Simmons says its commercial-loan portfolio is stabilizing

Simmons First National Corp. announced Monday that loan modifications are “returning to normal payments” during the covid-19 pandemic.

However, the bank said it is keeping a watchful eye on the hospitality and education sectors, where it has about $1 billion in loans that could be affected if covid-19 continues to dampen hotel occupancy and forces cancellation of in-person university classes.

So far, Simmons has only two loans — valued at $260,000 — that will be losses for the lender, Chairman and Chief Executive Officer George Makris told banking analysts on a conference call Monday.

“We will probably have to take some action on that,” he added.

Makris said the bank does not anticipate having to increase loan-loss reserves during the third quarter, which ends Sept. 30.

“We think we’re well-reserved,” he added. “We don’t foresee any significant reason for additional provision now — might be a little bit, but not significant.”

The update provided a glimpse into how the pandemic is affecting the bank’s loan portfolio. Makris noted that consumer loans are performing well and the call Monday focused exclusively on commercial borrowers that have received modifications.

“We feel very good about how our borrowers are returning to normal payments,” Makris said.

Little Rock banking analyst Garland Binns said the information is a positive sign.

“Simmons is performing

well with its covid-19 loan modification program and has only two loans with an approximate aggregate value of $260,000 being characterized as deteriorated loans,” Binns said.

The Pine Bluff bank has granted $3.2 billion in deferrals on 4,102 loans with a total past due balance of $143.3 million, according to information released Monday.

The bank’s total loan portfolio was $14.6 billion as of June 30.

Deferred loans represent about 23% of Simmons’ loan balance, while its peers are at about 18%, according to an analysis that Stephens Inc. released after Monday’s call.

“Management projects its total loan deferrals to represent 10%-15% of loan

balances by September 30, which we believe will be higher than (regional) peers, which we project to be in the high-single-digit range at the time,” Stephens analyst Matt Olney wrote in the report.

In mid-March, as the pandemic began sweeping across the nation, Simmons took a proactive approach to working with borrowers to grant deferrals.

Most modifications were granted from March 15-May 15, and requests have slowed since, Makris said.

Simmons divided its deferments into seven categories outlining the borrowers’ need for a modification and ability to repay under the original terms of the loan.

About $1 billion in loans — 34% of the total modified — are back on a regular payment schedule or will be able to make regular payments once the modification period ends, bank officials

said Monday.

The Stephens report said Simmons has about $600 million in loans “that are expected to require additional modifications or the collateral and guarantor may no longer support the credit.”

Makris said the bank is continuing to carefully monitor its hotel and education – particularly at the university level – loan portfolios, since those sectors could be harmed by further economic deterioration from the coronavirus.

If universities that have borrowed money from Simmons convert from inperson classes to online sessions, that would deliver additional problems for the bank, Makris said, noting that any deterioration in hotel occupancy rates also would be problematic.

“There are some circumstances beyond our control and beyond our borrowers’ control,” Makris said on the

call. “Things could change in a hurry.”

Simmons has financed about four student-housing projects that could face repayments issues if in-person classes are canceled and students are sent home, Makris said.

Several top colleges that initially opened for class have reversed course, including the universities of Notre Dame and North Carolina.

The Stephens report Monday said the bank’s deferrals will “remain elevated” at the end of the quarter ending Sept. 30 before declining in the fourth quarter.

Hotel loans remain a challenge going forward. “When looking at the most stressed deferred loans … (the) hotel category represent 55.5% of the balance,” Olney wrote in the Stephens analysis.

Simmons shares fell 48 cents, or 2.74%, to close Tuesday at $17.07.