Simmons First National's Revenue Beat and Its Implications for Long-Term Value Creation

Simmons First National Corporation's third-quarter 2025 results present a paradox: a $562.8 million net loss driven by a $626 million after-tax loss from the sale of low-yielding investment securities, yet adjusted earnings of $64.9 million-a 162% increase year-over-year-highlighting the tension between short-term pain and long-term strategic gains. The bank's balance sheet repositioning, deposit remixing, and asset quality metrics will ultimately determine whether this revenue outperformance translates into durable shareholder value.

Strategic Balance Sheet Repositioning: A Double-Edged Sword

Simmons executed a transformative balance sheet repositioning in Q3 2025, selling $2.4 billion in low-yielding securities and raising $327 million in equity to address a negative arbitrage between long-term bond yields and short-term funding costs. While this led to an immediate after-tax loss of $626 million, the move deleveraged the balance sheet by reducing higher-rate, non-relationship wholesale deposits and borrowings. The net interest margin (NIM) expanded to 3.50% in Q3, up 44 basis points from the prior quarter, with management guiding for a NIM of 3.65%+ in Q4 2025. This suggests that the repositioning, though costly in the short term, is designed to enhance profitability by aligning funding costs with higher-yielding assets.

However, the sustainability of this strategy hinges on execution. The benefits of the repositioning were only "partially realized" in Q3 due to transaction timing, according to management. If the anticipated NIM expansion materializes, the bank could see meaningful earnings growth. Yet, the $562.8 million loss underscores the risks of aggressive restructuring, particularly in a volatile interest rate environment.

Deposit Remixing: Lower Costs, but Volume Concerns

Simmons' deposit remixing efforts have yielded tangible cost reductions. The average cost of deposits fell to 2.25% in Q3 2025, down 11 basis points from Q2, driven by a shift toward noninterest-bearing deposits (now 22.1% of total deposits) and a sharp reduction in brokered deposits to $1.84 billion. These actions align with the bank's focus on organic growth and operational efficiency.

Yet, total deposits declined to $19.8 billion in Q3 from $21.8 billion in Q2, raising questions about the durability of this strategy. While management attributes the drop to the pay-down of higher-cost deposits, the reduction in overall deposit volume could limit future lending capacity if not offset by loan growth. The bank's ability to attract low-cost retail deposits-up $233.1 million in Q2-will be critical to sustaining this momentum.

Asset Quality: A Mixed Picture

Simmons' asset quality metrics remain a key area of focus. The net charge-off ratio (NCO) held steady at 0.25% in Q3 2025, consistent with Q2 but up from 0.22% in Q3 2024. Nonperforming loans stood at 0.90% of total loans, slightly higher than the 0.59% recorded in Q3 2024 but marginally lower than Q2's 0.92% according to the latest data. Management emphasized that credit issues in Q1-such as a $27 million hotel loan and a $23 million fast-food franchise loan placed on nonaccrual-were isolated incidents.

While the allowance for credit losses to loans (ACL) ratio increased to 1.50% in Q3, reflecting prudence, the bank's asset quality remains relatively healthy compared to peers. However, the recent credit challenges highlight the risks of aggressive lending strategies in dynamic markets. If economic conditions deteriorate, Simmons' loan portfolio could face renewed stress.

The Path to Sustainable Value Creation

The long-term success of Simmons' strategy depends on three factors:
1. NIM Expansion: The projected NIM of 3.65%+ in Q4 2025 must materialize to justify the short-term losses. A sustained increase in NIM would directly boost profitability.
2. Deposit Stability: The decline in total deposits in Q3 raises concerns. If the bank cannot replace higher-cost deposits with organic retail growth, its cost advantage may erode.
3. Credit Discipline: The recent credit issues, though isolated, underscore the need for disciplined underwriting. A spike in nonperforming loans could offset gains from balance sheet repositioning.

Management's emphasis on "disciplined growth" and operational efficiency suggests a focus on quality over quantity. However, the market will need to see consistent execution-particularly in deposit growth and NIM expansion-to reward this strategy with a higher valuation.

Conclusion

Simmons First National's Q3 2025 results reflect a bank in transition. The revenue beat and adjusted earnings growth are promising, but the path to long-term value creation remains uncertain. The balance sheet repositioning has laid the groundwork for higher NIM and lower funding costs, yet the short-term financial hit and deposit volatility pose risks. Investors should monitor Q4 results closely, particularly the realization of NIM guidance and the stability of deposit volumes. If management can navigate these challenges while maintaining asset quality, Simmons' core franchise may yet deliver durable earnings growth.