10-Q: Simmons First National Reports Q3 Loss Amid Balance Sheet Repositioning

Simmons First National Corporation reported a significant net loss in Q3 2025 due to a strategic balance sheet repositioning, including the sale of $3.2 billion in low-yielding securities, while maintaining strong capital ratios and adjusted earnings growth.

Summary

• Reported a net loss of $(562.8) million, or $(4.00) diluted earnings per share, for the three months ended September 30, 2025.
• Reported a net loss of $(475.6) million, or $(3.63) diluted earnings per share, for the nine months ended September 30, 2025.
• Engaged in a strategic balance sheet repositioning, reclassifying approximately $3.6 billion in held-to-maturity (HTM) investment securities to available-for-sale (AFS) and subsequently selling approximately $3.2 billion in amortized cost basis of AFS securities.
• Incurred a realized, after-tax loss of $625.6 million from the sale of investment securities.
• Proceeds from the securities sale were primarily used to deleverage the balance sheet by paying down higher-rate wholesale and public fund deposits, as well as higher-rate other borrowings, primarily Federal Home Loan Bank (FHLB) advances.
• Adjusted diluted earnings per share (excluding certain items) for the three months ended September 30, 2025, was $0.46, an increase from $0.44 in the preceding sequential quarter.
• Adjusted diluted earnings per share (excluding certain items) for the nine months ended September 30, 2025, was $1.18, an increase from $1.02 for the same period in 2024.
• Total deposits were $19.84 billion as of September 30, 2025, a decrease from $21.89 billion as of December 31, 2024.
• Total loans were $17.19 billion as of September 30, 2025, an increase from $17.01 billion as of December 31, 2024.
• Nonperforming loans increased to $153.9 million as of September 30, 2025, from $110.8 million as of December 31, 2024, primarily due to two specific credit relationships.
• Net interest margin on a fully tax equivalent basis increased to 3.50% for the three months ended September 30, 2025, from 3.06% for the three months ended June 30, 2025.
• Closed a public offering of 18,653,000 shares of Class A common stock at $18.50 per share, generating net proceeds of $327.4 million.
• Issued $325.0 million in 6.25% Fixed-to-Floating Rate Subordinated Notes (2025 Notes) in September 2025, and subsequently redeemed $330.0 million of 5.00% Fixed-to-Floating Rate Subordinated Notes (2018 Notes) on October 1, 2025.

Sentiment

Score: 3

Explanation: The significant reported net loss, driven by a strategic but costly securities sale, heavily impacts the immediate financial performance. While adjusted earnings show growth and capital ratios remain strong, the substantial one-time loss and an increase in nonperforming loans present immediate negative indicators. The strategic move is forward-looking, but the short-term financial results are poor.

Positives

• Adjusted diluted earnings per share increased to $0.46 in Q3 2025 from $0.44 in Q2 2025, and to $1.18 for the nine months ended September 30, 2025, from $1.02 in the prior year period.
• Capital levels remained strong, with all regulatory capital ratios significantly above well-capitalized guidelines (Common Equity Tier 1 ratio of 11.54%, Tier 1 leverage ratio of 9.56%, and Total risk-based capital ratio of 15.07% as of September 30, 2025).
• Net interest margin on a fully tax equivalent basis increased by 44 basis points to 3.50% in Q3 2025 compared to the preceding sequential quarter, driven by the balance sheet repositioning and reduced funding costs.
• Additional liquidity sources available totaled $9.53 billion as of September 30, 2025, with an uninsured, non-collateralized deposit coverage ratio of 2.1x.
• The commercial loan pipeline increased to $1.61 billion as of September 30, 2025, from $1.26 billion at December 31, 2024, indicating future lending opportunities.
• Recurring fee income (service charges, wealth management fees, debit and credit card fees) increased over both comparative periods, with wealth management fees growing due to market performance and service charges on deposit accounts increasing due to consumer account growth and commercial treasury management performance.
• Annualized net credit card charge-offs to average total credit card loans were 3.11% for the first nine months of 2025, which is 120 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Negatives

• Reported a significant net loss of $(562.8) million for the three months ended September 30, 2025, and $(475.6) million for the nine months ended September 30, 2025.
• Incurred a substantial after-tax loss of $625.6 million from the strategic sale of $3.2 billion in low-yielding investment securities.
• Nonperforming loans increased to $153.9 million at September 30, 2025, from $110.8 million at December 31, 2024, primarily due to two specific credit relationships ($26.7 million St. Louis hotel loan and $22.6 million fast-food operator loan) migrating to nonaccrual status.
• Nonperforming assets as a percent of total assets increased to 0.66% at September 30, 2025, from 0.45% at December 31, 2024.
• Total deposits decreased by $2.05 billion from December 31, 2024, primarily due to the reduction of higher-rate wholesale and public fund deposits as part of the balance sheet repositioning.
• Tangible book value per share decreased to $13.45 at September 30, 2025, from $16.80 at December 31, 2024.
• Interest income on loans and investment securities decreased year-over-year for the nine months ended September 30, 2025.

Risks

• Changes in operating, acquisition, or expansion strategy.
• Effects of future economic conditions, including unemployment levels and slowdowns in economic growth.
• Governmental monetary and fiscal policies, including those of the Federal Reserve, and legislative and regulatory changes.
• Changes in tariff policies.
• General business conditions and conditions within the financial markets, including developments impacting the financial services industry such as bank failures or liquidity concerns.
• Changes in real estate values.
• Changes in interest rates and related governmental policies.
• Effects of a government shutdown.
• Changes in liquidity, and the availability of and costs associated with obtaining adequate and timely sources of liquidity.
• Increased inflation.
• Changes in the level and composition of deposits, loan demand, deposit flows, and the values of loan collateral, securities, and interest-sensitive assets and liabilities.
• Changes in credit quality.
• Actions taken to manage the investment securities portfolio.
• Changes in the securities markets generally or the price of the common stock, specifically.
• Changes in the assumptions used in making forward-looking statements.
• Developments in information technology affecting the financial industry.
• Cyber threats, attacks, or events, including at third parties on which the company relies for key services.
• The ability to collect amounts due under loan agreements.
• Reliance on third parties for the provision of key services.
• Further changes in accounting principles relating to loan loss recognition.
• The costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions.
• Possible adverse rulings, judgments, settlements, fines, and other outcomes of pending or future litigation or government actions.
• Market disruptions, including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts, or other major events, or the prospect of these events.
• Changes in customer behaviors and preferences, including consumer spending, borrowing, and saving habits.
• The soundness of other financial institutions and indirect exposure related to the closings of other financial institutions and their impact on the broader market.
• The loss of key employees.
• Fraud that results in material losses or that has not been discovered yet.
• Increased unemployment and labor shortages.
• The ability to manage and successfully integrate mergers and acquisitions to fully realize cost savings and other benefits.
• Increased delinquency and foreclosure rates on commercial real estate and other loans.
• Significant increases in nonaccrual loan balances.
• The effects of government legislation.
• The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions.
• The failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans, other real estate owned, and other cautionary statements.
• The Internal Revenue Service could determine that losses from the securities sale are not entitled to ordinary treatment, which could subject the company to material amounts of taxes and adversely affect financial condition and results of operations.

Future Outlook

The company continues to focus on organic growth within its existing footprint, despite ongoing macroeconomic uncertainty and potential future interest rate movements. Management expects the fair value of available-for-sale securities to recover as they approach maturity or repricing dates, or if market yields decline. Cash flows generated from the principal maturities of securities are anticipated to provide flexibility for funding future loan growth or reducing wholesale funding. The Board of Directors expects to continue paying quarterly dividends, with amounts determined based on consolidated earnings, financial condition, liquidity, capital requirements, and regulatory considerations.

Management Comments

• The third quarter of 2025 was transformative for our Company.
• We successfully raised $326.9 million of equity capital to reposition our balance sheet.
• We effectively addressed a negative arbitrage between long-term bond yields and shorter-term funding costs which freed up capital for future growth.
• While the one-time loss on the sale of the bonds was significant, the financial strength of our company coupled with the positive sentiment from investors allowed us that opportunity.
• While we continue to operate against a backdrop of uncertainty concerning the macroeconomic environment and the timing of future interest rate moves, we continue our focus on organic growth in our current footprint and are encouraged by our positive momentum through the nine months ended September 30, 2025.
• Otherwise, we believe the asset quality in our portfolio remains sound and reflects our conservative credit culture, as well as our focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment.
• We continually monitor and look for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.
• The AFS securities sold were low-yield bonds and, by removing these bonds from our balance sheet, we reduced our level of high-cost wholesale funding and increased our ability to generate higher earnings and growth.
• We expect the cash flows from principal maturities of securities to provide flexibility to fund future loan growth or reduce wholesale funding.
• We expect that the losses described above should be entitled to ordinary treatment. However, the Internal Revenue Service could determine that the losses described above should not be entitled to ordinary treatment, in which case we could be subject to material amounts of taxes which would have a material adverse effect on our financial condition and results of operations.

Industry Context

The company's strategic balance sheet repositioning, involving the sale of low-yielding securities and the pay-down of higher-cost funding, is a direct response to the prevailing high interest rate environment and aims to improve net interest margin, a common challenge for banks in such conditions. The mention of the FDIC special assessment in 2024 highlights the lingering impact of broader industry events, such as bank failures, on financial institutions. The company's credit card charge-off ratio performing 120 basis points better than the Federal Reserve's industry average suggests a relatively strong performance in this specific segment compared to its peers.

Comparison to Industry Standards

• Annualized net credit card charge-offs to average total credit card loans were 3.11% for the first nine months of 2025, which is 120 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Corporate Governance

Legal Proceedings

• The Company and its subsidiaries are parties to various legal proceedings incidental to the conduct of its business, including breach of contract claims, lender liability claims, and other ordinary-course claims, some of which seek substantial relief or damages.
• Management believes that the ultimate outcome in such proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company's business, consolidated results of operations, financial condition, or cash flows, based on information presently available and after consultation with legal counsel.
• It is possible that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to the Company's results of operations for a given fiscal period.

Related Party Transactions

• The Company and its subsidiaries have made loans, other extensions of credit, and vendor contracts to directors, officers, their associates, and members of their immediate families.
• Some directors, officers, and their associates and members of their immediate families have placed deposits with Simmons Bank.
• Such transactions were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons or through a competitive bid process.
• Management's opinion is that these extensions of credit did not involve more than normal risk of collectability or present other unfavorable features.

Stakeholder Impact

• Shareholders experienced a significant net loss and dilution from the public offering, but the strategic balance sheet repositioning aims for long-term value creation and improved earnings. Quarterly dividends are expected to continue.
• Employees were impacted by early retirement program costs, indicating potential workforce adjustments, while stock-based compensation plans remain in place.
• Customers benefit from the company's continued focus on organic growth and refining product offerings, with loan modifications available for those experiencing financial difficulty.
• Creditors saw changes in the company's debt structure, including the issuance and redemption of subordinated notes and the pay-down of FHLB advances.
• Regulatory bodies continue to oversee the company, which met all capital adequacy requirements, including the capital conservation buffer, under Basel III Capital Rules.

Next Steps

• Continue focus on organic growth in current footprint.
• Monitor macroeconomic environment and timing of future interest rate moves.
• Amortize remaining net unrealized losses from transferred securities into income over their remaining life.
• Continue to manage Construction & Development (C&D) and Commercial Real Estate (CRE) portfolio concentration by developing deeper relationships with customers.
• Continue to refine product offerings to give customers flexibility of choice and adjust interest rates timely in the current rate environment.
• The Board of Directors anticipates continuing quarterly dividends.
• Continually assess capital and liquidity needs and the best way to meet them, including through capital raising in the market.
• Monitor and manage interest rate risk using simulation models and interest sensitivity gap analysis.
• Management may alter the mix of floating and fixed-rate assets and liabilities, change pricing schedules, manage investment maturities during future security purchases, or enter into derivative contracts such as interest rate swaps.

Key Dates

Recommendation

The company reported a substantial net loss driven by a strategic, one-time balance sheet repositioning aimed at improving future net interest margin and earnings power. While this move is expected to be beneficial long-term, the immediate financial impact is severe. The company successfully raised equity and maintained strong capital ratios, demonstrating resilience. However, the increase in nonperforming loans and the significant reported loss warrant a cautious approach. Investors should 'hold' to observe the successful execution and realization of benefits from this strategic shift, as the long-term implications are still unfolding.

Keywords

Simmons First National Corporation, SFNC, Banking, Financial Services, Quarterly Report, 10-Q, Net Loss, Balance Sheet Repositioning, Investment Securities Sale, Adjusted Earnings, Capital Ratios, Nonperforming Loans, Deposits, Loans, Net Interest Margin, Subordinated Notes, Capital Raise, Liquidity, Credit Quality, Risk Factors, Bank, Financial Holding Company