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Edited Transcript of SFNC earnings conference call or presentation 23-Jul-19 2:00pm GMT

Q2 2019 Simmons First National Corp Earnings Call

PINE BLUFF Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Simmons First National Corp earnings conference call or presentation Tuesday, July 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George A. Makris

Simmons First National Corporation - Chairman & CEO

* Matthew Steven Reddin

Simmons First National Corporation - President of Banking Enterprise for Simmons Bank

* Robert A. Fehlman

Simmons First National Corporation - Senior EVP, CFO & Treasurer

* Stephen Christopher Massanelli

Simmons First National Corporation - IR Officer & Executive VP

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Conference Call Participants

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* 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

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Simmons First National Corporation Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

It is now my pleasure to introduce Mr. Steve Massanelli. Please go ahead, sir.

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Stephen Christopher Massanelli, Simmons First National Corporation - IR Officer & Executive VP [2]

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Good morning and thank you for joining our second 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; David Garner, Controller and Chief Accounting Officer; Marty Casteel, Chairman and CEO of Simmons Bank, our wholly owned bank subsidiary; Barry Ledbetter, President of our Southeast Division; and Matt Reddin, President of Banking Enterprise.

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 will begin with prepared comments followed by a Q&A session.

We have invited institutional investors and analysts from the equity firms that provide research on our company to participate in the Q&A session.

(Operator Instructions) A transcript of today's call, including our prepared remarks and the Q&A session will be posted on our website, at simmonsbank.com under the Investor Relations page.

During today's call, we will 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 our 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.

And lastly, in this presentation, we will discuss certain non-GAAP financial metrics we believe provide useful information to our investors. Please note that the reconciliations 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 at simmonsbank.com.

I'll now turn the call over to George Makris.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [3]

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Thank you, Steve, and welcome to our second quarter earnings conference call. In our press release issued earlier this morning, we reported net income of $55.6 million for the second quarter of 2019, an increase of $2 million or 3.8% compared to the same quarter of last year. Diluted earnings per share were $0.58 for the quarter. Included in the second quarter earnings were $9.9 million in net after-tax noncore items.

We had merger-related costs of $5.6 million, early retirement program expenses of $2.2 million and a branch rightsizing cost of $2.1 million mainly related to the relocation of our Little Rock corporate office. Excluding the impact of these items, the company's core earnings were $65.5 million for the second quarter and diluted core earnings per share were $0.68. Increases of $10.8 million and $0.09, respectively, over the same quarter last year.

Total assets were $17.9 billion at June 30, our return on average assets for the second quarter was 1.28%, while core return on average assets was 1.51%.

Our efficiency ratio was 50%. Our loan balance at the end of the quarter was $13.1 billion, an increase of $1.4 billion from last quarter. Approximately $1 billion of the increase was due to the Reliance Bank merger completed in April, while $387 million of the increase was organic loan growth, primarily in our real estate portfolio.

Our loan pipeline, which we define as loans approved and ready to close, was $419 million at the end of the quarter compared to $473 million at the end of the first quarter.

On a consolidated basis, our concentration of construction and development loans was 105% and our concentration of CRE loans was 333% at the end of the quarter. The increase is primarily a result of the addition of the Reliance portfolio, which was heavily concentrated in CRE loans.

Total deposits at June 30 were $13.5 billion, an increase of $1.5 billion since last quarter. $1.2 billion of the increase was due to the addition of our Reliance customers and $322 million was from organic deposit growth.

We continue to be very pleased with our growth in core deposits as we continue to emphasize relationship banking.

Our net interest income for the second quarter was $150.4 million. Included in interest income was the yield accretion recognized on loans acquired of $10.2 million. Of this amount, $4.9 million or 48% was accretable credit mark related and $5.3 million or 52% was interest mark related.

Our net interest margin for the quarter was 3.92% compared to 3.85% at March 31. The company's core net interest margin, which excludes all accretion, was 3.66% for the second quarter compared to 3.67% for the previous quarter. The 26 basis point difference between GAAP and core net interest margin includes 12 basis points of credit mark accretion and 14 basis points of interest mark accretion.

Our core net interest margin essentially remained flat, which is consistent with our planned balance increase in deposit costs with a similar increase in interest income.

Our noninterest income for the second quarter was $39 million, an increase of approximately $1 million compared to the same period last year. As of July 1, 2018, we became subject to the interchange rate cap as established by the Durbin amendment, resulting in a $3.1 million reduction in debit card fees for the second quarter in 2019 when compared to the same period in 2018. This decrease was mostly offset by an increase in the gain on the sale of securities of $2.8 million.

Noninterest expense for the second quarter was $110.7 million. Core noninterest expense for the quarter was $97.4 million, which represented an increase of only $378,000 when compared to the second quarter of 2018. Consistent with last quarter, software and technology costs increased approximately $2.2 million over the same period in the prior year.

Our Next Generation Banking technology initiative is progressing on schedule. Our incremental IT expenditures during the second quarter were primarily related to this initiative. As previously discussed, we expect more incremental expenses related to NGB throughout this year and into the first half of 2020.

The early retirement option offered to qualified associates in the first quarter contributed to the decline in salaries and employee benefit expense during that quarter. We expect ongoing net annual savings of $4.4 million in this program.

At June 30, 2019, the allowance for loan losses for legacy loans were $63 million, with an additional $1 million allowance for acquired loans. The loan discount mark was $73.5 million, for a total of $138 million of coverage.

At the end of the second quarter, our nonperforming assets were $87.6 million, an increase of $6.9 million from the first quarter. The increase was due to other real estate owned acquired from Reliance Bank.

This balance is primarily made up of $62.2 million in nonperforming loans and $25.4 million in other nonperforming assets, which includes $6.5 million in closed bank branches held-for-sale.

Our annualized net charge-offs to total loans were 14 basis points. The provision for loan loss was $7.1 million.

Our capital position remains very strong. As of June 30, 2019, common stockholders' equity was $2.5 billion. Our book value per share was $25.57, an increase of 9.9% from last year, while our tangible book value per share was $14.90, an increase of 14.2%. The ratio of tangible common equity was 8.5% at June 30. Our total risk-based capital at June 30 was 12.7%, while our Tier 1 leverage ratio was 8.9%.

Recently Simmons was recognized by Forbes as one of the top banks in Tennessee and Arkansas, and was once again recognized by Arkansas Business as one of the best places to work in Arkansas.

We're extremely proud of this type of recognition as it validates our corporate objectives of making Simmons a great place to work and providing excellent customer experience.

We also completed the move to our new Little Rock corporate offices where we are proud to be an anchor in the vibrant River Market area of downtown.

In the near term, we will continue to manage concentrations in our construction and commercial real estate loan portfolios. Our emphasis will be on developing deeper relationships with our customers.

Our NGB technology initiative continues on track as we prepare to introduce updated applications throughout the remainder of 2019 and into the first half of 2020. And we continue to explore strategic M&A relationships, which would enhance our coverage in our current footprint. This concludes our prepared comments.

We'll now take questions from our research analysts and institutional investors. I'll ask the operator to please come back on the line and review the instructions and open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Brady Gailey with KBW.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2]

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Maybe we can start with the expense base. I know it's kind of noisy with the acquisition closing this quarter and some other nonrecurring charges. But when you look at the conversion for Reliance has been done, you have the roughly $4.5 million of savings that's come up from the early retirement program. As you look towards the back half of this year, how do you think that the quarterly expense base will trend?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [3]

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Okay, Brady, I'll take that first. Yes, as you mentioned, we did convert Reliance early in the quarter. We were -- because we closed the bank and merged at the same time, we were able to get most all of those cost saves early on in the process. So we did get to achieve most of that this quarter.

Our guidance going forward as we're moving through, there's several moving pieces, as you said, you first have the Reliance piece coming in for the full quarter. You have an increase from NGB as we move forward in the process. But yes, it's been offset by some of our early retirement savings.

Our target level for the balance of the year would be to maintain that expense of the $100 million or less on a quarterly basis would be our target. So we're going to be working below that, but right now, that's our target level, we would say.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [4]

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And then I know last quarter, we talked about kind of reducing the expected amount of loan growth down to 5%. If you look at what you've done year-to-date, you're right around that kind of 6% level. Is 5% still the right way to think about loan growth for the year? Or is there a possibility that you guys could do a little better than that?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [5]

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Brady, this is George. There's always a possibility we can do better than that. As you notice our loan pipeline is still very healthy. So we're still originating a lot of loans. It really just depends on early payoffs and how many of those new loans we keep on the books as we manage our CRE concentration.

Also, remind you that the Reliance portfolio was heavily concentrated in low-yielding CRE credits. And we are working through the management of those credits now. Several had really no relationship with the bank, other than that particular loan.

So we will continue to generate substantial new loan business. Whether that translates into net loan growth at the bank just depends on how we manage particularly the CRE portfolio.

Matt Reddin is sitting here with us and he may have a couple other comments.

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Matthew Steven Reddin, Simmons First National Corporation - President of Banking Enterprise for Simmons Bank [6]

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Brady, that's exactly right. I mean, we're seeing the same volume we saw, if not an increased amount of volume on loan opportunities, but managing those CRE concentrations. We're selling down with our correspondent group where we're taking care of existing customers; kind of what we talked about all year long has been our relationship strategy. So we're going to continue to make those loans with our core customers. But we may be selling down from our -- for CRE concentration purposes.

But I'll also point you on this quarter's loan growth, we also had good growth in our mortgage warehouse because of what's happened in the rate environment on the mortgage side. So that contributed to that and also our ag portfolio started to fund up. So a couple of things from seasonality that also bolstered loan growth. [Can't you say that] 6% range right now.

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Brady Matthew Gailey, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7]

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Okay. And then finally for me just one on M&A. You guys had talked about potentially getting one more deal announced and closed before year-end and before you have to mess around with CECL next year. We are getting kind of get close to that point where you can announce a deal and close it this year. Any update on that effort on the M&A front?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [8]

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Well, we're still in active discussions with what we think would be great merger partners; and our strategy, as we mentioned before, has changed a little bit. We really like our current footprint. We'd like to increase our market share in some key geographies, increase our coverage in our current footprint. There are a lot of blank spaces when you look at the map. We would like to have a partner that has relatively low loan-to-deposit ratio, but who is a proven deposit gatherer. And then we certainly would like to have a lower CRE concentration so that just the math helps us manage that a little better.

I'm still optimistic that we might be able to have a transaction closed this year. Certainly it would be beneficial based on the effect of the CECL onetime balance sheet adjustment this year versus a provision through our income statement next year. So we are doing all that we can to bring that to fruition. It's still our great desire to do that.

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Operator [9]

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And our next question comes from the line of Stephen Scouten with Sandler O'Neill.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [10]

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I'm curious just beyond, going back to the expense base maybe, beyond the cost saves from Reliance. What else allowed you guys to kind of on a core basis take expenses down a quarter-over-quarter even with that inclusion. Were there other meaningful cuts beyond Reliance and the early retirement? Anything there to note that allowed for that improvement?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [11]

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Well, I'll start on that and that is our NGB program is designed to gain efficiencies through technology. And I think we mentioned before that, that sort of lagged as we've grown through acquisition. We had a lot of internal back office conversions year-to-date. So things that were not customer-facing would give us quite bit of new capability internally.

And I think what's happened is that we have not frozen new hiring, but we've recognized that technology is going to take up some of the slack as we continue to grow. So in the past, as we've grown, we've added people. This year, as we've grown, we've taken advantage of this new technology that we put in place for our back office.

So we hesitate to say what that ultimate result will be because we're just learning the capabilities of those new applications internally. But I would say that had a great deal to do with our expense control in the third quarter. I would expect it to be similar going forward.

Bob, you may have some other thoughts.

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [12]

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Just one other item, just if you look back a year ago or so, we were just a new $15 billion plus company. We're starting to mature into more of a larger bank of $15-plus billion company and trying to figure our way through that and I think this quarter showed some of that. And I echo all of the things George said.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [13]

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Okay. Great. And then maybe thinking about the NIM, core NIM I guess was relatively flat 3.66%, accretion was a bit higher. Can you give us some thoughts on what you think, I guess, the accretion will be, especially as we get into 2020, if there will be any material changes there? And then if there's any kind of changes to the guidance around that 3.70% NIM, especially in light of expectations for potentially forward rate cuts moving forward?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [14]

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Well, I'll just say this that if you recall, I think last quarter, we talked about the effect of the Reliance portfolio on the NIM, and that was estimated to be roughly 4 basis points. So subtracting that from the equation, we probably are right at 3.70% NIM without Reliance, which is very good and that shows an increase in our margin.

The Reliance portfolio will continue to weigh on that NIM until we manage some of those low-yielding loans out of the bank and replace them with higher yielding loans. So we still think the 3.66%, 3.70% guidance is good for the rest of this year.

I'm going to let Bob talk about accretion. I'm anxious to hear what he has to say.

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [15]

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Yes, we did have obviously pretty high number this quarter. Some of it is related to Reliance and the other acquisitions. As we mentioned in a lot of our calls and meetings that we did plan to break it out this quarter, how much is related to interest rate and how much is related to credit. Reliance, as George said, had excellent credit quality in their loan portfolio. But some of those loans were lower rates, and so there was a larger mark, interest rate mark on that.

So as you look at this, some of this -- some of the accretion is related obviously to credit mark. That's going to -- were used to build our allowance to the provision. The balance of it is true just interest rate just like it was a bond and as we reinvest that, we expect to get yields at or better than we had the mark on those. So as we had this quarter about $10 million or so in our accretion; our projection -- these are based on scheduled payouts -- is about $10.5 million or $11 million for the balance of the year. Now we would expect that number to have payoffs in there and migration in there.

There has never been a scheduled quarter, but a schedule means it's going to be at -- that's the minimum amount it would be. So our scheduled amount again is about $10 million, $11 million for the balance of the year. Next year, second year in, it always comes down. So we don't have those and wouldn't be comfortable giving those projections until we get to the end of the year when we know what payoffs has happened from now till then.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [16]

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Okay. And don't expect any meaningful change to that number from CECL, in particular, I think, other than the normal decline you're speaking to?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [17]

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Yes. For Simmons, the way our accretion has been booked. As we've talked about several times, there will technically be a double book when you get to CECL. You will build the allowance but you will not remove the credit mark out there or the interest rate or credit mark related to these loans, only the loans that are impaired or credit deteriorated loans. So that number is very small for Simmons.

So our accretion going forward will be lower just because the normal scheduled payoffs going into next year, but we don't expect a big change like you might see some other banks that account for that differently because they accounted for it as impaired loans basically.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [18]

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And I think the other thing to point out though Stephen is we -- when that accretion comes in as revenue, we will not be building a provision based on migrated loans because the provision will already be there. So we would expect to see a little more of that hit the bottom line than you've been used to seeing in the past.

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [19]

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Yes, beginning in 2020.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [20]

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That's right.

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Operator [21]

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And our next question comes from the line of David Feaster with Raymond James.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [22]

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Impressive quarter, congratulations there. Just wanted to follow up on the NIM question. So you're reiterating the core NIM guidance. Are you assuming any rate cuts in that and could you remind us what your expectations are for the impact of a 25 basis point cut on your margin?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [23]

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We've been talking about that quite a bit over the last 30 to 45 days. Our objective is still to manage our deposit cost along with our ability to raise revenue. We expect deposit cost to go down associated with that. We expect a little bit of pressure on our loan yield, but quite honestly, we still have quite a bit of pricing opportunity in our loan portfolio during the balance of the year from rates that are substantially lower than current market rates.

So we think we're still going to be able to balance the pressure on loan and deposit costs equally and maintain our NIM at the current rate. And that's our objective and we've taken a look at several models and believe that's an achievable goal.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [24]

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Okay. So are you assuming rate cuts in there? And how many, if so?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [25]

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Well, we have -- we're assuming one rate cut right now and that would be here in June -- at the end of July.

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [26]

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David, when we plug it in our model, if we were to plug it straight into our model with no management intervention, just let it run through, you would see probably 1 to 2, 3 basis points decline in the NIM. We believe there's opportunities in either, one, offsetting some with deposits; and two, as George said, the loan portfolio has some repricing opportunity. So we feel comfortable we will be able to maintain, if not slightly improve just because of the position of our loan portfolio and balance sheet right now.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [27]

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Okay, that's helpful. And then you talked about some noncore loans that you got from Reliance on the real estate side. How quickly are you expecting to run those off? Or would you be even interested in a potential sale of a portfolio?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [28]

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Well, we consider all ways to manage that portfolio. So several -- we expect to pay off early this year, but we're also approaching the potential loan sales. We will not take a big haircut on the loan sale because these are excellent quality loans. They just have no other relationship with the bank. They increase our CRE concentration, and they have a low yield.

So when we take a look at inventory, if you will, and opportunities that we have in the marketplace from other types of lending. So it will make sense for us to consider maybe freeing up that inventory and deploying at some other place.

So we're taking a look at every opportunity, but we will do what we think is in the best interest of our company. We're certainly not willing to take huge losses to get out of any of those loans; so to the extent that we can sell some, even participations, we are going to explore those options.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [29]

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And how big is that noncore book?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [30]

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Well, I would say that the loans that we would consider in that book from Reliance should be between $200 million and $300 million.

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David Pipkin Feaster, Raymond James & Associates, Inc., Research Division - Research Analyst [31]

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Okay. Okay. That's very helpful. And then last one from me, you talked about the NGB initiative focused on improving efficiency. Could you just -- in most, you got a lot of tech investments that's coming in the second half of the year.

Could you just remind us exactly what you're investing in and potentially what kind of efficiency improvement we could expect potentially in 2020? I mean, you're kind of at the low end of your 50% to 55% efficiency guidance. I mean, could we expect that to come in below 50% or stay at the low end, even in the face of revenue headwinds from a challenging rate environment?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [32]

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Well, we intend to manage between 50% and 55%. So the NGB investment is just one of the investments that we feel is going to be necessary to grow our business in all our markets, and I'll just mention a couple of business lines.

So our trust company does an extremely good job in certain geographies. There are other geographies where we have very little trust presence, that is a people business. So we are going to have to invest in building teams in certain geographies in order to produce that revenue.

I would say that what we've experienced with the NGB so far, will pay additional dividends from a back office efficiency standpoint. What we will roll out from now on are revenue enhancement applications. So we hope to get the best of both worlds, efficiencies in the back office, revenue generation in the front office.

Those initiatives will start rolling out in 30 days or so with our new treasury management platform. It will continue through our new digital banking platform, and then we will continue to try to make sure that we realize all the efficiencies we can through the back office upgrades.

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Operator [33]

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And our next question comes from the line of Gary Tenner with D.A. Davidson.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [34]

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Just a couple of follow-up questions. I guess, first, you mentioned the expectations for accretion in the back half of the year at $10.5 million to $11 million. Is that -- I assume that's a quarterly number?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [35]

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No, $5.5 million or so per quarter and that's for the balance of the year.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [36]

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Okay. And that's just the run rate and that's combined credit and rate though, right. So will there be any accelerated payoffs?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [37]

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That's exactly right. That's the scheduled amount per quarter.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [38]

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Okay. Perfect. And then on the early retirement savings that you talked about. Was any of that embedded in the run rate in the second quarter or that, call it, $1.1 million per quarter, should start showing up here in 3Q?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [39]

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Most of it was already in the second quarter numbers. That's why we broke out the noncore cost of that early retirement so the severance amount, if you will. But most of that's already baked into that $97.5 million run rate.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [40]

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Okay. Perfect. And then lastly, if I can, just on the construction growth, which remained very strong this quarter. Just kind of commentary about what you're seeing in that market. Maybe where some of the loans came from geographically and how the competition is in that space right now, has it eased at all?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [41]

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I'm going to let Matt take that.

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Matthew Steven Reddin, Simmons First National Corporation - President of Banking Enterprise for Simmons Bank [42]

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Yes, I'll give you some color around where it came from and then also kind of about where that portfolio is. So we continue to see good growth in our existing construction loans through North Texas, Kansas City, Middle Tennessee. That's the primary drivers. There are other areas that we see growth in that portfolio. But also know that right now our construction portfolio on average is funded over 50%. So we are well into a lot of our projects as we continue to manage our CRE concentrations.

We project next, the next 90 days we'll fund another $300 million in construction funding on existing projects. And if you look at our construction commitments, they're going down slightly month-over-month as we manage those concentrations. I hope that gives you a little color. Glad to answer any more questions as that relates to.

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Operator [43]

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And our next question comes from the line of Matt Olney with Stephens.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [44]

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I want to go back to the core margin discussion and George, I think, you mentioned you still have some loans that are priced below market levels and you're getting some benefits of repricing those higher. I haven't heard you guys mention this before or perhaps I just missed it.

Can you give us some more context as far as kind of what those repricing benefits are and how much longer do you think you can benefit from some of those tailwinds?

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Matthew Steven Reddin, Simmons First National Corporation - President of Banking Enterprise for Simmons Bank [45]

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Matt, this is Matt. I think, one noticeable opportunity for us is that Reliance portfolio where we can get those loans as they mature at a much higher margin. But we also have existing loans on the books just in the current rate environment we're in right now. We're still able to even despite where rates are heading, if you look at our approved rate at close -- rates where they're at, we're holding them or maintaining them or if not increasing them. So that's where we see that opportunity.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [46]

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And then I guess, offsetting that would be loans that are variable that if the Fed were to cut would reprice down immediately. Can you give us some context as far as how much of variable rate loans you have, and then within that LIBOR versus prime?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [47]

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Well, I would say on the variable and maturing in the next 12 months is about 45% of the portfolio. So we have about 45% that reprices pretty soon. But you also have to look on the other side. There's some deposit portfolio that allowed us [tied to raise that]. Some of it will get the full 25, some will get less. So it will be an offset on most of those numbers.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [48]

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It will be a LIBOR versus prime.

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Matthew Steven Reddin, Simmons First National Corporation - President of Banking Enterprise for Simmons Bank [49]

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How much we have in LIBOR versus prime?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [50]

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Yes.

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Matthew Steven Reddin, Simmons First National Corporation - President of Banking Enterprise for Simmons Bank [51]

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Yes, we have -- right now, we have about $1 billion plus in LIBOR loans that are tied and then the remaining of that is again what Bob said, 40%, 50% that will mature over the next 12 months.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [52]

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Got it. And then on the credit front, it looks like nonaccruals were relatively flat. Can you talk about any movements within this balance? Were there any larger credits that migrated in and out of the balance?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [53]

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No, and I'll just remind you some of those include the Reliance portfolio that came in. So we're pretty pleased with where we ended up. We've done a pretty good job of managing our problem loans. Our special asset group and field have done a great job. So we think our credit quality is very stable at this point.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [54]

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George, I recall from last quarter that you expected some paydowns as some of those past due loans and nonaccrual loans that you got subsequent to the quarter end back in the March to April time frame. Did those loans actually pay down?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [55]

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We did. The one that we mentioned actually did pay off. We had a $1 million recovery and it's still sitting in our allowance for acquired loans. So it was not taken into income.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [56]

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And what was the balance of that loan?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [57]

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I want to say it was $3 million, if I recall.

Is that right?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [58]

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About $4 million.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [59]

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$4 million.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [60]

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Okay. And then also on the tax rate, it was a little bit different this quarter. What was your expectations for the full year tax rate, or even the back half of the year?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [61]

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Well, the tax rate went up because we made a lot more money. So I would say about $21.8 million I think is our go-forward estimate. So between $21.5 million and $22 million.

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Matthew Covington Olney, Stephens Inc., Research Division - MD [62]

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And that is for the back of the year or for the full year?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [63]

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It will be the full year. So basically it gets recast every quarter for year-to-date numbers. So I'd say your year-to-date number right now is where it's going to end up pretty close. And part of that is the incremental of adding Reliance on, that's additional free income and which all of it is taxable. And if you remember some of our base is nontaxable if it's in munis or other -- BOLI income and so forth.

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Operator [64]

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(Operator Instructions) Our next question comes from the line of Garrett Holland with Baird.

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Garrett Anthony Holland, Robert W. Baird & Co. Incorporated, Research Division - Analyst [65]

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Just wanted to get your thoughts on the deposit pricing competition. You sound pretty optimistic in your ability to reduce funding costs going forward. So what's a reasonable deposit repricing bid if the Fed does cut 25 basis points next week?

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [66]

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I think you first got anything that's with tied to money market-type funds that you're going to get a higher percent of that. So if there's any public funds, broker deposits, you're going to get 100% of that. The core, I think generally you're probably talking about 40% or so of that -- 30% of that beta we might get at one move and then maybe over a period of 2 moves before you get it. So some accounts in some markets -- and keep in mind we price by market, and so some markets will have a little less opportunity and some will have more.

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Garrett Anthony Holland, Robert W. Baird & Co. Incorporated, Research Division - Analyst [67]

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I appreciate the detail. That's helpful. And then on capital, can you just remind us where you want to operate across various metrics over the intermediate term just to preserve flexibility for growth and optionality for deals?

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George A. Makris, Simmons First National Corporation - Chairman & CEO [68]

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Garrett, we believe that our TCE ratio between 8% and 9% is our operating range. So as we get closer to 9%, we have an opportunity to maybe use a little bit of that capital in our acquisitions. We have avoided stock repurchase plans at this point. If we choose to do stock repurchase, we will probably build that capital level in order to be able to do that.

And we're very comfortable and I can think -- I think you can see from our historical numbers that to operate between 8% and 9% from a TCE perspective, between 8.5% and 9% from a leverage ratio perspective and total risk-based capital between 12.5% and 13.5% is very adequate for our risk profile. I think we've been able to operate very effectively in those ranges over at least last 4 to 5 quarters.

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Robert A. Fehlman, Simmons First National Corporation - Senior EVP, CFO & Treasurer [69]

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And just as a reminder, you see the TCE ratio did go down from March to June and that was related to the acquisition of Reliance, which had over 30% in cash in that deal and right in line with what our expectations were.

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Operator [70]

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And I'm showing no further questions at this time. So with that, I'll turn the call back over to Chairman and CEO, George Makris, for closing remarks.

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George A. Makris, Simmons First National Corporation - Chairman & CEO [71]

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Well, thanks to all of you for joining us on our second quarter earnings call. I just want to say that I'm awfully proud of our associates. I think we're all reading off the same page and I think that shows in our ability to manage our net interest margin in a volatile environment. Also, our ability to achieve efficiencies through our NGB program. We're very optimistic about the new applications that we're going to roll out and our ability to provide even better service to our customers in the market.

And last, but not least, we're awfully excited about the recognition that we seem to be getting in most of our markets for our excellent customer service and certainly for best place to work in Arkansas.

So thanks again for joining us. And we'll do this again next quarter. Have a great day.

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Operator [72]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.