Simmons First National in Pine Bluff, Ark., reported lower quarterly earnings after its credit costs swelled.
The $26.8 billion-asset company said in a press release that its first-quarter profit fell by 17% from a year earlier, to $32.4 million. The quarter included a $26.8 million loan-loss provision—more than half of which was tied to a pair of loans that migrated to nonperforming status.
The first relationship, a $26.9 million loan backed by a hotel in downtown St. Louis, had been on the bank’s classified list since April 2021. Originated pre-pandemic, the credit has faced prolonged stress due to weak seasonal performance and, more recently, harsh winter weather.
This is Simmons’ only loan tied to a downtown St. Louis property.
While the property remains operational and is entering a stronger part of the year, Simmons said that seasonal weakness and harsher-than-usual weather in the first quarter pushed the borrower into further difficulty. As a result, Simmons raised its specific reserve to 63% of principal, which it expects to “adequately cover” any potential loss beyond the combined value of collateral and recourse.
The second relationship, totaling $22.9 million, is tied to a fast-food operator that Simmons inherited from a recent acquisition. The loan had been classified as troubled since last June due to industry headwinds and cash flow issues.
The situation escalated when Simmons identified a customer deposit fraud involving entities tied to the borrower. Although the loan remained current on interest through March 31, the reputational and financial fallout from the fraud led Simmons to downgrade the credit to nonperforming status.
Simmons took a $4.3 million charge to noninterest expense in the first quarter tied to the fraud, and increased its specific reserve on the fast-food loan to 61% of principal—again believed to be enough to cover any potential loss beyond collateral and recourse.
These relationships alone accounted for a jump in Simmons’ nonperforming loans to 0.89% of total loans from 0.65% a quarter earlier. Nonperforming assets rose to 0.61% of total assets, and the bank’s loan-loss allowance rose to 1.48% of loans.