SIMMONS FIRST NATIONAL Q2 FY26 earnings call SFNC

Simmons Bank is heavily focused on growing high-quality core deposits, particularly noninterest-bearing accounts, which saw a 4% annualized growth in Q2. The company is implementing marketing campaigns, new product rollouts, and incentive alignments to attract new customers and deepen existing relationships. Management acknowledges the "very, very fierce" competitive environment for deposits, expecting it to continue, and is opportunistically managing wholesale funding by shifting towards FHLB borrowings due to current cost advantages over brokered deposits.

Loan production reached near 4-year highs, contributing to a 7% annualized loan growth year-to-date, comfortably within the low to mid-single-digit full-year outlook. Despite a highly competitive lending landscape, the bank maintains strict credit underwriting and pricing standards, even if it means missing some opportunities. The pipeline remains healthy, with strong unfunded commitments indicating future funding opportunities, particularly in C&I where full relationship banking drives attractive returns.

The company continues its "Better Bank initiative," achieving a 2.5% square footage reduction in Q2, bringing the total to 8.5% with a goal of 15%. These tactical efforts are complemented by a strategic focus on optimizing teams, engineering better processes, and enabling the business through technology. These investments in talent and technology are self-funded by internally generated savings, allowing the bank to capitalize on market opportunities and build a consistent operating model.

While NPLs were up slightly due to a specific 1-4 family construction loan, an 11% specific reserve has been established, and management is dedicating significant energy to its resolution. Overall, the credit backdrop shows healthy migration, with criticized and classified loans declining and past dues moderating to historical norms. The full-year net charge-off outlook remains at approximately 25 basis points, with current performance below this level.

Simmons Bank is actively recruiting senior management and banker teams, leveraging industry disruption^🌐 to attract talent. Recent hires, including a St. Louis Wealth team and Jim Reeser for C&I, are already yielding meaningful wins in wealth generation, AUM, and new business. This talent acquisition strategy is seen as a key driver for building deeper commercial relationships and expanding the client base, particularly in C&I.

Loan yields saw a modest 1 basis point decline linked quarter, indicating a lessening pace of compression. Despite competitive pricing, the bank maintains discipline, focusing on relationship profitability. A significant tailwind is expected from $1.8 billion of fixed-rate loans repricing in the next 12 months, which currently have an average yield below 4%. Management anticipates potential loan yield growth if the Fed implements a rate increase in October.