Simmons Margin Breaks After a Flat Quarter
Net interest margin rose 8 bps to 3.92% as the Mid-South lender cut loans to $17.47 billion and funded the book with FHLB advances.
Simmons First National Corporation (SFNC) expanded its net interest margin 8 basis points to 3.92% in the third quarter, after the metric had been unchanged at 3.84% in the second quarter, as loan yields rose 5 bps and the cost of deposits fell 8 bps to 1.85%.
The Mid-South-based financial holding company said the linked-quarter margin gain reflected higher loan yields as lower fixed-rate back-book credits repriced, plus deleveraging of lower-yielding, low-relationship loans and a matching cut in higher-cost funding. Net interest income was $204.0 million, up $3.3 million, or 7% annualized, from $200.6 million, on a $1.4 million increase in interest income and a $2.0 million decrease in interest expense from lower customer deposit costs and the use of FHLB advances in place of higher-rate brokered deposits.
That funding shift was the quarter’s balance-sheet turn. Total loans fell to $17.47 billion from $18.06 billion as the bank ran off lower-yielding credits, reversing the 10% annualized loan growth reported in the first quarter. Total deposits declined to $18.62 billion from $19.73 billion. Interest-bearing deposits were $14.3 billion, down from $15.4 billion, on deleveraging of higher-rate deposits, seasonal public-fund outflows and a cut in brokered deposits. Brokered deposits fell to $935 million from $1.81 billion. Other borrowings rose to $1.4 billion from $941.3 million as the company increased short-term FHLB advances. Noninterest-bearing deposits were $4.29 billion, or 23% of total deposits.
President and CEO Jay Brogdon said the company continued to reduce noninterest expenses and back-book loans and deposits with low relationship value, and that those initiatives, with disciplined loan and deposit pricing, drove the 8 bps of margin expansion and improvements in adjusted return on average assets and adjusted return on average tangible common equity.
Adjusted net income was $79.0 million, or $0.54 a share, compared with $72.2 million, or $0.50 a share, in the second quarter. Reported net income was $47.1 million, or $0.32 a share, after $43.2 million of pretax items including $17.1 million of certain professional services, $14.2 million of branch and real estate rightsizing costs, $6.0 million of severance and early retirement costs and $5.9 million of accelerated prepaid expenses. Adjusted return on average assets was 1.29% and adjusted ROTCE was 15.50%.
Noninterest income was $47.2 million, down from $47.9 million, as lower swap fees and a smaller SBIC valuation gain more than offset a $1.3 million rise in deposit service charges and a $1.2 million rise in wealth management. Deposit service charges were $13.6 million and wealth management $11.4 million.
Reported noninterest expense was $182.0 million. Adjusted noninterest expense was $138.9 million versus $140.3 million, and the adjusted efficiency ratio improved to 53.31% from 54.26%. Full-time equivalent employees were 2,712 and financial centers numbered 220.
Credit quality moved the other way. The net charge-off ratio rose to 27 bps from 20 bps. Nonperforming loans increased to $179.9 million from $166.1 million, which the company attributed to normal credit migration, and NPL coverage fell to 133% from 143%. Provision for credit losses declined to $12.2 million from $17.4 million. The allowance for credit losses on loans was $238.5 million, or 1.37% of loans. Loans past due 30–89 days were 30 bps of total loans.
CET1 rose to 12.05% from 11.60%. The company did not repurchase shares in the third quarter, leaving about $161 million of 2026 authorization after buying 0.7 million shares in the second quarter. Book value per share was $23.18 and tangible book value $13.52.
Brogdon said the company will remain focused on profitable growth and that efficiencies from simplifying the business will more than fund ongoing investments in high-value organic growth. Simmons plans to outline strategic objectives and future financial targets at an Investor Day in December.