What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-06 · 164 added, 147 removed, 714 unchanged (30% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our net income for the three months ended June 30, 2021 was $74.9 million, or $0.69 diluted earnings per share, increases of $16.1 million and $0.15, respectively, compared to the second quarter of 2020.

Included in both second quarter 2021 and 2020 results were non-core items related to our acquisitions and branch right sizing initiatives.

Our net income for the three months ended September 30, 2021 was $80.6 million, or $0.74 diluted earnings per share, increases of $14.7 million and $0.14, respectively, compared to the third quarter of 2020.

Included in both third quarter 2021 and 2020 results were non-core items related to our acquisitions and branch right sizing initiatives.

Also included in 2020 results were non-core items related to early retirement programs.

Included in both period results are gains associated with the sale of branch operations.

Excluding all non-core items, core earnings for the three months ended June 30, 2021 were $75.4 million, or $0.69 core diluted earnings per share, compared to $60.1 million, or $0.55 core diluted earnings per share for the three months ended June 30, 2020.

Net income for the first six months of 2021 was $142.3 million, or $1.31 diluted earnings per share, compared to $136.0 million, or $1.22 diluted earnings per share, for the same period in 2020.

Excluding the same non-core items referenced above, year-to-date core earnings were $139.4 million, an increase of $5.4 million compared to the same period in the prior year.

Excluding all non-core items, core earnings for the three months ended September 30, 2021 were $79.4 million, or $0.73 core diluted earnings per share, compared to $68.3 million, or $0.63 core diluted earnings per share for the three months ended September 30, 2020.

Net income for the first nine months of 2021 was $222.9 million, or $2.05 diluted earnings per share, compared to $201.9 million, or $1.83 diluted earnings per share, for the same period in 2020.

In addition to the non-core items referenced above, gains associated with the sale of branch operations were included in the results for the first nine months of both 2021 and 2020.

Excluding these non-core items, year-to-date core earnings were $218.8 million, an increase of $16.5 million compared to the same period in the prior year.

Core diluted earnings per share for the first half of 2021 were $2.01 compared to $1.83 for the same period in 2020.

In June 2021, we announced the acquisitions of Landmark, based in Collierville, TN, and Triumph, based in Memphis, TN.

Completion of the Landmark and Triumph transactions is expected during the fourth quarter of 2021 and is subject to certain closing conditions, including approval by the shareholders of Landmark and Triumph, as well as customary regulatory approvals.

In June 2021, we announced the acquisitions of Landmark, previously based in Collierville, TN, and Triumph, previously based in Memphis, TN.

These acquisitions were completed on October 8, 2021.

We were able to obtain all necessary approvals, close and simultaneously complete the systems conversions of the two banks within approximately four months of the announcement, which we believe speaks to the outstanding team we have developed.

We continuously evaluate our branch network to ensure it reflects our core footprint and changes in customer behavior which allows us to efficiently serve our customers’ evolving needs.

As part of our ongoing branch right sizing initiative, during the second quarter of 2021, we announced plans to close 12 branches during the third quarter of 2021.

We closed 13 branches during July 2021 as part of our ongoing branch right sizing initiative.

Simmons Bank was named to Forbes magazine’s list of “World’s Best Banks” for the second consecutive year and ranked among the top 30 banks in Forbes’ list of “America’s Best Banks” for 2021.

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We are still feeling the effects of the COVID-19 pandemic in the economy and some industries are still struggling to return to pre-COVID levels of performance;

however, our asset quality continued to show marked improvement during the second quarter of 2021.

Stockholders’ equity as of June 30, 2021 was $3.0 billion, book value per share was $28.03 and tangible book value per share was $17.16.

Our ratio of common stockholders’ equity to total assets was 12.97% and the ratio of tangible common stockholders’ equity to tangible assets was 8.36% at June 30, 2021.

however, our asset quality continued to show marked improvement during the third quarter of 2021.

Nonperforming loans declined for the fourth consecutive quarter and are now at their lowest levels since December of 2018.

Stockholders’ equity as of September 30, 2021 was $3.0 billion, book value per share was $28.42 and tangible book value per share was $17.39.

Our ratio of common stockholders’ equity to total assets was 13.04% and the ratio of tangible common stockholders’ equity to tangible assets was 8.41% at September 30, 2021.

The Company’s Tier 1 leverage ratio of 9.07%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” guidelines (see Table 12 in the Capital section of this Item).

Total deposits were $18.3 billion at June 30, 2021, compared to $17.0 billion at December 31, 2020 and $16.6 billion at June 30, 2020.

We repurchased approximately 1.8 million shares of our common stock during the third quarter of 2021.

Total deposits were $18.1 billion at September 30, 2021, compared to $17.0 billion at December 31, 2020 and $16.2 billion at September 30, 2020.

The increase in total deposits is, in significant part, a reflection of the multiple rounds of economic stimulus legislation in response to the COVID-19 pandemic that have created a rapid rise in liquidity and have led to changes in customer spending habits.

Trends affected by the increase in customer cash balances are pay downs on loans, decreased loan demand, reduced credit card balances and fewer overdraft activities.

Total loans were $11.4 billion at June 30, 2021, compared to $12.9 billion at December 31, 2020 and $14.6 billion at June 30, 2020.

Total loan production (loan originations and advances) during the first half of 2021 totaled $1.8 billion, which positions us to exceed loan production volume reported for the full year of 2020.

While loan originations and advances are outpacing prior year production, the decline in loan balances reflects, in significant part, the substantial government stimulus to support the economy during the COVID-19 pandemic which contributed to an increase in the level of loan paydowns, payoffs and corresponding sluggish loan demand throughout the financial services industry.

As of June 30, 2021, we had $441.4 million in loans outstanding under the PPP.

The change in total PPP loan balances during the second quarter of 2021 was as follows:

Total loans were $10.8 billion at September 30, 2021, compared to $12.9 billion at December 31, 2020 and $14.0 billion at September 30, 2020.

Total loan production (loan originations and advances) during the third quarter of 2021 totaled $1.5 billion, which along with the production during the first half of the year positions us to exceed loan production volume reported for the full year of 2020.

In addition, the decline in balances has also been due to our strategic right-sizing of our commercial real estate construction portfolio as several large projects were completed.

Our commercial pipeline rose for the fourth consecutive quarter to $1.5 billion and was up 15% from the prior quarter end and we are seeing activity from repeat customers across most of our business lines.

For these reasons, amongst others, we are continuing to actively recruit loan producers across all of our business units.

As of September 30, 2021, we had $212.1 million in loans outstanding under the PPP.

The change in total PPP loan balances during the third quarter of 2021 was as follows:

PPP PPP Total

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PPP loan forgiveness and repayments (882,295) (129,210) (1,011,505)

Ending balance, June 30, 2021 $ 140,771 $ 300,582 $ 441,353

Ending balance, September 30, 2021 $ 22,378 $ 189,709 $ 212,087

PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios.

As a result, excluding PPP loans from total assets, common equity to total assets was 13.22% and tangible common equity to tangible assets was 8.53% as of June 30, 2021.

As a result, excluding PPP loans from total assets, common equity to total assets was 13.16% and tangible common equity to tangible assets was 8.49% as of September 30, 2021.

We continue to closely monitor the COVID-19 pandemic and expect to make future changes to respond as this situation continues to evolve.

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See the GAAP Reconciliation of Non-GAAP Measures section below for additional discussion and reconciliations of non-GAAP measures.

Simmons First National Corporation is a Mid-South based financial holding company that, as of June 30, 2021, has approximately $23.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Simmons First National Corporation is a Mid-South based financial holding company that, as of September 30, 2021, has approximately $23.2 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

CRITICAL ACCOUNTING POLICIES

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Our allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses .

Accordingly, the methodology is

based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments.

Accordingly, the methodology is based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments.

For further information see the section Allowance for Credit Losses below.

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Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law.

When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws.

When preparing the Company’s income tax returns, management attempts to make reasonable

interpretations of the tax laws.

Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law.

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Net Interest Income Quarter-to-Date Analysis

For the three month period ended June 30, 2021, net interest income on a fully taxable equivalent basis was $151.1 million, a decrease of $15.0 million, or 9.0%, over the same period in 2020.

For the three month period ended September 30, 2021, net interest income on a fully taxable equivalent basis was $150.2 million, a decrease of $6.3 million, or 4.0%, over the same period in 2020.

The decrease in net interest income was primarily the result of a $13.7 million decrease in fully tax equivalent interest income partially offset by a $7.4 million decrease in interest expense.

The reduction in interest income primarily resulted from a $31.0 million decrease in interest income on loans partially offset by an increase of $17.9 million in interest income on investment securities.

The decrease in interest income on loans during the second quarter of 2021, reflects a lower average loan balance combined with an 11 basis point decline in loan yield.

The loan yield for the second quarter of 2021 was 4.73% compared to 4.84% from the same period in 2020.

We generated additional interest income on investment securities by redeploying a portion of excess cash to purchase $2.5 billion of investment securities during the second quarter of 2021, which included $1.1 billion of short-term, variable rate securities.

Regarding the decrease in interest income on loans during the third quarter of 2021, the decline in loan volume resulted in a decrease $39.1 million, partially offset by $8.1 million of interest income from a 22 basis point increase in loan yield.

The loan yield for the third quarter of 2021 was 4.76% compared to 4.54% from the same period in 2020.

We generated additional interest income on investment securities by redeploying a portion of excess cash to purchase $1.2 billion of investment securities during the third quarter of 2021, which included $226.3 million of short-term, variable rate securities.

The $7.4 million decrease in interest expense is mostly due to the decline in our deposit account rates.

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Net Interest Income Year-to-Date Analysis

For the six month period ended June 30, 2021, net interest income on a fully taxable equivalent basis was $301.9 million, a decrease of $33.9 million, or 10.1%, over the same period in 2020.

For the nine month period ended September 30, 2021, net interest income on a fully taxable equivalent basis was $452.1 million, a decrease of $40.2 million, or 8.2%, over the same period in 2020.

The decrease in net interest income was the result of a $74.1 million decrease in fully tax equivalent interest income partially offset by a $34.0 million decrease in interest expense.

The decrease in interest income during the first half of 2021 primarily resulted from a $79.3 million decrease in interest income on loans, that reflects a decrease in loan volume of $59.4 million coupled with a 27 basis point decline in yield that resulted in a $19.9 million decrease, partially offset by an increase in interest income on investment securities of $20.4 million.

The decrease in our loan volume during the first six months of 2021 was primarily due to weak loan demand throughout 2020 and into the first half of 2021 as a result of the COVID-19 pandemic.

Furthermore, the decline in loan volume also reflects the substantial governmental stimulus to support the economy during the COVID-19 pandemic which contributed to an increase in the level of loan paydowns and payoffs.

We sold approximately $249.5 million of investment securities during the first half of 2021 compared to $1.2 billion of investment securities during the same period in 2020.

The decrease in interest income during the nine month period ended September 30, 2021 primarily resulted from a $110.3 million decrease in interest income on loans, that reflects a decrease in loan volume of $98.2 million coupled with an 11 basis point decline in yield that resulted in a $12.1 million decrease, partially offset by an increase in interest income on investment securities of $38.3 million.

The decrease in our loan volume during the first nine months of 2021 was primarily due to weak loan demand throughout 2020 and into the first nine months of 2021 as a result of the COVID-19 pandemic.

We sold approximately $342.6 million of investment securities during the first nine months of 2021 compared to $1.7 billion of investment securities during the same period in 2020.

During the second quarter of 2020, in response to the unfolding events of the COVID-19 pandemic, we focused on the creation of additional liquidity and strengthening our balance sheet.

We began to re-invest in our investment security portfolio during the fourth quarter of 2020 and continued into the first half of 2021.

We began to re-invest in our investment security portfolio during the fourth quarter of 2020 and continued throughout the nine month period ended September 30, 2021.

The $34.0 million decrease in interest expense is mostly due to the decrease in our deposit account rates.

Interest expense decreased $27.4 million due to the decrease in yield of 44 basis points on interest-bearing deposit accounts, partially offset by an increase of $2.0 million related to approximately $1.1 billion in average deposit growth.

Interest expense decreased $34.5 million due to the decrease in rate of 39 basis points on interest-bearing deposit accounts, partially offset by an increase of $2.1 million related to approximately $1.1 billion in average deposit growth.

Net Interest Margin

Our net interest margin on a fully tax equivalent basis decreased 53 basis points to 2.89% for the three month period ended June 30, 2021, when compared to 3.42% for the same period in 2020.

Normalized for all accretion, our core net interest margin for the three months ended June 30, 2021 and 2020 was 2.78% and 3.18%, respectively.

For the six month period ended June 30, 2021, our net interest margin decreased 61 basis points to 2.94% when compared to 3.55% for the same period in 2020.

The decreases in the net interest margin during the three and six months ended June 30, 2021 compared to the same periods in 2020, were primarily due to the aforementioned decline in net interest income coupled with a $1.6 billion increase in average cash and equivalents driven by the lower interest rate environment and additional liquidity created in response to the COVID-19 pandemic.

We purchased investment securities which added approximately $2.5 billion to our average investment securities portfolio during the first half of 2021.

The impact of these items on net interest margin for the six months ended June 30, 2021 was 27 basis points, bringing the net interest margin adjusted for PPP loans and additional liquidity to 3.21%.

During March 2020, the Federal Open Market Committee, or FOMC, of the Federal Reserve substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic and rates have continued to remain at historically low levels through the second quarter of 2021.

Our net interest margin on a fully tax equivalent basis decreased 36 basis points to 2.85% for the three month period ended September 30, 2021, when compared to 3.21% for the same period in 2020.

Normalized for all accretion, our core net interest margin for the three months ended September 30, 2021 and 2020 was 2.77% and 3.02%, respectively.

For the nine month period ended September 30, 2021, our net interest margin decreased 52 basis points to 2.91% when compared to 3.43% for the same period in 2020.

The decreases in the net interest margin during the three and nine months ended September 30, 2021 compared to the same periods in 2020, were primarily due to the aforementioned decline in net interest income coupled with a $934.7 million increase in average cash and equivalents driven by the lower interest rate environment and additional liquidity created in response to the COVID-19 pandemic.

We purchased investment securities which added approximately $3.5 billion to our average investment securities portfolio during the first nine months of 2021.

The impact of these items on net interest margin for the nine months ended September 30, 2021 was 18 basis points, bringing the net interest margin adjusted for PPP loans and additional liquidity to 3.09%.

As such, our variable rate loan portfolio has repriced to a lower yield and, in response to offset the decline, we have worked to lower our cost of deposits.

In addition, our decreased net interest margin is being driven by the decrease in our non-PPP loan portfolio as a result of COVID-19 but our loan pipeline has started to rebuild and we expect modest organic loan growth during the second half of 2021.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2021 and 2020, respectively.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 2021 and 2020, respectively.

Analysis of Net Interest Margin

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2021 2020 2021 2020

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2021 vs.

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Decrease due to change in earning assets $ (16,818) $ (43,521)

Decrease due to change in earning asset yields (7,151) (32,871)

Decrease due to change in interest bearing liabilities (89) (1,566)

Increase (decrease) due to change in earning asset yields 3,096 (30,627)

Increase (decrease) due to change in interest bearing liabilities 93 (1,472)

Increase due to change in interest rates paid on interest bearing liabilities 7,333 35,430

Decrease in net interest income $ (6,296) $ (40,190)

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three and six months ended June 30, 2021 and 2020.

The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods.

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(FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%)

Three Months Ended June 30,

Three Months Ended September 30,

Average Income/ Yield/ Average Income/ Yield/

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32,134 230 2.84 145,226 1,012 2.77

11,783,839 138,987 4.73 14,731,306 177,168 4.84

Loans - including fees 11,030,438 132,399 4.76 14,315,014 163,379 4.54

Total interest earning assets 20,901,992 168,867 3.21 19,415,314 182,589 3.74

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Net interest margin – FTE $ 150,178 2.85 $ 156,474 3.21

Six Months Ended June 30,

Nine Months Ended September 30,

Average Income/ Yield/ Average Income/ Yield/

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59,362 1,255 2.83 91,889 1,961 2.85

12,149,041 285,588 4.74 14,640,082 364,915 5.01

Loans - including fees 11,772,077 417,987 4.75 14,530,938 528,294 4.86

Total interest earning assets 20,783,708 513,981 3.31 19,172,318 588,129 4.10

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Net interest margin – FTE $ 452,103 2.91 $ 492,293 3.43

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three and six month periods ended June 30, 2021, as compared to the same periods of the prior year.

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three and nine month periods ended September 30, 2021, as compared to the same periods of the prior year.

The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2021 vs.

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Mortgage loans held for sale (808) 26 (782) (688) (18) (706)

Loans (34,824) (3,357) (38,181) (59,443) (19,884) (79,327)

Loans - including fees (39,069) 8,089 (30,980) (98,215) (12,092) (110,307)

Total (16,818) 3,096 (13,722) (43,521) (30,627) (74,148)

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It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance.

The provision for credit losses for the three and six months ended June 30, 2021 was a recapture of $13.0 million and $11.5 million, respectively, compared to an expense of $21.9 million and $45.0 million for the same periods ended June 30, 2020.

The provision for credit losses for the three and nine months ended September 30, 2021 was a recapture of $19.9 million and $31.4 million, respectively, compared to an expense of $23.0 million and $68.0 million for the same periods ended September 30, 2020.

The recapture of credit losses was driven by improved credit quality metrics and improved macroeconomic factors.

Two energy credits that experienced further deterioration and were negatively impacted by the sharp decline in commodity pricing during the first quarter of 2020, resulting in incremental provision expense of $22.0 million during that quarter and combined with uncertain economic forecasts during the first six months of 2020 to drive higher provisions for credit losses during that period.

The increase during the nine month period ended September 30, 2020 included provision related to problem energy credits which were negatively impacted by the sharp decline in commodity pricing, and ultimately charged-off during the second quarter of 2020 for a total of $32.6 million.

In addition, uncertain economic forecasts during the first nine months of 2020 due to the impact of the COVID-19 pandemic drove higher provisions for credit losses during that period, a portion of which has been subsequently released.

NON-INTEREST INCOME

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Non-interest income also includes income on the sale of mortgage and SBA loans, investment banking income, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities.

Total non-interest income was $47.9 million for the three month period June 30, 2021, a decrease of approximately $882,000, or 1.8%, compared to the same period in 2020, primarily driven by decreases in mortgage lending income and the difference in gains on sale of branches recognized during the periods.

Conversely, we had increases in total service charges on deposit accounts and fees of $2.0 million, or 20.3%, primarily attributable to additional customer transactions related to changes in customer spending habits and incremental gains on the sale of securities during the second quarter of 2021.

For the six month period ended June 30, 2021, total non-interest income was $98.3 million, a decrease of approximately $31.6 million, or 24.3%, compared to the same period in 2020, primarily due to decreases in the gains on sale of securities and mortgage lending income.

During the first six months of 2021, we sold approximately $249.5 million of investment securities resulting in a net gain of $10.6 million, compared to $1.2 billion of investment securities sold for a net gain of $32.5 million in the first six months of 2020.

Additionally, the gain on sale of branches decreased approximately $2.2 million, which we consider a non-core item, compared to the same period in 2020.

An increase of $2.1 million in debit and credit fees partially offset the overall decrease in non-interest income during the first six months of 2021 as a result of additional transactions due to the changes in customer spending habits.

Decreases of $8.0 million and $6.6 million in mortgage lending income for the three and six month periods ended June 30, 2021 were largely a result of decreases in the value of derivative contracts related to the mortgage banking operations partially offset by gains on the sale of mortgage loans that were driven by an increase in volume of loans sold during the first half of 2021 compared to the same period in 2020.

Total non-interest income was $48.6 million for the three month period September 30, 2021, a decrease of approximately $20.9 million, or 30.1%, compared to the same period in 2020, primarily driven by decreases in mortgage lending income and the difference in gains on sale of securities recognized during the periods.

Conversely, we had increases in total service charges on deposit accounts and fees of $1.4 million, or 11.3%, primarily attributable to additional customer transactions related to changes in customer spending habits during the third quarter of 2021.

For the nine month period ended September 30, 2021, total non-interest income was $145.2 million, a decrease of approximately $52.8 million, or 26.7%, compared to the same period in 2020, primarily due to decreases in the gains on sale of securities and mortgage lending income.

During the first nine months of 2021, we sold approximately $342.6 million of investment securities resulting in a net gain of $15.8 million, compared to $1.7 billion of investment securities sold for a net gain of $54.8 million in the first nine months of 2020.

Additionally, the gain on sale of branches, which we consider a non-core item, decreased approximately $2.8 million, compared to the same period in 2020.

An increase of $2.5 million in debit and credit fees partially offset the overall decrease in non-interest income during the first nine months of 2021 as a result of additional transactions due to the changes in customer spending habits.

Decreases of $8.2 million and $14.7 million in mortgage lending income for the three and nine month periods ended September 30, 2021 were largely a result of decreases in the value of derivative contracts related to the mortgage banking operations partially offset by gains on the sale of mortgage loans that were driven by an increase in volume of loans sold during the first nine months of 2021 compared to the same period in 2020.

Beginning in 2020 and continuing into 2021, we experienced an increase in mortgage lending transactions as a result of the low mortgage interest rate environment due to the COVID-19 pandemic.

However, we expect mortgage lending volume to continue to decline throughout 2021 given the current environment.

Table 5 shows non-interest income for the three and six month periods ended June 30, 2021 and 2020, respectively, as well as changes in 2021 from 2020.

However, we expect mortgage lending volume to continue to decline for the remainder of 2021 given the current environment.

Table 5 shows non-interest income for the three and nine month periods ended September 30, 2021 and 2020, respectively, as well as changes in 2021 from 2020.

Non-Interest Income

Three Months Ended

June 30, 2021

Change from Six Months Ended

June 30, 2021

September 30, 2021

Change from Nine Months Ended

September 30, 2021

(Dollars in thousands) 2021 2020 2020 2021 2020 2020

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_________________________

(1) During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income.

(1) During the second and third quarters of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income.

Prior periods have been adjusted to reflect this reclassification.

* Not meaningful

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended June 30, 2021 was $27.2 million, an increase of $3.3 million from the same period in 2020.

Recurring fee income for the six month period ended June 30, 2021, was $52.9 million, an increase of $403,000 from the six month period ended June 30, 2020.

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended September 30, 2021 was $27.8 million, an increase of $2.4 million from the same period in 2020.

Recurring fee income for the nine month period ended September 30, 2021, was $79.1 million, an increase of $2.5 million from the nine month period ended September 30, 2020.

The increases in the periods presented are primarily the result of changes in total service charges and debit and credit card fees, previously discussed.

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We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements.

For the three month period ended June 30, 2021, non-interest expense was $115.5 million, a decrease of $711,000, or 0.6%, from the three month period ended June 30, 2020.

For the three month period ended September 30, 2021, non-interest expense was $114.3 million, a decrease of $2.2 million, or 1.9%, from the three month period ended September 30, 2020.

Salaries and employee benefits expense increased $3.1 million during the three month period of 2021 due to associates being hired in lending, wealth and mortgage as we continue to actively recruit new producers.

Non-interest expense for the six months ended June 30, 2021 was $229.3 million, a decrease of $14.4 million, or 5.9%, from the same period in 2020.

Normalizing for the non-core costs, core non-interest expense for the six months ended June 30, 2021 decreased $11.0 million, or 4.6%, from the same period in 2020.

Non-interest expense for the nine months ended September 30, 2021 was $342.0 million, a decrease of $16.9 million, or 4.7%, from the same period in 2020.

Normalizing for the non-core costs, core non-interest expense for the nine months ended September 30, 2021 decreased $8.0 million, or 2.3%, from the same period in 2020.

The decreases in non-interest expense were primarily related to the realization of expected synergies from the continuous evaluation of our branch network and the branch sales and closures that began in 2020 and have continued in 2021.

Additionally, salaries and employee benefits expense during the six month period June 30, 2021 was impacted by savings resulting from the early retirement program offered in the prior year.

Table 6 below shows non-interest expense for the three and six month periods ended June 30, 2021 and 2020, respectively, as well as changes in 2021 from 2020.

Additionally, salaries and employee benefits expense during the nine month period September 30, 2021 was impacted by savings resulting from the early retirement program offered in the prior year.

Table 6 below shows non-interest expense for the three and nine month periods ended September 30, 2021 and 2020, respectively, as well as changes in 2021 from 2020.

Non-Interest Expense

Three Months Ended

June 30, 2021

Change from Six Months Ended

June 30, 2021

September 30, 2021

Change from Nine Months Ended

September 30, 2021

(Dollars in thousands) 2021 2020 2020 2021 2020 2020

10 unchanged sentences

Telephone 1,516 2,103 (587) (28.0) 4,758 6,738 (1,980) (29.4)

Credit card (1)

Debit and credit card (1)

2,727 2,818 (91) (3.2) 7,588 7,690 (102) (1.3)

7 unchanged sentences

_________________________

(1) During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income.

(1) During the second and third quarters of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income.

Prior periods have been adjusted to reflect this reclassification.

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Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized MBS for which collection of principal and interest is not subordinated to significant superior rights held by others.

HTM and AFS investment securities were $931.4 million and $6.6 billion, respectively, at June 30, 2021, compared to the HTM amount of $333.0 million and AFS amount of $3.5 billion at December 31, 2020.

As anticipated, our security portfolio increased during the first six months of 2021 as we reinvested PPP loan repayments and utilized additional liquidity held in cash and cash equivalents.

During the second quarter of 2021, we purchased $2.5 billion of investment securities, including strategically redeploying $1.1 billion of excess cash into short-term, variable rate securities, as previously discussed.

HTM and AFS investment securities were $1.5 billion and $6.8 billion, respectively, at September 30, 2021, compared to the HTM amount of $333.0 million and AFS amount of $3.5 billion at December 31, 2020.

As anticipated, our security portfolio increased during the first nine months of 2021 as we reinvested PPP loan repayments and utilized additional liquidity held in cash and cash equivalents.

During the third quarter of 2021, we purchased $1.2 billion of investment securities, including strategically redeploying $226.3 million of excess cash into short-term, variable rate securities.

We will continue to look for opportunities to maximize the value of the investment portfolio.

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The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.

Furthermore, as of June 30, 2021, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost.

Furthermore, as of September 30, 2021, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost.

The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased.

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Management does not believe any of the securities are impaired due to reasons of credit quality.

During the third quarter of 2021, the Company began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio.

These swap agreements involve the payment of fixed interest rates with a weighted average of 1.21% in exchange for variable interest rates based on federal funds rates and consist of a two year forward start date and maturity dates varying between 2028 and 2029.

LOAN PORTFOLIO

Our loan portfolio averaged $12.15 billion and $14.64 billion during the first six months of 2021 and 2020, respectively.

As of June 30, 2021, total loans were $11.39 billion, a decrease of $1.5 billion from December 31, 2020.

The decline in the average loan balance during the first half of 2021 when compared to the same period in 2020 was due to the tepid loan demand that began in late first quarter of 2020 and has continued through 2021 largely as a result of the economic uncertainty stemming from the COVID-19 pandemic.

Our loan portfolio averaged $11.77 billion and $14.53 billion during the first nine months of 2021 and 2020, respectively.

As of September 30, 2021, total loans were $10.83 billion, a decrease of $2.1 billion from December 31, 2020.

The decline in the average loan balance during the first nine months of 2021 when compared to the same period in 2020 was due to the tepid loan demand that began in late first quarter of 2020 and has continued through 2021 largely as a result of the economic uncertainty stemming from the COVID-19 pandemic.

The most significant components of the loan portfolio were loans to businesses (commercial loans, commercial real estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans).

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Loan Portfolio

June 30, December 31,

September 30, December 31,

(In thousands) 2021 2020

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Consumer loans consist of credit card loans and other consumer loans.

Consumer loans were $359.3 million at June 30, 2021, or 3.2% of total loans, compared to $391.2 million, or 3.0% of total loans at December 31, 2020.

The decrease in consumer loans from December 31, 2020, to June 30, 2021, was primarily due to the expected seasonal decline in our credit card portfolio as well as loan payoffs and pay downs due to additional customer liquidity driven by the government economic stimulus programs in response to the COVID-19 pandemic.

Consumer loans were $358.4 million at September 30, 2021, or 3.3% of total loans, compared to $391.2 million, or 3.0% of total loans at December 31, 2020.

The decrease in consumer loans from December 31, 2020, to September 30, 2021, was primarily due to the expected seasonal decline in our credit card portfolio as well as loan payoffs and pay downs due to additional customer liquidity driven by the government economic stimulus programs in response to the COVID-19 pandemic.

Real estate loans consist of C&D loans, single-family residential loans and CRE loans.

Real estate loans were $8.37 billion at June 30, 2021, or 73.5% of total loans, compared to $9.22 billion, or 71.5%, of total loans at December 31, 2020, a decrease of $854.9 million, or 9.3%.

Real estate loans were $8.08 billion at September 30, 2021, or 74.6% of total loans, compared to $9.22 billion, or 71.5%, of total loans at December 31, 2020, a decrease of $1.1 billion, or 12.4%.

Our C&D loans decreased by $366.5 million, or 23.0%, single family residential loans decreased by $340.0 million, or 18.1%, and CRE loans decreased by $438.0 million, or 7.6%.

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Commercial loans consist of non-real estate loans related to business and agricultural loans.

Total commercial loans were $2.27 billion at June 30, 2021, or 19.9% of total loans, compared to $2.75 billion, or 21.3% of total loans at December 31, 2020, a decrease of $482.1 million, or 17.5%.

PPP loan balances declined by $782.2 million during the first six months of 2021 as a result of expected reimbursements from the SBA related to PPP loan forgiveness, partially offset by PPP Round 2 loan originations of $318.9 million during 2021.

Total commercial loans were $2.04 billion at September 30, 2021, or 18.8% of total loans, compared to $2.75 billion, or 21.3% of total loans at December 31, 2020, a decrease of $711.7 million, or 25.9%.

During the first nine months of 2021, we originated $318.9 million under the PPP Round 2 program.

As a result of expected reimbursements from the SBA related to PPP loan forgiveness of both PPP Round 1 and Round 2 loans, PPP loan balances declined by $1.0 billion during the same period.

We expect PPP balances to continue to decline through the remainder of the year.

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Other loans mainly consists of mortgage warehouse lending.

Mortgage volume, while still strong, declined during the first six months of 2021 when compared to 2020, leading to a decrease of $145.6 million in other loans primarily from mortgage warehouse lines of credit.

Mortgage volume, while still strong, declined during the first nine months of 2021 when compared to 2020, leading to a decrease of $186.7 million in other loans primarily from mortgage warehouse lines of credit.

Loan demand appears to be returning to more normalized levels.

For the third consecutive quarter, we have experienced an increase in commercial loan demand.

Our loan pipeline consisting of all loan opportunities was $1.3 billion at June 30, 2021 compared to $673.7 million at December 31, 2020.

For the fourth consecutive quarter, we have experienced an increase in commercial loan demand.

Our loan pipeline consisting of all loan opportunities was $1.5 billion at September 30, 2021 compared to $673.7 million at December 31, 2020.

Loans approved and ready to close at the end of the quarter totaled $492.8 million.

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The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible.

Total non-performing assets decreased $46.6 million from December 31, 2020 to June 30, 2021.

Total non-performing assets decreased $71.0 million from December 31, 2020 to September 30, 2021.

Nonaccrual loans decreased by $63.8 million during the period and foreclosed assets held for sale and other real estate owned decreased by $6.6 million.

The decrease in nonaccrual loans was primarily due to an overall improvement in economic conditions while the decrease in foreclosed assets held for sale and other real estate owned is mainly the result of the disposition of one commercial building in the St.

Louis area partially offset by $4.4 million in closed bank branch facilities that were reclassified from premises held for sale during the second quarter of 2021.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.43% at June 30, 2021, compared to 0.66% at December 31, 2020.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.33% at September 30, 2021, compared to 0.66% at December 31, 2020.

From time to time, certain borrowers experience declines in income and cash flow.

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or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place.

Our TDR balance remained relatively flat at $7.1 million as of June 30, 2021, decreasing $417,000 from December 31, 2020.

Our TDR balance remained relatively flat at $6.8 million as of September 30, 2021, decreasing $712,000 from December 31, 2020.

TDRs are individually evaluated for expected credit losses.

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During 2020 and the first half of 2021, we processed over 3,700 COVID-19 loan modifications in excess of $3.0 billion.

At June 30, 2021, the Company had 43 COVID-19 loan modifications outstanding in the amount of $ 134.5 million.

At September 30, 2021, the Company had 35 COVID-19 loan modifications outstanding in the amount of $82.0 million.

The COVID-19 pandemic has had an unprecedented impact on the hotel, restaurant and retail industries, causing our borrowers in those industries to require loan modifications.

At June 30, 2021, the majority of these balances have returned to regular payments and we expect most of the remaining COVID-19 loan modifications to return to regular payments with no credit downgrade or long-term restructure.

At September 30, 2021, the majority of these balances have returned to regular payments and we expect most of the remaining COVID-19 loan modifications to return to regular payments with no credit downgrade or long-term restructure.

We continue to maintain good asset quality compared to the industry and strong asset quality remains a primary focus of our strategy.

The allowance for credit losses as a percent of total loans was 2.00% as of June 30, 2021.

The allowance for credit losses as a percent of total loans was 1.87% as of September 30, 2021.

Non-performing loans equaled 0.55% of total loans.

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The allowance for credit losses was 341% of non-performing loans.

Our annualized net charge-offs to average total loans for the first six months of 2021 was (0.07)%.

Our annualized net charge-offs to average total loans for the first nine months of 2021 was 0.06%.

Excluding credit cards, the annualized net charge-offs to average total loans for the same period was 0.04%.

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Non-performing Assets

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2021 2020

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_______________________________________

(1) Includes nonaccrual TDRs of approximately $2,660,000 at June 30, 2021 and $4,375,000 at December 31, 2020.

The interest income on nonaccrual loans is not considered material for the three and six month periods ended June 30, 2021 and 2020.

(1) Includes nonaccrual TDRs of approximately $2,550,000 at September 30, 2021 and $4,375,000 at December 31, 2020.

The interest income on nonaccrual loans is not considered material for the three and nine month periods ended September 30, 2021 and 2020.

ALLOWANCE FOR CREDIT LOSSES

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Provision for credit losses (29,901) 75,190

Balance, June 30, $ 227,239 $ 231,643

Balance, September 30, $ 202,508 $ 248,251

Loans charged off:

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Provision for Credit Losses

The amount of provision added to or released from the allowance during the three and six months ended June 30, 2021 and 2020, and for the year ended December 31, 2020, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience.

The amount of provision added to or released from the allowance during the three and nine months ended September 30, 2021 and 2020, and for the year ended December 31, 2020, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience.

It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance.

Allowance for Credit Losses Allocation

As of June 30, 2021, the allowance for credit losses reflected a decrease of approximately $10.8 million from December 31, 2020 while total loans decreased $1.5 billion over the same six month period.

As of September 30, 2021, the allowance for credit losses reflected a decrease of approximately $35.5 million from December 31, 2020 while total loans decreased $2.1 billion over the same nine month period.

The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix.

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As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank.

The decrease in the allowance for credit losses during the first six months of 2021 was predominately related to economic recovery from the effects of the COVID-19 pandemic and the decline in our loan portfolio.

The decrease in the allowance for credit losses during the first nine months of 2021 was predominately related to economic recovery from the effects of the COVID-19 pandemic and the decline in our loan portfolio.

While the economic conditions appear to be improving, certain industries continue to be more adversely impacted than others by this pandemic, such as the restaurant, retail and hotel industries, and there remains uncertainty regarding how borrowers in these industries will recover.

Our allowance for credit losses at June 30, 2021 was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic recovery, the impact of new COVID-19 variants, future of government assistance related to COVID-19 recovery efforts and other related factors.

Our allowance for credit losses at September 30, 2021 was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic recovery, the impact of new COVID-19 variants, future of government assistance related to COVID-19 recovery efforts and other related factors.

The following table sets forth the sum of the amounts of the allowance for credit losses attributable to individual loans within each category, or loan categories in general.

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Allocation of Allowance for Credit Losses

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(Dollars in thousands) Allowance

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(1) Percentage of loans in each category to total loans.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 198 financial centers as of June 30, 2021.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 185 financial centers as of September 30, 2021.

We offer a variety of products designed to attract and retain customers with a continuing focus on developing core deposits.

Our core deposits consist of all deposits excluding time deposits of $100,000 or more and brokered deposits.

As of June 30, 2021, core deposits comprised 86.4% of our total deposits.

As of September 30, 2021, core deposits comprised 88.1% of our total deposits.

We continually monitor the funding requirements along with competitive interest rates in the markets we serve.

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We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.

Our total deposits as of June 30, 2021, were $18.30 billion, an increase of $1.32 billion from December 31, 2020, primarily driven by the government economic stimulus programs and changes in customer spending resulting from the COVID-19 pandemic.

Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.46 billion at June 30, 2021, compared to $14.15 billion at December 31, 2020, an increase of $1.31 billion.

Total time deposits increased $8.7 million to $2.84 billion at June 30, 2021, from $2.83 billion at December 31, 2020.

We had $388.5 million and $512.3 million of brokered deposits at June 30, 2021, and December 31, 2020, respectively.

Our total deposits as of September 30, 2021, were $18.07 billion, an increase of $1.09 billion from December 31, 2020, primarily driven by the government economic stimulus programs and changes in customer spending resulting from the COVID-19 pandemic.

Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.62 billion at September 30, 2021, compared to $14.15 billion at December 31, 2020, an increase of $1.46 billion.

Total time deposits decreased $376.6 million to $2.46 billion at September 30, 2021, from $2.83 billion at December 31, 2020.

We had $388.6 million and $512.3 million of brokered deposits at September 30, 2021, and December 31, 2020, respectively.

Both consumer and commercial deposit balances have grown since the COVID-19 related economic stimulus legislation, including legislation that established the PPP program, was implemented in mid-2020.

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OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.72 billion at June 30, 2021 and December 31, 2020.

The outstanding balance for June 30, 2021 includes $1.3 billion in FHLB long-term advances;

Our total debt was $1.72 billion at September 30, 2021 and December 31, 2020.

The outstanding balance for September 30, 2021 includes $1.3 billion in FHLB long-term advances;

$330.0 million in subordinated notes;

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and $32.2 million of other long-term debt.

The FHLB long-term advances outstanding at the end of the second quarter 2021 are primarily FOTO advances which are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date.

Our FOTO advances outstanding at June 30, 2021 had original maturity dates of 10 years to 15 years with lockout periods that have expired.

The FHLB long-term advances outstanding at the end of the third quarter 2021 are primarily FOTO advances which are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date.

Our FOTO advances outstanding at September 30, 2021 had original maturity dates of 10 years to 15 years with lockout periods that have expired.

We expect the FHLB to not exercise the options to terminate the FOTO advances prior to their stated maturity dates due to the current low interest rate environment.

We continually analyze the possibility of the FHLB exercising the options along with the market expected rate outcome.

As of June 30, 2021, there were no FHLB short-term advances outstanding.

As of September 30, 2021, there were no FHLB short-term advances outstanding.

In March 2018, we issued $330 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes.

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The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries.

At June 30, 2021, total capital was $3.04 billion.

At September 30, 2021, total capital was $3.03 billion.

Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities.

At June 30, 2021, our common equity to asset ratio was 12.97% compared to 13.31% at year-end 2020.

At September 30, 2021, our common equity to asset ratio was 13.04% compared to 13.31% at year-end 2020.

Capital Stock

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We anticipate funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow.

During the six month periods ended June 30, 2021 and 2020, we repurchased 130,916 shares at an average price per share of $23.53 and 4,922,336 shares at an average price per share of $18.96, respectively, under the Program.

No shares were repurchased under the Program during the three months ended June 30, 2021 and 2020.

During the three and nine month periods ended September 30, 2021, we repurchased 1,806,205 shares at an average price per share of $28.48 and 1,937,121 shares at an average price per share of $28.14, respectively, under the Program.

During the nine month period ended September 30, 2020, 4,922,336 shares at an average price per share of $18.96 were repurchased under the Program.

No shares were repurchased under the Program during the three months ended September 30, 2020.

Cash Dividends

We declared cash dividends on our common stock of $0.36 per share for the first six months of 2021 compared to $0.34 per share for the first six months of 2020, an increase of $0.02, or 6%.

We declared cash dividends on our common stock of $0.54 per share for the first nine months of 2021 compared to $0.51 per share for the first nine months of 2020, an increase of $0.03, or 6%.

The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors.

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Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes that, as of June 30, 2021, we meet all capital adequacy requirements to which we are subject.

Management believes that, as of September 30, 2021, we meet all capital adequacy requirements to which we are subject.

As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action.

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There are no conditions or events since that notification that management believes have changed the institution’s categories.

Our risk-based capital ratios at June 30, 2021 and December 31, 2020 are presented in Table 12 below:

Our risk-based capital ratios at September 30, 2021 and December 31, 2020 are presented in Table 12 below:

Risk-Based Capital

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2021 2020

46 unchanged sentences

As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital.

Trust preferred securities and qualifying subordinated debt of $383.1 million is included as Tier 2 and total capital as of June 30, 2021.

Trust preferred securities and qualifying subordinated debt of $383.3 million is included as Tier 2 and total capital as of September 30, 2021.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “estimate,” “expect,” “foresee,” “intend,” “indicate,” “target,” “plan,” positions,” “prospects,” “project,” “predict,” or “potential,” by future conditional verbs such as “could,” “may,” “might,” “should,” “will,” or “would,” or by variations of such words or by similar expressions.

These forward-looking statements include, without limitation, those relating to the Company’s future growth, pending acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies, net interest margin, non-interest revenue, market conditions related to and the impact of the Company’s stock repurchase program, consumer behavior and liquidity, the adequacy of the allowance for credit losses, the impacts of the COVID-19 pandemic and the ability of the Company to manage the impacts of the COVID-19 pandemic, the impacts of the Company’s and its customers’ participation in the Paycheck Protection Program, the expected performance of COVID-19 loan modifications, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FOTO advances, capital resources, market risk, plans for investments in securities, effect of future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, acquisition strategy and activity, legal and regulatory limitations and compliance and competition.

These forward-looking statements include, without limitation, those relating to the Company’s future growth, completed acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies, net interest margin, non-interest revenue, market conditions related to and the impact of the Company’s stock repurchase program, consumer behavior and liquidity, the adequacy of the allowance for credit losses, the impacts of the COVID-19 pandemic and the ability of the Company to manage the impacts of the COVID-19 pandemic, the impacts of the Company’s and its customers’ participation in the Paycheck Protection Program, the expected performance of COVID-19 loan modifications, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FOTO advances, capital resources, market risk, plans for investments in securities, effect of future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, acquisition strategy and activity, legal and regulatory limitations and compliance and competition.

These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation:

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• Investor presentations of Company performance

We have $1.179 billion and $1.186 billion total goodwill and other intangible assets for the periods ended June 30, 2021 and December 31, 2020, respectively.

We have $1.176 billion and $1.186 billion total goodwill and other intangible assets for the periods ended September 30, 2021 and December 31, 2020, respectively.

Because our acquisition strategy has resulted in a high level of intangible assets, management believes useful calculations include tangible book value per share (non-GAAP) and tangible common equity to tangible assets (non-GAAP).

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands, except per share data) 2021 2020 2021 2020

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Early retirement program — 2,346 — 2,839

Branch right sizing 468 1,721 1,093 1,959

Branch right sizing (net) (3,041) 72 (2,554) 2,031

Tax effect (1)

7 unchanged sentences

Merger related costs 0.01 0.01 0.02 0.03

Branch right sizing — 0.02 0.01 0.02

Early retirement program — 0.02 — 0.02

Branch right sizing (net) (0.03) — (0.02) 0.02

Tax effect (1)

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2021 2020 2021 2020

1 unchanged sentence

Gain on sale of branches — — (5,316) (8,093)

Branch right sizing 239 (370) (367) (370)

Core other income (non-GAAP) $ 6,459 $ 5,010 $ 18,907 $ 19,527

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Reconciliation of Tangible Book Value per Common Share (non-GAAP)

June 30, December 31,

September 30, December 31,

(In thousands, except per share data) 2021 2020

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Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2021 2020

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(Dollars in thousands) Three Months Ended

June 30, 2021

September 30, 2021

Total Tier 1 capital $ 2,012,059

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2021 2020 2021 2020

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis