SFNC Q1 Deep Dive: Revenue Growth Offset by Credit Actions and Margin Pressures

Regional banking company Simmons First National (NASDAQ:SFNC) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 5.1% year on year to $214.2 million. Its non-GAAP profit of $0.44 per share was 12.8% above analysts’ consensus estimates.

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StockStory’s Take

Simmons First National’s first quarter results drew a negative market response, as investors focused on the significant shortfall in non-GAAP earnings relative to Wall Street expectations. Management cited two specific credit relationships—a downtown St. Louis hotel and a fast food franchise operator—that required higher reserves and contributed to elevated provision expenses. President Jay Brogdon described these actions as “proactive and conservative,” emphasizing that while these unique credit events weighed on profitability, broader loan and deposit trends remained healthy. The company continued to see growth in customer deposits and maintained net interest margin expansion, but the higher provision expense and a notable fraud charge impacted overall earnings.

Looking ahead, Simmons First National’s management reiterated their commitment to disciplined expense management and conservative credit practices as key factors shaping the company’s outlook for the rest of the year. Brogdon stated that the original 2025 operating leverage targets remain intact, supported by positive trends in net interest margin and deposit mix. However, he cautioned that uncertainty in the macroeconomic environment could result in further reserve building industry-wide, and the resolution timeline for the two stressed credit relationships may extend through the year. The company intends to balance growth in core deposits with ongoing efforts to reduce reliance on wholesale funding and preserve capital flexibility.

Key Insights from Management’s Remarks

Management attributed first quarter performance to healthy core deposit and loan trends, but profitability was pressured by credit-specific actions and a one-time fraud event.

• Credit actions weighed on profits: The migration of two specific credit relationships—a downtown St. Louis hotel loan and a fast food franchise operator—resulted in higher reserves, driving up provision expense. Management emphasized these were isolated issues, with Brogdon noting, “We believe these situations are unique to these particular borrowers, and we believe our overall loan portfolio remains healthy.”
• Deposit growth and remixing: Customer deposits grew, with a positive shift from higher-cost brokered and time deposits into lower-cost transaction accounts. CFO Daniel Hobbs highlighted growth in consumer checking accounts and called recent trends “encouraging,” especially as consumer deposits returned to more predictable seasonal patterns.
• Net interest margin expansion: The bank’s net interest margin improved, assisted by lower funding costs and fixed-rate loan repricing. Management expects this trend to continue as asset yields reset higher and deposits are further optimized.
• Expense discipline despite headwinds: Adjusted non-interest expense increased due to a $4.3 million fraud charge, but excluding this event, expenses were slightly down. Brogdon confirmed ongoing cost control initiatives and said the company remains on track with its full-year expense guidance.
• Loan pipeline strength: Simmons reported its highest commercial loan pipeline since mid-2022, reflecting broad-based opportunity across community, commercial, and agricultural segments. Management described borrower activity as “broad-based,” with some demand pulled forward as clients locked in favorable terms.

Drivers of Future Performance

Management expects future performance to be driven by continued improvement in core deposit mix, loan repricing, and disciplined expense management, while monitoring credit quality amid economic uncertainty.

• Deposit optimization focus: The company intends to prioritize growth in core, low-cost customer deposits over reliance on brokered and wholesale funding. Hobbs outlined initiatives to increase consumer checking accounts and reduce time deposits, with the goal of further lowering funding costs and supporting margin stability.
• Credit quality vigilance: While management views current portfolio credit issues as isolated, they acknowledged that baseline economic scenarios are expected to worsen, potentially requiring additional reserve building if macro conditions deteriorate. Brogdon stated, “We would expect the baseline scenarios…to continue to worsen,” indicating ongoing caution in reserve methodology.
• Expense control and capital flexibility: Simmons plans to sustain strict expense discipline, leveraging centralized procurement and careful headcount management. Capital deployment will prioritize organic growth and dividends, with share repurchases remaining an option only if market conditions warrant.

Catalysts in Upcoming Quarters

In coming quarters, our analyst team will be watching (1) progress on resolving the two stressed credit relationships and any impact on reserves, (2) continued improvement in core deposit growth and funding mix, and (3) the sustainability of net interest margin expansion as loan repricing and deposit optimization continue. Monitoring expense discipline and execution on reducing wholesale funding will also be key to evaluating management’s ability to deliver on its operating leverage goals.

Simmons First National currently trades at $20.06, up from $19.69 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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