Investing.com -- Moody’s Ratings has placed the ratings and assessments of Simmons First National Corporation and its primary bank, Simmons Bank, under review for downgrade. The long-term local currency issuer rating of Baa2 for Simmons Bank, along with its long-term and short-term local currency bank deposit ratings of A2/Prime-1, are among the ratings under review.

The bank’s Baseline Credit Assessment (BCA) of baa1 and an Adjusted BCA of baa1 have also been placed under review. Additionally, Simmons Bank’s long-term Counterparty Risk Assessment of A3(cr) and long- term local currency and foreign currency Counterparty Risk Ratings of Baa1 are under review. The Baa2 long-term local currency issuer rating and Baa2 subordinate local currency debt rating of the holding company, Simmons First National Corporation, are also being reviewed for potential downgrade.

Prior to this, the outlooks on the long-term bank deposit and issuer rating of Simmons Bank and the long-term issuer rating of Simmons First National Corporation were negative.

The review for downgrade will focus on Simmons’ profitability and economic capital position, which are currently weaker compared to its peers. The bank’s investment portfolio consists of a high proportion of low-yielding and long-duration securities, which have been affecting profitability and causing significant unrealized losses.

The bank’s common equity tier 1 (CET 1) capital ratio was reported as 12.2% as of 1Q25, which is solid compared to its peers. However, the bank’s return on average assets (ROAA) of 0.5% for 1Q24 was below expectations for baa1 banks. Barring any major changes, the reported ROAA is expected to remain below 80bps in 2025.

The bank’s loan book has a large commercial real estate (CRE) concentration that features a large construction portfolio relative to peers. The bank’s CRE to tangible common equity (TCE) ratio is around 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.

Simmons’ relatively high reliance on brokered deposits, around 13% of total deposits as of 1Q25, is seen as a credit weakness. However, this is balanced by a decent core deposit franchise and funding profile.

Moody’s stated that an upgrade of Simmons’ ratings is unlikely in the next 12-18 months. The ratings could be confirmed at the conclusion of the review if the bank begins to execute on a credible plan to significantly improve its profitability and economic capital position. On the other hand, downward pressure on the ratings would emerge if it is unlikely that Simmons will improve its profitability and economic capital over the next 12-18 months. If the bank’s asset quality deteriorates further, negative rating pressure would also develop. If downgraded, the downgrade is likely to be only one notch.

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