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Moody's Places Simmons First National Corporation and Simmons Bank Ratings on Review for Downgrade

Strategic Insights

— 1 min read

Moody's Ratings has placed certain ratings and assessments of Simmons First National Corporation and Simmons Bank on review for downgrade due to concerns over their profitability and economic capital position. The review will focus on the bank's ability to improve its profitability and economic capital, which remains weak relative to baa1 peers. Simmons' investment portfolio has been a drag on profitability, with significant unrealized losses in both available-for-sale and held-to-maturity parts of the portfolio.

Key Takeaways:

  • Simmons' profitability is a rating weakness, with a return on average assets (ROAA) of 0.5% for 1Q24, which is below expectations for baa1 banks.
  • The bank's loan portfolio has a large commercial real estate (CRE) concentration, with a CRE/tangible common equity (TCE) measure of 3.4x, one of the highest concentrations relative to regional banking peers.
  • Simmons intends to diversify its loan portfolio away from CRE over the next few years, which is viewed as a credit positive.
  • The bank's reliance on brokered deposits, around 13% of total deposits as of 1Q25, is a credit weakness, albeit balanced by a decent core deposit franchise and funding profile.
  • A significant rating constraint for Simmons is the bank's CRE concentration, which features a large construction portfolio relative to peers.
  • Simmons' common equity tier 1 (CET 1) capital ratio of 12.2% as of 1Q25 is solid compared to peers and viewed as an important mitigant for the bank's concentrated loan portfolio.
  • The bank's reported common equity tier 1 (CET 1) capital ratio is expected to remain solid, but the profitability is expected to remain below 80bps in 2025.

Statistics:

  • Simmons' return on average assets (ROAA) was 0.5% for 1Q24.
  • The bank's CRE/tangible common equity (TCE) measure is around 3.4x.
  • The bank's reliance on brokered deposits is around 13% of total deposits as of 1Q25.
  • Simmons' common equity tier 1 (CET 1) capital ratio is 12.2% as of 1Q25.
  • The bank's net charge-offs (NCO) have remained below 25bps of average loans each of the last three years.
  • The bank's solid credit performance is reflected in its solid credit loss track record.

Sources:

  • Moody's Ratings press release: Available at https://www.moodys.com
  • Rating Methodology: Banks published in November 2024 and available at https://ratings.moodys.com/rmc-documents/432741
  • Rating Methodologies page: https://ratings.moodys.com

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