roster. We're always looking to improve that. And improvement for us is moving from transactional business to relationship business. So now we've got the capacity built in because of the results that Matt and his team have been able to attain. And I would expect us to be active in the marketplace again. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [24] -------------------------------------------------------------------------------- Okay. Got it. And let me just make sure I got these numbers right as far as the remaining loan runoff. I think on the energy SNC side, there was $180 million you want to run off. And you got rid of $40 million, so call it $140 million remaining in that book. Is that right? And then on the more -- the lower-yielding real estate loans, I think you said previously about $200 million remaining runoff from that. Did I get those numbers right? -------------------------------------------------------------------------------- Matthew Steven Reddin, Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank [25] -------------------------------------------------------------------------------- You're pretty close, real close on the energy. I mean I think we see another $160 million coming off next year. Over the next 2 -- we'll see. We hope 2 quarters, maybe 3 quarters, but that is the plan there on the energy book. On the Reliance, that St. Louis, that's a little different number. I mean we ran off $128 million in the third -- in the fourth quarter for St. Louis specifically. Yes, there is more planned runoff there, but I don't want to say that specific number that I think you said another $200 million. Is that what you said, Matt? -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [26] -------------------------------------------------------------------------------- Right. Yes. -------------------------------------------------------------------------------- Matthew Steven Reddin, Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank [27] -------------------------------------------------------------------------------- Yes. I mean, yes, it's around that number. It could come in below that or above that, as George said, too. We're also trying to sell some of these customers to make a relationship as well. So that could change it and bring those yields high -- put those lower-yielding loans higher. -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [28] -------------------------------------------------------------------------------- Matt, just to clarify, too, you do know, we pulled -- the South Texas loans are out of the loan balance as of the end of the year. And they're in a classification as assets held for sale. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [29] -------------------------------------------------------------------------------- Yes. I did see that. And I wanted to drill down more on that. I think the strategic move makes sense. You had a small presence in a very large metro market. So it seemed like you then need to add scale or exit. I'm curious, beyond Texas, it seems like there could be some more opportunities for some strategic exits where Simmons also has a smaller presence in a larger market. Any commentary if we could see some more strategic exits in the future from Simmons? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [30] -------------------------------------------------------------------------------- Well, Matt, I will say that everything is on the table. As I mentioned, I think last quarter, maybe the quarter before that, we're taking a look at our entire location strategy. And it's not just from a profit and loss standpoint. It's from a priority of investment, fairness to the teams in certain markets. If we're not going to invest in a marketplace, our teams, which we feel are top notch, deserve the opportunity elsewhere. So I would tell you, it is a constant evaluation for us. You're right. On paper, there are other markets that look like they should be considered in the same way that South Texas was considered. I will tell you that we are doing that evaluation now but have not made any decisions at this point. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [31] -------------------------------------------------------------------------------- Okay. And then going back to the operating expense discussion. Bob, I got the guidance the next few quarters. Just to clarify, on the deposit insurance, it looked like you had a credit there again in the fourth quarter. Are there any more credits remain that could offset that? Or are we going to return to a more normalized run rate there? And what is the kind of a normalized run rate now on deposit insurance expense? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [32] -------------------------------------------------------------------------------- Yes. Matt, the fourth quarter, we used up those credits. So I would not expect any more in next year. So you obviously see a higher expense going forward. That's in the $2.5 million range on a quarterly basis. That -- David, that includes Landmark [and then some], so ballpark of about $2.5 million on a go forward. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [33] -------------------------------------------------------------------------------- Got it. Okay. And then last question for me is just on the fees. Fee income, pretty impressive in the fourth quarter. Looks like part of that jump may have been from the acquisition, but it's tough for me to parse out. So any commentary on the run rate for fees as we go into 2020? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [34] -------------------------------------------------------------------------------- Well, of course, our mortgage group had a really good year last year, too. We're not anticipating that same kind of revenue from that group in 2020. But of course, interest rate movements could change that overnight. We weren't anticipating it this year either. So it goes to tell you how well we forecast around here. But anyway, with Landmark Bank, we picked up a lot of consumer business. I mean they were a true community bank. So the fees that go along with those consumer accounts will be a real benefit to our organization. Matt, Our biggest opportunity is to increase our fee revenue business units across our entire footprint. So I would be personally disappointed if we saw fee income even be flat going forward in any category. Our objective is to grow that fee income as we continue to roll out our products and services across our footprint. -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [35] -------------------------------------------------------------------------------- Yes. Matt, just to give you a little color on Landrum. The noninterest income for Q4 was about $3.5 million, and that's for 2 months. So that should help you in some of your modeling. -------------------------------------------------------------------------------- Matthew Covington Olney, Stephens Inc., Research Division - MD [36] -------------------------------------------------------------------------------- Okay. So I guess, outside of that, in the fourth quarter, there must have been some legacy Simmons growth in the fees because I think the jump was -- from 3Q to 4Q was stronger than that. -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [37] -------------------------------------------------------------------------------- Yes. And as George said, a big chunk of that came in, in the mortgage area and some -- and also our trust group had a nice little kick in the fourth quarter on closing some -- you never know when those timing of those states might close out. We've been planning on a lot of that to happen. And we're fortunate to have some of that in the fourth quarter. I think that also helped that number. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Our next question comes from Gary Tenner from D.A. Davidson. -------------------------------------------------------------------------------- Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [39] -------------------------------------------------------------------------------- A couple of follow-ups on the energy portfolio. Could you remind us what the amount of energy of loans are that are currently on nonaccrual? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [40] -------------------------------------------------------------------------------- Yes. I can do that for you. Right now, on nonaccrual, there's $19 million. And that's just 3 specific borrowers. -------------------------------------------------------------------------------- Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [41] -------------------------------------------------------------------------------- Okay. And I know you're running off, obviously, the shared national credit piece of that portfolio. But beyond that, in terms of your kind of regular single relationships or your own relationships, what's your interest level in that space today? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [42] -------------------------------------------------------------------------------- It's going to have to be -- we know we're in the markets where we'll have some really nice energy clients, but they have to be true relationship of the highest quality. So I think that will be a small book but a very good book. -------------------------------------------------------------------------------- Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [43] -------------------------------------------------------------------------------- Okay. And that's in terms of putting incremental new loans on the books? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [44] -------------------------------------------------------------------------------- Well, I think you won't see incremental -- yes, there is that possibility. We're in the market every day. There is a possibility for sure that we'll attract a new client to the bank that fits our high-quality credit standards and full relationship standards. But I think you -- any type of incremental growth, I wouldn't see that coming for quite some time. -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [45] -------------------------------------------------------------------------------- Gary, I might also mention that in our relationship business, while we have some energy exposure to some of our customers, several of those customers are well diversified, and energy is only a portion of what they do well. -------------------------------------------------------------------------------- Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [46] -------------------------------------------------------------------------------- Okay. And just one other question for me. In terms of the projected $32 million of accretion for 2020, is that purely scheduled maturities based on contractual maturities of loans? Or is there any assumptions and visibility on prepayments in that number? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [47] -------------------------------------------------------------------------------- The bulk of it is scheduled. There are some prepayments that we did expect and as Matt had said, in some of our markets like Missouri, that we do have in there. But generally speaking, that's scheduled or known payoffs. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Our next question comes from Garrett Holland from Baird. -------------------------------------------------------------------------------- Garrett Anthony Holland, Robert W. Baird & Co. Incorporated, Research Division - Analyst [49] -------------------------------------------------------------------------------- Wanted to follow up on asset quality and the provision. I guess what do you expect from a quarterly provision run rate as we move through 2020 based on your expectations for core performance and then the CECL day 2 impact? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [50] -------------------------------------------------------------------------------- Well, the theory behind the CECL impact is that our provision should cover 2 things: one is charge-offs during the quarter, and the second is debt loan growth during the quarter. So based on our ability to control charge-offs, which we think is going to be consistent with our history and net loan growth, I would say that our provision is going to be less than it was this year projected, but it's going to be driven by those 2 factors: charge-offs and net new loans. -------------------------------------------------------------------------------- Garrett Anthony Holland, Robert W. Baird & Co. Incorporated, Research Division - Analyst [51] -------------------------------------------------------------------------------- Understood. That's helpful. And then maybe just a bigger picture question, and you touched on this a little bit. But as you've expanded the footprint in the bank with deals in recent years, can you talk a bit more about the pace of progress you've made improving productivity for these acquired banks, the traction moving beyond lending, just the broader banking relationships? Generally, you're pleased with that process -- progress? And how large is this opportunity as you move in 2020 and beyond? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [52] -------------------------------------------------------------------------------- Well, we think the opportunity is huge. And let me just sort of explain what's happened over the last 3 to 4 years. We have bought several banks with different profiles, products and services. So if we buy a bank that's primarily a commercial real estate lender, what we'll find is they don't have a real wide spread consumer base. They don't have diversity into agra lending and into C&I lending. And our objective has been to help diversify those kinds of loan portfolios. We have recently established a business development group, whose primary responsibility is to help our geographic leaders diversify and offer all of our products and services in a coordinated fashion in all our geographies. And we think that potential is still tremendous in our current footprint. That's one of the reasons that we have taken on the strategy that we have and the way we've grown into certain markets. Wealth management being a great example. Where we have wealth management professionals, we are very, very successful. We are the largest trust operator in the state of Arkansas almost by 2x. We need to replicate that in markets outside of Arkansas. So that's going to be our real focus going forward, is getting the people in place with the expertise to offer our products and services outside traditional lending in these marketplaces. We think that potential is growing. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Stephen Scouten from Piper Sandler. -------------------------------------------------------------------------------- Stephen Kendall Scouten, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [54] -------------------------------------------------------------------------------- I'm curious a little bit just if you all have seen any attrition from your relationship managers, lenders, revenue producers and so forth. Just kind of given that there are seemingly some constraints on growth and portfolios you're working down. I'm just wondering if you've had any issues with retaining the people you want to retain? -------------------------------------------------------------------------------- Matthew Steven Reddin, Simmons First National Corporation - Executive VP & Chief Banking Officer of Simmons Bank [55] -------------------------------------------------------------------------------- Yes. Steve, this is Matt. Yes, that's a good question. We've seen some of that. Some of that, we expected. We saw some of that in the Dallas-Fort Worth area. We've seen a little bit of that in Missouri, but not that much with our Reliance conversion. But honestly, we look at that as an opportunity to the bank that now with our balance sheet and horsepower, if those bankers or relationship managers elect to do that, we choose that opportunity to upgrade, to be more well rounded, a complete commercial banker that's selling all of our products and services to George's point, but we have seen some of that. -------------------------------------------------------------------------------- Stephen Kendall Scouten, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [56] -------------------------------------------------------------------------------- Okay, helpful. And then maybe falling back a little bit around M&A. I know in years and quarters past, you've talked about Nashville as a market you all might want to target over time. And there was a fairly sizable transaction that was just announced there. Is that still a market that's on your radar? And are -- or is it more kind of density within your existing markets from this point? -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [57] -------------------------------------------------------------------------------- Well, certainly, Nashville is a priority market for us. To date, we have not found a successful merger partner. But we also have plan B, which is de novo growth in the Nashville market. We've had some good conversations with some potential leaders in that market, with some potential lenders in that market and increase our physical presence, we're well underway in evaluating that opportunity. So I think you'll see us take a proactive approach in growth in Nashville, whether it's through M&A or de novo. -------------------------------------------------------------------------------- Stephen Kendall Scouten, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [58] -------------------------------------------------------------------------------- Okay, great. And maybe just last thing for me, and I don't know if I missed this in response to Brady's earlier question, but are you guys putting out an expectation for what you think accretion could be in 2020? -------------------------------------------------------------------------------- Robert A. Fehlman, Simmons First National Corporation - Senior EVP, COO, CFO & Treasurer [59] -------------------------------------------------------------------------------- Yes. We announced that it was $32 million, and that's mostly scheduled. There are a couple expected payoffs that are included in that. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- This concludes our Q&A session. At this time, I'd like to turn the call over to George Makris, Chairman and CEO, for closing remarks. -------------------------------------------------------------------------------- George A. Makris, Simmons First National Corporation - Chairman & CEO [61] -------------------------------------------------------------------------------- Thanks very much. Just to wind this up. Those of you on the call may have noticed in our press release today, we announced the retirement plans for Marty Casteel, President, Simmons Bank and Pat Burrow, our General Counsel. And we'll take this opportunity to personally thank both of them for their outstanding leadership and very unselfish commitment to the future of Simmons Bank. They've been very instrumental in the success we've achieved since I've had the pleasure to work with both of them and actually for many years before that. We've been planning this day for some time now. And recently, we've announced other changes, which align with our strategic objectives. Bob Fehlman has assumed the duties of Chief Operating Officer in addition to his responsibilities as our CFO. David Garner has assumed responsibility for all accounting and finance as well as retaining title of Chief Accounting Officer. Pat Neeley has assumed the responsibility for all operations groups. And Tina Groves has been named Chief Risk Officer. All 3 of these individuals report to Bob. Matt Reddin has expanded his role as Chief Banking Officer. Currently, Matt manages most of all of our revenue-producing business units, including our divisions, which were aligned this year to better distribute our portfolio of products and services throughout our footprint. Jena Compton has assumed the role of Chief Strategy Officer in addition to a role as Chief People Officer. And I believe this is a great fit as our success certainly depends on our people. Freddie Black and [Sabrina McDonald], together, make up the leadership for our business development group. Their knowledge and experience will help us develop a coordinated approach to growth in all markets and across all business units. Pat Burrow has built our legal group from scratch, and I'm proud that one of his first hires, George Makris III, will assume the role of General Counsel. Steve Massanelli will manage a newly-formed real estate division, which will work to rationalize our location strategy and help ensure we take advantage of our size and scale. And certainly, the addition of Alex Carriles as our Chief Digital Officer has and will provide great opportunity, not only for Simmons Bank before our customers, as we continue our commitment to expand our digital offerings and give our customers choices on how they access our products and services. As I said before, I'm very optimistic about our future. Thanks to all of you for joining us today, and this concludes our conference. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.