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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-25 · 243 added, 412 removed, 823 unchanged (44% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies & Estimates

We follow accounting and reporting policies that conform, in all material respects, to US GAAP and to general practices within the financial services industry.

The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2021 and 2020 and results of operations for each of the years then ended.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on February 25, 2021 (the “ 2020 Form 10-K ”) for a discussion and analysis of the more significant factors that affected periods prior to 2020, which are incorporated herein by reference.

Certain reclassifications have been made to make prior periods comparable.

This discussion and analysis should be read in conjunction with our financial statements, notes thereto and other financial information appearing elsewhere in this report, as well as the cautionary note regarding forward-looking statements and the risks discussed in Item 1A of Part I of this Form 10-K.

Critical Accounting Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

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All identifiable assets acquired, including loans, are recorded at fair value.

Our historical acquisitions all occurred under previous US GAAP prior to our adoption of CECL.

No allowance for loan losses related to the acquired loans was recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk.

Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820.

The fair value estimates associated with the loans included estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

We evaluate loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs .

The fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method.

The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses.

In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan.

Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are purchased credit deteriorated (“PCD”) loans.

The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition.

The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a constant yield method.

The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using a constant yield method.

We then record the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense.

Goodwill and Intangible Assets

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ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur.

Our assessment depends on several assumptions which are dependent on market and economic conditions.

Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.

During the first quarter of 2020, our share price began to decline as the markets in the United States responded to the global COVID-19 pandemic.

As a result of that economic decline, the effect on our share price and other factors, we performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed.

During the second quarter of 2020, we performed our annual goodwill impairment test and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore, goodwill is not impaired.

Furthermore, we performed an interim goodwill impairment assessment during both the third and fourth quarters of 2020 and concluded no impairment existed.

While our goodwill impairment analysis indicated no impairment at December 31, 2020, our assessment depends on several assumptions which are dependent on market and economic conditions, and future changes in those conditions could impact our assessment in the future.

Stock-Based Compensation Plans

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The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units.

Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding of performance or bonus shares granted to directors, officers and other key employees.

Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding of restricted stock, restricted stock units or performance stock units granted to directors, officers and other key employees.

In accordance with ASC Topic 718, Compensation – Stock Compensation , the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions.

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On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities.

The adoption of ASU 2016-09 – Compensation-Stock Compensation:

Improvements to Employee Share-Based Payment Accounting decreased the effective tax rate during 2017 and 2018 as the standard impacted how the income tax effects associated with stock-based compensation are recognized.

2021 Overview

The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2020 and 2019 and results of operations for each of the years then ended.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Form 10-K filed with the SEC on February 27, 2020 for a discussion and analysis of the more significant factors that affected periods prior to 2019.

Certain reclassifications have been made to make prior periods comparable.

Our net income available to common shareholders for the year ended December 31, 2021 was $271.1 million, or $2.46 diluted earnings per share, compared to $254.9 million, or $2.31 diluted earnings per share, for the same period in 2020.

Included in both 2020 and 2019 results were non-core items related to our acquisitions, early retirement program expenses and branch right sizing initiatives, and with respect to our 2020 results only, gains associated with the sale of branches.

Included in both 2021 and 2020 results were non-core items related to our acquisitions, gains associated with the sale of branches and branch right sizing initiatives, and with respect to our 2020 results only, early retirement program expenses.

Excluding all non-core items, core earnings for the year ended December 31, 2021 were $278.3 million, or $2.53 core diluted earnings per share, compared to $264.3 million, or $2.40 core diluted earnings per share, in 2020.

See GAAP Reconciliation of Non-GAAP Financial Measures for additional discussion and reconciliation of non-GAAP measures.

We completed the acquisition of The Landrum Company (or “Landrum”), including its wholly-owned bank subsidiary, Landmark Bank, in October 2019.

The systems conversion of Landmark Bank was completed during February 2020.

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.

We continue to introduce new and innovative products and services using digital channels to provide an enhanced customer experience to “bank when you want, where you want”.

On March 12, 2021, we completed the sale of four Simmons Bank locations in the Metro East area of Southern Illinois, near St.

We recognized a gain of $5.3 million on the sale of the Illinois branches.

We completed the acquisitions of Landmark Community Bank (or “Landmark”) and Triumph Bancshares, Inc.

(or “Triumph”), including its wholly-owned bank subsidiary, Triumph Bank, in October 2021, while simultaneously completing the systems conversion of both banks.

We were able to obtain all necessary approvals, close and 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.

See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements for additional information related to these acquisitions.

Additionally, on November 19, 2021, we announced the Company had entered into the Spirit Agreement with Spirit, headquartered in Conroe, Texas, including its wholly-owned bank subsidiary, Spirit of Texas Bank SSB.

See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements for additional information related to this acquisition.

On February 28, 2020, we completed the sale of certain assets and assumptions of certain liabilities (“Texas Branch Sale”) associated with five Simmons Bank locations in Austin, San Antonio and Tilden, Texas to Spirit of Texas Bank, SSB, a wholly-owned subsidiary of Spirit of Texas Bancshares, Inc..

Additionally, on May 18, 2020 we completed the sale of certain assets and assumptions of certain liabilities (“Colorado Branch Sale”) associated with four Simmons Bank locations in Denver, Englewood, Highlands Ranch and Lone Tree, Colorado to First Western Trust Bank, a wholly-owned subsidiary of First Western Financial, Inc.

We recognized a combined gain on sale of $8.1 million on the Texas Branch Sale and Colorado Branch Sale.

Early in 2020, we offered qualifying associates an early retirement option resulting in $2.9 million of non-core expense during 2020.

We expect ongoing net annualized savings of approximately $2.9 million from this program.

We continuously evaluate our branch network as part of our analysis of the profitability of our operations and the efficiency with which we deliver banking services to our markets, including, among other things, changes in customer traffic and preferences.

As a result of this ongoing evaluation, we closed 11 branch locations during June 2020, with estimated net annual cost savings of approximately $2.4 million related to these locations.

We closed an additional 23 branch locations on October 9, 2020, with an expected net annual cost savings of approximately $6.7 million.

Related to these branch closures, we transferred $15.4 million in branch facilities to premises held for sale.

During 2020, our digital banking users grew approximately 30% while the number of digital transactions increased by 38%, indicating not only a continued trend of increasing digital customers but also that customers are executing more of their banking transactions through digital channels.

In March 2020, for the first time, we had more weekly transactions using digital channels than at the branches.

Our mobile deposit usage has seen an increase of 170% since the end of 2019.

Additionally, we developed a new mobile deposit process to fully automate user enrollment and mitigate our risk.

During the last quarter of 2020, 84% of all accounts that had a banking transaction were enrolled in digital banking.

During May 2020, we completed the conversion of all consumer deposit customers to our new online platform.

All consumer deposit customers are now on the same online and mobile platforms, including acquired institutions.

In September 2020, we completed the development of new credit card functionality which allows our mobile and online banking platform for consumer deposit customers to also display credit card balances, line of credit utilization, recent credit card transactions and minimum credit card payment details, all with real-time information.

On November 30, 2020, we entered into a Branch Purchase and Assumption Agreement with Citizens Equity First Credit Union to sell four Simmons Bank locations in the Metro East area of Southern Illinois, near St.

We expect to close the sale during the first quarter of 2021.

See Note 4, Other Assets and Other Liabilities Held for Sale, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report for additional information related to the sale of these locations.

Also during 2020, we completed our regulatory exam cycle, including our first CFPB exam, and contributed $3.0 million to the Simmons First Foundation to support environmental conservation projects throughout our service area.

During 2019, we had several notable events that affected our operating results.

First, we recorded $15 million in provision expense primarily related to the charge-off of a participation interest in a shared national credit to White Star Petroleum, LLC (“White Star”) (further discussed below in Provision for Credit Losses ).

Second, we sold Visa Inc.

class B common stock resulting in a gain of $42.9 million, and in connection with that sale, we contributed $4 million to the Simmons First Foundation so it may continue its work to provide community development grants throughout our footprint.

Third, we sold $114 million of primarily commercial real estate (“CRE”) loans resulting in a net loss of $5.1 million.

In April 2019, we completed the acquisition of Reliance Bancshares, Inc.

(“Reliance”).

Contemporaneously with the Reliance acquisition, Reliance’s subsidiary bank, Reliance Bank, was merged with and into Simmons Bank, with Simmons Bank as the surviving entity.

We are excited about the opportunities we continue to have in the St.

Louis market resulting from our increased presence.

See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report, for additional information related to the Landrum and Reliance acquisitions.

Stockholders’ equity as of December 31, 2020 was $3.0 billion, book value per share was $27.53 and tangible book value per share was $16.56.

During the fourth quarter of 2021, Simmons Bank announced a first-of-its-kind multi-university corporate sponsorship program designed to support female student athletes and serve as a program for developing women leaders in the corporate world, and we also donated $2.5 million to the Simmons First Foundation.

Continuing on the trends from 2020, in 2021 our digital banking transactions as a percentage of total transactions increased by an additional 23%, while mobile deposit transactions increased 30% and mobile deposit dollars increased 68% when compared to 2020.

These increases were driven by new digital account products and enhanced digital only processes.

We continue to evaluate our branch network as part of our analysis of the profitability of our operations and the efficiency with which we deliver banking services to our markets, including, among other things, changes in customer traffic and preferences.

During 2021, we closed 15 branches while opening 3 branches.

In September 2021, we purchased a 90,000 square foot building in west Little Rock, Arkansas, that will afford us a great opportunity to strategically position certain teams in a centralized location as well as opening a full-service branch and drive-thru to better service our customers in that area.

Stockholders’ equity as of December 31, 2021 was $3.2 billion, book value per share was $28.82 and tangible book value per common share was $17.71.

Our ratio of common stockholders’ equity to total assets was 13.1% and the ratio of tangible common stockholders’ equity to tangible assets was 8.5% at December 31, 2021.

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See Table 18 – Risk-Based Capital for regulatory capital ratios.

Total interest bearing balances due from banks and federal funds sold were $3.3 billion at December 31, 2020, an increase of $2.5 billion from the same period in 2019 due to the additional liquidity that has accumulated as a result of the ongoing effects of the COVID-19 pandemic, including economic stimulus legislation, reduced credit card balances, tepid loan demand and fewer overdraft activities.

Total loans were $12.9 billion at December 31, 2020, a decrease of $1.5 billion, or 10.6%, from the same period in 2019.

During 2020, we provided $975.6 million in PPP loans to our customers.

See the COVID-19 Impact section below for additional information.

At December 31, 2020, the allowance for credit losses on loans was $238.1 million.

We adopted the new credit loss methodology, CECL, on January 1, 2020.

Upon adoption, we recorded an additional allowance for credit losses of approximately $151.4 million, an adjustment to the reserve for unfunded commitments of $24.0 million, and a related $128.1 million adjustment to retained earning net of taxes.

Total interest bearing balances due from banks and federal funds sold were $1.4 billion at December 31, 2021, a decrease of $1.8 billion from the same period in 2020.

We had accumulated additional liquidity at December 31, 2020 as a result of the ongoing effects of the COVID-19 pandemic, including economic stimulus legislation, reduced credit card balances, tepid loan demand and fewer overdraft activities.

We were able to reduce these interest bearing balances during 2021 through our redeployment of excess cash, mainly through purchases of investment securities and repurchases of our common stock.

Total loans were $12.0 billion at December 31, 2021, a decrease of $888.4 million, or 6.9%, from the same period in 2020.

During 2021, we originated $318.9 million in Round 2 PPP loans to our customers, compared to $975.6 Round 1 PPP loans originated during 2020.

(Dollars in thousands) PPP Loans

Beginning balance, January 1, 2021 $ 904,673

PPP loan originations 318,919

Acquired PPP loans 15,573

PPP loan forgiveness and repayments (1,122,506)

Ending balance, December 31, 2021 $ 116,659

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

Further economic downturns caused by the COVID-19 pandemic, a delayed economic recovery from the COVID-19 pandemic, or a delayed recovery from the COVID-19 pandemic due to difficulties with vaccine distribution or effectiveness or new variants of the novel coronavirus, could result in increased deterioration in credit quality, past due loans, loans charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.

At December 31, 2021, the allowance for credit losses on loans was $205.3 million, a decrease of $32.7 million from December 31, 2020.

The decrease was predominately related to economic recovery from the effects of the COVID-19 pandemic, coupled with improved credit quality metrics and improved macroeconomic factors that were considered as part of the Company’s CECL methodology.

In our discussion and analysis of our financial condition and results of operation in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP.

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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 an Arkansas-based financial holding company that, as of December 31, 2020, has approximately $22.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.

COVID-19 Impact

The coronavirus (“COVID-19”) pandemic has placed significant health, economic and other major pressure on the communities we serve, the United States and the entire world.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was designed to provide comprehensive relief to individuals and businesses following the unprecedented impact of the COVID-19 pandemic.

Additionally, we have been actively managing our response to the continuing COVID-19 pandemic and have implemented a number of procedures in response to the pandemic to support the safety and well being of our employees, customers and shareholders.

Some of the implemented procedures include:

• Addressing the safety of the Company’s branch network, following local, state, and federal guidelines;

• Holding regular executive and pandemic task force meetings to address issues that change rapidly;

• Implementing business continuity plans to help ensure that customers have adequate access to banking services;

• Providing extensions and deferrals to loan customers affected by COVID-19 provided such customers were not 30 days or more past due at December 31, 2019.

See further discussion in the Asset Quality section below;

• Participating in both appropriations of the CARES Act PPP that provides 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assist with mortgage interest, rent and utilities.

Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions during this crisis.

We have experienced meaningful shifts in consumer habits which we believe have impacted, and will continue to impact, our delivery of products and services as well as the retail delivery of everyday amenities.

We believe that our investment in digital channels will continue to position our company for these changes.

During the first quarter of 2020, we sold approximately $1.1 billion in securities to increase liquidity in response to potential customer withdrawals of deposits as well as for anticipated funding of PPP loans.

As of December 31, 2020, we have approximately $3.5 billion in cash and cash equivalents and are well capitalized, which management believes has allowed us to continue to approach the crisis from a position of strength.

During 2020, we originated 8,208 PPP loans with an average balance of $119,000 per loan.

Approximately 94% of our PPP loans had a balance of less than $350,000 at the end of the year.

The following table categorizes our PPP loans by outstanding balance as of December 31, 2020:

PPP Loans Number of % of Original Balance at % of

(Dollars in thousands) Loans Loans Balance December 31 Balance

Less than $50,000 5,068 64 % $ 94,502 $ 90,759 10 %

$50,000 to $350,000 2,329 30 % 305,191 285,206 32 %

More than $350,000 to less than $2 million 431 5 % 357,947 315,379 35 %

$2 million to $10 million 61 1 % 217,930 213,329 24 %

Total 7,889 100 % $ 975,570 $ 904,673 100 %

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 13.9% and tangible common equity to tangible assets was 8.8% as of December 31, 2020.

We are participating in the second round of PPP that passed legislation at the end of December 2020 and opened for funding in mid-January 2021.

The new funding is available to both first-time applicants and returning borrowers who meet certain criteria.

We are dedicated to supporting our customers and communities throughout this period of uncertainty.

As a show of this support, since March 2020, we have:

• Donated masks, gloves and hand sanitizers to healthcare facilities, police and a community group delivering meals.

• Sponsored a live streaming concert from Simmons Bank Arena to benefit the Feeding America food banks and the Hunger Relief Alliance, raising over $30,000.

• Donated over $100,000 to various community support groups throughout our footprint to be used for COVID-19 response.

• Delivered food and care packages to support police, firefighters, emergency responders and healthcare workers.

We believe our associates have done a commendable job of adapting to the changes that have occurred over the past year.

We continue to operate in an uncertain environment, and we expect to continue to adjust as necessary.

We have consolidated various operations to provide capacity for continued service to our customers and communities.

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

Further economic downturns accompanying this pandemic, a delayed economic recovery from this pandemic, or a delayed recovery from the pandemic due to difficulties with vaccine availability or distribution or new variants of the novel coronavirus, could result in increased deterioration in credit quality, past due loans, loans charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.

Simmons First National Corporation is an Arkansas-based financial holding company that, as of December 31, 2021, has approximately $24.7 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Net Interest Income

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Between December 2015 and December 2018, the FRB had been gradually raising benchmark interest rates.

The FRB target for the federal funds rate, which is the cost to banks of immediately available overnight funds, increased from 0% - 0.25% to 0.25% - 0.50% in December 2015 and gradually increased to 2.25% - 2.50% over a three year period.

The FRB target for the federal funds rate, which is the cost to banks of immediately available overnight funds, increased from 0% - 0.50% in December 2015 and gradually increased to 2.25% - 2.50% over a three year period.

The federal funds rate was flat until the FRB began to lower the rate in August 2019 and ultimately reduced it to 1.50% - 1.75% in October 2019.

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The prime interest rate remained flat until it began to decrease in July 2019 and was eventually reduced to 4.75% in October 2019.

Similarly to the reduction in the federal funds rate, the prime rate was cut to 3.25% in mid-March of 2020 in response to the COVID-19 pandemic.

Similarly to the reduction in the federal funds rate, the prime rate was cut to 3.25% in mid-March of 2020 in response to the COVID-19

pandemic and remained unchanged through 2021, although in late 2021 and early 2022 markets have begun to anticipate multiple rate increases by the Federal Reserve during 2022.

Our practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing.

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Our current interest rate sensitivity shows that approximately 43% of our loans and 82% of our time deposits will reprice in the next year.

For the year ended December 31, 2020, net interest income on a fully taxable equivalent basis was $650.7 million, an increase of $41.7 million, or 6.8%, over the same period in 2019.

The increase in net interest income was primarily the result of a $61.4 million decrease in interest expense partially offset by a reduction in interest income of $19.7 million.

For the year ended December 31, 2021, net interest income on a fully taxable equivalent basis was $610.8 million, a decrease of $40.0 million, or 6.1%, over the same period in 2020.

The decrease in net interest income was primarily the result of an $80.4 million decrease in interest income, partially offset by a $40.5 million decrease in interest expense.

The reduction in interest income primarily resulted from a decrease of $132.9 million in interest income on loans partially offset by an increase of $55.5 million in interest income on investment securities.

The increase in average loan volume during 2020 generated $68.7 million of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, while a 67 basis point decline in yield resulted in a $91.4 million decrease in interest income during the year ended December 31, 2020.

Regarding the decrease in interest income on loans during 2021, the decline in loan volume resulted in a decrease of $115.7 million in interest income, while a 12 basis point decline in yield resulted in a $17.2 million decrease in interest income during the year ended December 31, 2021.

The loan yield for 2021 was 4.71% compared to 4.83% for 2020.

The PPP loan yield was approximately 2.49% (including accretion of net fees), which decreased the loan yield by 11 basis points.

The PPP loan yield was approximately 6.05% (including accretion of net fees), which increased the loan yield by 8 basis points.

Excluding the PPP loans, loan yield for 2021 was 4.63%.

The decrease in our loan volume during 2021 was primarily due to weak loan demand throughout 2020 and 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 we believe contributed to an increase in the level of loan paydowns and payoffs, including loan forgiveness in accordance with the PPP.

Included in interest income is the additional yield accretion recognized as a result of updated estimates of the cash flows of our loans acquired.

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For the years ended December 31, 2021, 2020 and 2019 interest income included $22.1 million, $41.5 million and $41.2 million, respectively, for the yield accretion recognized on loans acquired.

The $61.4 million decrease in interest expense is mostly due to the decline in our deposit account rates and our FHLB borrowing rates.

Interest expense decreased $73.0 million due to the decrease in yield of 66 basis points on interest-bearing deposit accounts and $6.1 million due to the decrease in yield of 47 basis points on FHLB borrowings.

These decreases were partially offset by an increase of $13.8 million related to deposit growth primarily due to the Landrum and Reliance acquisitions completed in 2019.

The $40.5 million decrease in interest expense is mostly due to the decline in our deposit account rates.

Interest expense decreased $41.6 million due to the decrease in rate of 35 basis points on interest-bearing deposit accounts, partially offset by an increase of $2.9 million related to approximately $1.31 billion in average deposit growth.

Our net interest margin on a fully tax equivalent basis was 2.89% for the year ended December 31, 2021, down 49 basis points from 2020.

Normalized for all accretion, our core net interest margin (non-GAAP) at December 31, 2021 and 2020 was 2.79% and 3.16%, respectively.

The decreases in the net interest margin and the core net interest margin were primarily driven by the lower interest rate environment, additional liquidity created in response to the COVID-19 pandemic, and the lower yielding PPP loans originated during the second and third quarters of 2020.

The decreases in the net interest margin and the core net interest margin were primarily due to the aforementioned decline in net interest income coupled with the lower interest rate environment and additional liquidity created in response to the COVID-19 pandemic.

We purchased investment securities which added approximately $3.93 billion to our average investment securities portfolio during 2021.

The impact of these items on net interest margin for the year 2021 was 9 basis points, bringing the net interest margin adjusted for PPP loans and additional liquidity (non-GAAP) to 2.80%.

See GAAP Reconciliation of Non-GAAP Financial Measures for additional discussion and reconciliation of non-GAAP measures.

During March 2020, the FOMC substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic and rates have continued to remain low throughout 2020.

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

In addition, our decreased net interest margin was being driven by the decrease in our non-PPP loan portfolio during 2020.

We believe we are poised to opportunistically redeploy the excess liquidity in to higher earning assets during 2022, as market conditions permit.

During March 2020, the FOMC substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic and rates remained at historically low levels throughout 2021.

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 the COVID-19 pandemic.

Over the course of 2022, we expect a slight improvement in our net interest margin.

Our non-PPP loan portfolio declined during 2020 as a result of COVID-19 but our loan pipeline is beginning to rebuild and we expect modest organic loan growth during 2021.

Additionally, PPP loans are expected to be forgiven or repaid and we also plan on re-investing these proceeds in our securities portfolio during 2021.

Our non-PPP loan portfolio declined during 2021 as a result of continued impact related to the COVID-19 pandemic, but our loan pipeline continued rebuilding with increased volume in each quarter throughout 2021 and we expect modest organic loan growth during 2022.

The increases we are seeing in our commercial pipeline are being driven by new business units as well as growth across all regions of our footprint.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended December 31, 2021, 2020 and 2019, respectively, as well as changes in fully taxable equivalent net interest margin for the years 2021 versus 2020 and 2020 versus 2019.

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2020 2020 vs.

Increase due to change in earning assets $ 96,617 $ 97,636

(Decrease) increase due to change in earning asset yields (116,343) 10,683

Increase (decrease) due to change in earning assets $ (40,169) $ 96,617

Decrease due to change in earning asset yields (40,258) (116,343)

Decrease due to change in interest bearing liabilities (2,191) (19,031)

Increase (decrease) due to change in interest rates paid on interest bearing liabilities 80,417 (36,096)

Increase in net interest income $ 41,660 $ 55,084

Increase due to change in interest rates paid on interest bearing liabilities 42,646 80,417

Increase (decrease) in net interest income $ (39,972) $ 41,660

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 each of the years in the three-year period ended December 31, 2021.

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The baseline economic forecast was weighted 65%, while the downside scenario of S-2 was weighted 17% and the upside scenario of S-1 was weighted 18%.

The weighting of the forecasts is characterized by, among others, market rates remaining low, the substantial decline of CRE prices, and the current national unemployment rate.

The provision for credit losses for 2020, 2019 and 2018 was $75.0 million, $43.2 million and $38.1 million, respectively.

The increase during 2020 was primarily driven by the adoption of CECL and the related change in methodology which is based on qualitative adjustments, intended to account for potential problem credits that have not materialized into any identifiable metrics or delinquencies.

The weighting of the forecasts is characterized by, among others, continual increase of CRE prices, increasing market rates, and declining national unemployment rates.

The baseline economic forecast as of December 2020 was weighted 68%, while the downside scenario of S-2 was weighted 15% and the upside scenario of S-1 was weighted 17%.

The weightings reflect management’s sentiment around the published forecasted scenarios by Moody’s at that specific time.

During 2021, the Company recaptured $32.7 million of its provision for credit losses, while the provision for credit loss expense during 2020 and 2019 was $75.0 million and $43.2 million, respectively.

The recapture of credit losses during 2021 was driven by improved credit quality metrics, improved macroeconomic factors, and a maturing and amortizing loan portfolio.

This recapture was partially offset by $22.7 million in provision for credit loss expense for estimated lifetime credit losses for non-purchase credit deteriorated loans acquired through the acquisitions of Landmark and Triumph during the fourth quarter.

during 2020 was primarily driven by the adoption of CECL and the related change in methodology which is based on qualitative adjustments, intended to account for potential problem credits that have not materialized into any identifiable metrics or delinquencies.

During 2020, certain industries were more adversely impacted by the current and expected economic scenarios, such as the restaurant, retail, and hotel industries.

Additionally, 2020 also included an additional provision related to problem energy credits, ultimately charged-off during the second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing.

Also, 2020 included an additional provision related to problem energy credits, ultimately charged-off during the second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing.

The remainder of the increase was related to the economic impact of the COVID-19 pandemic that is incorporated in our allowance for credit losses.

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Additionally, a provision of $2.5 million was made during 2019 as a result of identifying certain loans specific to an acquired portfolio in our Dallas market which were poorly structured or were poorly managed post-funding.

The provision for credit losses for 2018 included $3.3 million due to decreases in the expected cash flows on certain purchased credit impaired loans as identified by our required ongoing evaluation of credit marks.

Non-Interest Income

Non-interest income is principally derived from recurring fee income, which includes service charges, trust fees and debit and credit card fees.

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.

Non-interest income is principally derived from recurring fee income, which includes service charges, wealth management fees and debit and credit card fees.

Non-interest income also includes income on the sale of mortgage loans, 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 $191.8 million in 2021, compared to $239.8 million in 2020 and $197.9 million in 2019.

Non-interest income for 2020 increased $43.5 million, or 21.2%, from 2019.

During 2020, we sold approximately $1.7 billion of investment securities resulting in a net gain of $54.8 million.

The majority of the investment securities were sold in March 2020, in response to the unfolding events of the COVID-19 pandemic, as we focused on the creation of additional liquidity and strengthening our balance sheet.

We used a portion of the liquidity generated by these investment security sales to fund PPP loans originated during the second and third quarters of 2020.

We plan to reinvest back into our investment portfolio over the next year as the PPP loans are repaid, subject to economic conditions and other concerns at such time.

Additionally, mortgage lending income increased $19.5 million during 2020 as a result of the current low mortgage interest rate environment and strong housing markets, as well as increased business related to our Landrum and Reliance acquisitions.

The gains on sale from the Texas Branch Sale and Colorado Branch Sale of $8.1 million, which we consider a non-core item, contributed to the increase in 2020.

These increases were partially offset by the one-time gain on sale of the Visa Inc.

class B common stock of $42.9 million during 2019.

The majority of the increase in 2019 was related to the gain on sale of the Visa Inc.

class B common stock.

Also, during 2019, we were focused on rebalancing our investment portfolio and consequently recognized additional gains on the sale of securities.

During 2019, we sold approximately $558.9 million of securities resulting in a net gain of $13.3 million.

Increases in mortgage lending income were due to a strong real estate housing market driven by the interest rate decreases beginning in mid-2019.

Conversely, debit and credit card fees decreased $3.0 million compared to 2018 primarily due to the effects of the interchange rate cap as established by the Durbin Amendment to which we became subject as of July 1, 2018.

For further discussion regarding the Durbin Amendment, see the Impacts of Growth section in Part I, Item 1, Business.

Non-interest income for 2021 decreased $48.0 million, or 20.0%, from 2020.

The majority of the decrease during 2021 was related to the decline in gain on sale of securities and mortgage lending income compared to 2020.

We sold $342.6 million of investment securities resulting in a net gain of $15.5 million in 2021, compared to the sale of $1.72 billion of securities resulting in a net gain of $54.8 million in 2020.

The majority of the investment securities sold in 2020 were sold in March 2020, in response to the unfolding events of the COVID-19 pandemic, as we focused on the creation of additional liquidity, strengthening our balance sheet, and funding PPP loans originated during 2020.

While we continued to see a low mortgage interest rate environment and strong housing markets during 2021, mortgage lending income decreased $12.7 million during 2021 due to decreases in the value of derivative contracts related to the mortgage banking operations and the slowing of the demand compared to 2020.

We originated $1.13 billion and $1.31 billion in mortgage loans during 2021 and 2020, respectively.

We realized $5.3 million on the gain on sale of the Illinois Branch Sale in 2021, compared to the combined gains on sale from the Texas Branch Sale and Colorado Branch Sale of $8.1 million in 2020.

The decrease of $3.1 million related to these non-core items contributed to the overall decrease in 2021.

These decreases were partially offset by an increase of $3.5 million in debit and credit fees as a result of additional transactions due to the changes in customer spending habits and an increase of $3.1 million in bank owned life insurance income due to our increased investment in bank owned life insurance during 2021.

Table 5 shows non-interest income for the years ended December 31, 2021, 2020 and 2019, respectively, as well as changes in 2021 from 2020 and in 2020 from 2019.

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(Dollars in thousands) 2021 2020 2019 2020 2019

Trust income $ 27,705 $ 25,040 $ 23,128 $ 2,665 10.6 % $ 1,912 8.3 %

Wealth management fees $ 31,172 $ 30,386 $ 27,353 $ 786 2.6 % $ 3,033 11.1 %

Service charges on deposit accounts 43,231 43,082 44,782 149 0.4 (1,700) (3.8)

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Mortgage lending income 21,798 34,469 15,017 (12,671) (36.8) 19,452 129.5

SBA lending income 1,329 2,669 1,813 (1,340) (50.2) 856 47.2

Investment banking income 2,681 2,313 3,141 368 15.9 (828) (26.4)

Debit and credit card fees 28,245 24,711 22,137 3,534 14.3 2,574 11.6

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*Not meaningful

Recurring fee income (service charges, trust fees, debit and credit card fees and other fees) for 2020 was $110.9 million, an increase of $5.9 million, or 5.7%, when compared with the 2019 amounts, primarily the result of the Landrum and Reliance acquisitions completed during 2019.

Recurring fee income (service charges, wealth management fees, debit and credit card fees and other fees) for 2021 was $110.3 million, an increase of $5.5 million, or 5.3%, when compared with the 2020 amounts, primarily the result of additional transactions due to the changes in customer spending habits.

Non-Interest Expense

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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.

Non-interest expense for 2020 was $493.5 million, an increase of $32.4 million, or 7.0%, from 2019.

Non-interest expense for 2021 was $483.6 million, a decrease of $1.1 million, or 0.2%, from 2020.

Included in 2021 were $15.4 million of pre-tax non-core items:

$4.5 million of merger-related costs due to the Landrum and Reliance acquisitions, $2.9 million of early retirement program expenses and $14.1 million of net branch-right sizing costs.

Normalizing for these non-core costs, core non-interest expense for the year ended December 31, 2020 increased $53.8 million, or 12.9%, from the prior year.

$15.9 million of merger-related costs due to the Landmark and Triumph acquisitions and a $0.5 million benefit from net branch-right sizing costs.

Normalizing for these non-core costs, along with non-core early retirement program expenses in 2020, core non-interest expense for the year ended December 31, 2021 increased $5.0 million, or 1.1%, from the prior year.

See the Reconciliation of Non-GAAP Measures section for details of the non-core items.

The increase during 2020 was primarily due to the incremental operating expenses from the Landrum and Reliance acquisitions completed during 2019.

Also, our Next Generation Banking (“NGB”) technology initiative has made substantial progress and the incremental software and technology expenditures of $14.6 million were primarily related to this initiative.

Marketing costs include a $3 million donation to the Simmons First Foundation for grants to support environmental conservation projects throughout the Simmons Bank footprint.

The 2021 decrease in non-interest expense was primarily due to a $14.6 million decrease in branch right sizing expenses from 2020, partially offset by an $11.4 million increase in merger related costs related to the Landmark and Triumph acquisitions.

Additionally, salaries and employee benefits increased by $6.8 million due to associates being hired in lending, wealth and mortgage as we continue to actively recruit new producers.

Furniture and equipment expense decreased by $4.1 million due to the realization of expected synergies from the continuous evaluation of our branch network and the branch sales and closures throughout 2021 and 2020.

The decrease in deposit insurance during 2021 was due to lower assessment rates primarily driven by our improving asset quality metrics as well as balance sheet liquidity.

Marketing costs include a $2.5 million donation to the Simmons First Foundation.

Non-interest expense for 2020 was $484.7 million, an increase of $30.8 million, or 6.8%, from 2019.

Normalizing for the non-core costs, core non-interest expense for 2020 increased $52.2 million, or 12.7%, from the prior year.

The increase during 2019 was largely due to additional operating costs related to the Landrum and Reliance acquisitions and the NGB initiative.

Marketing costs increased during 2019 due to incorporating a comprehensive community banking marketing philosophy over our expanded footprint and our $4 million contribution to the Simmons First Foundation.

The reduction in deposit insurance expense during 2019 was due to a credit assessment received from the FDIC during the third and fourth quarters of 2019 in the amount of $4.7 million.

The increase during 2020 was largely due to additional operating costs related to the Landrum and Reliance acquisitions during 2019 and the Next Generation Banking (“NGB”) technology initiative.

Incremental software and technology expenditures of $14.6 million were

primarily related to this initiative.

Marketing costs include a $3.0 million donation to the Simmons First Foundation for grants to support environmental conservation projects throughout the Simmons Bank footprint.

The increase in deposit insurance expense during 2020 was due to a credit assessment received from the FDIC during the third and fourth quarters of 2019 in the amount of $4.7 million.

The FDIC’s Deposit Insurance Fund Reserve Ratio reached 1.35% as of September 30, 2018, and we were notified by the FDIC that Simmons Bank was entitled to $4.0 million in assessment credits.

In addition, Landmark Bank had $745,000 in assessment credits at acquisition.

We were able to utilize both the Simmons Bank and Landmark Bank credits during the last half of 2019, and, as of December 31, 2019, there are no assessment credits remaining.

We were able to utilize both the Simmons Bank and Landmark Bank credits during the last half of 2019.

Amortization of intangibles recorded for the years ended December 31, 2021, 2020 and 2019, was $13.5 million, $13.5 million and $11.8 million, respectively.

The increase during 2020 was due to a full year of amortization of intangibles being recorded for intangibles acquired from the 2019 acquisitions.

See Note 8, Goodwill and Other Intangible Assets, in the accompanying Notes to Consolidated Financial Statements for additional information regarding our intangibles.

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The effective income tax rates for the years ended 2021, 2020 and 2019 were 18.4%, 20.3% and 21.2%, respectively.

During fourth quarter of 2017, the President signed tax reform legislation (“2017 Act”) which included a broad range of tax reform provisions affecting businesses, including corporate tax rates, business deductions, and international tax provisions.

The 2017 Act reduced the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017.

The 2017 Act resulted in a one-time non-cash adjustment to income of $11.5 million during 2017.

The effective income tax rate was lower during 2018 largely due to the 2017 Act, as well as the discrete tax benefits related to tax accounting for a cost segregation study, excess tax benefits related to restricted stock and a state tax deferred tax asset adjustment.

See Note 10, Income Taxes, for further discussion related to these discrete tax benefits recognized during the year.

Loan Portfolio

Our loan portfolio averaged $11.81 billion during 2021 and $14.26 billion during 2020.

As of December 31, 2020, total loans were $12.90 billion, compared to $14.43 billion on December 31, 2019, a decrease of $1.52 billion, or 10.6%.

The decline in the overall loan balance during 2020 reflects the tepid loan demand as a result of the economic uncertainty stemming from the COVID-19 pandemic.

As of December 31, 2021, total loans were $12.01 billion, compared to $12.90 billion on December 31, 2020, a decrease of $888.4 million, or 6.9%.

The decline in the overall loan balance during 2021 reflects the tepid loan demand as a result of the economic uncertainty stemming from the COVID-19 pandemic, in addition to payoffs of PPP loans during the year.

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).

The decline in the overall loan balance discussed above was partially offset by the 2021 acquisitions of Landmark and Triumph.

Our acquisition of Landmark provided $789.3 million in total loans after purchase accounting discounts.

Our acquisition of Triumph provided $700.4 million in total loans after purchase accounting discounts.

See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements for additional information related to these acquisitions.

We seek to manage our credit risk by diversifying our loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an appropriate allowance for credit losses and regularly reviewing loans through the internal loan review process.

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Consumer loans were $355.4 million at December 31, 2021, or 3.0% of total loans, compared to $391.2 million, or 3.0% of total loans at December 31, 2020.

The decrease in consumer loans was primarily due to a decrease in the indirect lending portfolio associated with our discontinuance of the line of business in early 2017 and the portfolio continues to pay down.

The decrease in consumer loans was primarily due to loan payoffs and pay downs due to additional customer liquidity driven by the government economic stimulus programs in response to the COVID-19 pandemic.

The credit card portfolio balance at December 31, 2021, decreased by $1.8 million when compared to the same period in 2020.

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Real estate loans consist of construction and development (“C&D”) loans, single family residential loans and other CRE loans.

Real estate loans were $9.22 billion at December 31, 2020, or 71.5% of total loans, compared to $10.88 billion, or 75.5% of total loans at December 31, 2019, a decrease of $1.7 billion, or 15.3%.

Our C&D loans decreased by $640.6 million, or 28.6%, single family residential loans decreased by $561.4 million, or 23.0%, and CRE loans decreased by $458.7 million, or 7.4%.

Real estate loans declined approximately $104.6 million due to loan dispositions in connection with the Colorado Branch Sale.

The remaining decrease was due to less activity as a result of the COVID-19 pandemic and our effort to manage our real estate portfolio concentration.

Real estate loans were $9.17 billion at December 31, 2021, or 76.3% of total loans, compared to $9.22 billion, or 71.5% of total loans at December 31, 2020, a decrease of $56.5 million, or 0.6%.

Our C&D loans decreased by $269.9 million, or 16.9%, single family residential loans increased by $221.3 million, or 11.8%, and CRE loans decreased by $8.0 million, or 0.1%.

The fluctuations in real estate loan balances were largely due to less activity as a result of the COVID-19 pandemic and the acquired loans during 2021.

In the near term, we expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers.

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

Total commercial loans were $2.75 billion at December 31, 2020, or 21.3% of total loans, compared to $2.81 billion, or 19.5% of total loans at December 31, 2019, a decrease of $60.7 million, or 2.2%, that is mostly in our agricultural loan portfolio.

Our non-agricultural commercial loan portfolio increased during 2020 due to the $975.6 million in PPP loan originations.

Total commercial loans were $2.16 billion at December 31, 2021, or 18.0% of total loans, compared to $2.75 billion, or 21.3% of total loans at December 31, 2020, a decrease of $589.5 million, or 21.4%.

During 2021, we originated $318.9 million under the PPP Round 2 program.

Our non-agricultural commercial loan portfolio decreased overall during 2021 due to the expected reimbursements from the SBA related to PPP loan forgiveness of both PPP Round 1 and Round 2 loans, totaling $1.12 billion in 2021.

As of December 31, 2021, the balance in our PPP loan portfolio was $116.7 million.

Our total loan pipeline consisting of all loan opportunities, which was a robust $1.7 billion at December 31, 2019 fell to $374.4 million at September 30, 2020.

The pipeline is starting to rebuild and ended 2020 at $673.7 million, including $176.6 million in loans approved and ready to close.

Loan demand appears to be returning to more normalized levels.

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

Our loan pipeline consisting of all loan opportunities was $2.31 billion at December 31, 2021 compared to $673.7 million at December 31, 2020.

The pipeline includes $619.6 million in loans approved and ready to close at the end of the year.

Other loans mainly consists of mortgage warehouse lending.

Mortgage volume surged during 2020 due to the low interest rate environment and robust singe family real estate market conditions in many locations within our market area, leading to an increase of $259.9 million in other loans primarily from mortgage warehouse lines of credit.

Mortgage volume, while still strong, declined during 2021 when compared to 2020, leading to a decrease of $206.5 million in other loans primarily from mortgage warehouse lines of credit.

The balances of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan.

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Maturity and Interest Rate Sensitivity of Loans

1 year Over 1 year through Over

(In thousands) or less 5 years 5 years Total

1 year Over 1 year through Over 5 years through Over

(In thousands) or less 5 years 15 years 15 years Total

Consumer $ 197,763 $ 142,041 $ 96 $ 15,470 $ 355,370

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Predetermined rate

Consumer $ 110,600 $ 37,701 $ 11 $ 15,470 $ 163,782

Real estate 2,056,889 2,922,518 208,010 49,927 5,237,344

Commercial 613,045 356,825 23,368 3,499 996,737

Other 99,217 — — — 99,217

Total $ 2,879,751 $ 3,317,044 $ 231,389 $ 68,896 $ 6,497,080

Floating rate

Nonaccrual — — 122,894 122,894

Consumer $ 87,163 $ 104,340 $ 85 $ — $ 191,588

Real estate 1,665,296 2,009,338 251,443 3,829 3,929,906

Commercial 678,271 441,943 24,747 19,062 1,164,023

Other 229,906 — — — 229,906

Total $ 2,660,636 $ 2,555,621 $ 276,275 $ 22,891 $ 5,515,423

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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 increased $28.6 million from December 31, 2019 to December 31, 2020.

Total non-performing assets decreased $67.6 million from December 31, 2020 to December 31, 2021.

Nonaccrual loans decreased by $54.7 million during 2021, in addition to a decrease in foreclosed assets held for sale of $12.4 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 primarily the result of the disposition of one commercial building in the St.

Louis area and the disposition of one piece of commercial land with net book values at the time of sale of $6.5 million and $2.8 million, respectively.

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

Total non-performing assets increased by $28.6 million from December 31, 2019 to December 31, 2020.

Nonaccrual loans increased by $29.5 million during 2020, partially offset by a decrease in foreclosed assets held for sale of $728,000.

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The remaining increase was related to various other CRE loans and commercial loan relationships.

We continue to actively pursue an exit of our energy lending portfolio, except for our customers who have a diversified relationship with us.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.66% at December 31, 2020 compared to 0.57% at December 31, 2019.

Total non-performing assets increased by $33.1 million from December 31, 2018 to December 31, 2019.

Nonaccrual loans increased by $37.5 million during 2019, primarily commercial loans, partially offset by a decrease in foreclosed assets held for sale of $6.4 million.

Nonaccrual loans increased by $37.5 million during 2019, primarily commercial loans, partially offset by a decrease in foreclosed assets held for sale decreased by $6.4 million.

Total non-performing assets decreased by $23.2 million from December 31, 2017, to December 31, 2018.

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However, the sale increased net charge-offs by approximately $4.6 million.

Total non-performing assets decreased by $8.2 million from December 31, 2016, to December 31, 2017.

Total non-performing loans decreased by $13.6 million from December 31, 2016 to December 31, 2017.

Nonaccrual loans decreased by $16.8 million during 2017.

During 2017, $3.2 million of previously closed branch buildings and land was reclassified to OREO from premises held for sale.

There was no deterioration or further write-down of these properties.

Also, as part of the First South Bank conversion, 5 branches were closed during the third quarter of 2017.

Under ASC Topic 360, there is a one year maximum holding period to classify premises as held for sale.

However, under Arkansas state banking laws former branch buildings must be recorded as OREO.

From time to time, including in connection with the COVID-19 pandemic, certain borrowers are experiencing 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 increased slightly to $7.5 million at December 31, 2020 compared to $7.4 million at December 31, 2019, and decreased when compared to $10.8 million at December 31, 2018.

Our TDR balance decreased to $6.9 million at December 31, 2021 compared to $7.5 million at December 31, 2020, and increased slightly when compared to $7.4 million at December 31, 2019.

TDRs are individually evaluated for expected credit losses.

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In response to the concerns related to the expiration of the applicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended in late fourth quarter of 2020 to extend COVID-19 relief related to loan modifications from the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration.

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

As of mid-February 2021, approximately 85% of these balances have returned to regular payments or are expected to return to regular payments in the first quarter of 2021, with the remainder of the loans still in the modification period.

See Note 5, Loans and Allowance for Credit Losses, in the accompanying Notes to Consolidated Financial Statements for additional information related to these loans.

Of these COVID-19 loan modifications, approximately $390.0 million, or 13.0%, are commercial loan modifications that are in an internal COVID-19 status category of 4-7 as of mid-February 2021, further discussed below.

Internal COVID-19 status categories are internal status categories that we use in connection with our COVID-19 loan modification program.

A description of the general characteristics of the internal COVID-19 status categories 4-7 is as follows:

• Category 4 – Borrower is still in the modification period and expected to need an additional modification.

Financial projections show return to original terms, but not at the end of six months.

The loan remains collateralized and fully supported by the guarantor.

• Category 5 – Financial projections do not support return to regular payments OR collateral deterioration is likely, which would not fully support the loan.

The guarantors remain engaged and cooperative.

• Category 6 – Financial projections do not support return to regular payments AND collateral deterioration is likely, which would not fully support the loan.

The guarantors remain engaged and cooperative.

• Category 7 – Financial projections do not support return to regular payments OR collateral deterioration is likely, which would not fully support the loan.

The guarantors lack the capacity and are unwilling or unable to develop a new operating strategy.

We developed these status categories for internal purposes only and they are not a substitute or a replacement for loan risk ratings used by us under US GAAP.

Commercial COVID-19 Loan Modifications Status Category 4-7 by Industry

(Dollars in thousands) Loan Balance %

Hotels $ 274,728 70.5 %

Nursing/Extended Care 47,511 12.2

Restaurants 10,802 2.8

Transportation and Warehousing 5,226 1.3

All Other 51,696 13.3

Total $ 389,963 100.0 %

Commercial COVID-19 Loan Modifications Status Category 4-7

(Dollars in thousands) Loan Balance Number of Loans

Internal Status Category 4 $ 229,712 30

Internal Status Category 5 102,101 33

Internal Status Category 6 55,679 13

Internal Status Category 7 2,471 6

Total $ 389,963 82

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

We expect most of the commercial COVID-19 loan modifications listed above, as illustrated in Table 10, to return to regular payments with no credit downgrade or long-term restructure.

Management has identified certain loans within COVID-19 internal status categories 5-7 as likely to need further payment assistance.

Management focus is currently on these perceived higher risk loans, including efforts to assist borrowers in obtaining COVID relief assistance that may be available.

As of December 31, 2021, the Company had 51 COVID-19 loan modifications outstanding with an aggregate principal amount of $8.6 million.

We continue to maintain good asset quality, compared to the industry.

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The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows.

An analysis of the allowance for credit losses on loans is shown in Table 12.

Allowance for Credit Losses

(Dollars in thousands) 2020 2019 2018 2017 2016

Balance, beginning of year $68,244 $56,694 $42,086 $37,240 $32,305

Impact of CECL adoption 151,377 — — — —

Loans charged off:

Credit card 4,113 4,585 4,051 3,905 3,195

Additional information related to net charge-offs is shown in Table 10.

Ratio of Net Charge-offs to Average Loans

(Dollars in thousands) Net Charge-offs Average Loans Ratio of Net Charge-offs to Average Loans

Credit cards $ (2,577) $ 180,975 (1.42) %

Other consumer (649) 181,573 (0.36) %

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Commercial (5,953) 2,363,701 (0.25) %

Total loans charged off 70,659 36,836 26,838 25,900 17,269

Recoveries of loans previously charged off:

Credit card 1,014 1,021 1,005 1,021 907

Other — 406,094 — %

Total $ (14,960) $ 11,810,480 (0.13) %

Credit cards $ (3,099) $ 189,488 (1.64) %

Other consumer (2,557) 223,347 (1.14) %

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Commercial (45,520) 2,894,537 (1.57) %

Total recoveries 6,600 5,146 3,298 4,353 2,139

Net loans charged off 64,059 31,690 23,540 21,547 15,130

Provision for credit losses 82,488 43,240 38,148 26,393 20,065

Balance, end of year $ 238,050 $ 68,244 $ 56,694 $ 42,086 $ 37,240

Net charge-offs to average loans 0.45 % 0.24 % 0.21 % 0.31 % 0.30 %

Allowance for credit losses to period-end loans 1.85 % 0.47 % 0.48 % 0.39 % 0.66 %

Allowance for credit losses to net charge-offs 371.61 % 215.35 % 240.84 % 195.32 % 246.13 %

Provision for Credit Losses

The amount of provision added to the allowance each year 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.

Other — 465,848 — %

Total $ (64,059) $ 14,260,689 (0.45) %

Allowance for Credit Losses Allocation

As of December 31, 2020, the allowance for credit losses reflected an increase of approximately $169.8 million from December 31, 2019 while loans decreased $1.5 billion over the same period.

As of December 31, 2021, the allowance for credit losses reflected a decrease of approximately $32.7 million from December 31, 2020 while loans decreased $888.4 million over the same 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 remaining increase in the allowance for credit losses during 2020 was predominately related to updated credit loss forecast models using multiple Moody’s economic scenarios previously discussed in Provision for Credit Losses as well as continued economic uncertainty due to the COVID-19 pandemic.

Certain industries are being more adversely impacted than others by this pandemic, such as the restaurant, retail and hotel industries, and there remains substantial uncertainty regarding how borrowers in these industries will recover.

Our allowance for credit losses at December 31, 2020 was at the high-end of our calculated range, although it was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic recovery, future of government assistance in response to the COVID-19 pandemic, and other related factors.

The decrease in the allowance for credit losses during 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 December 31, 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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Total $ 205,332 100.0% $ 238,050 100.0% $ 68,244 100.0% $ 56,694 100.0% $ 42,086 100.0%

Allowance for credit losses to period-end loans 1.71 % 1.85 % 0.47 % 0.48 % 0.39 %

_________________________

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Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

Securities within the portfolio are classified as either held-to-maturity, available-for-sale or trading.

Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.

Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity.

Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.

Securities within the portfolio are classified as either held-to-maturity (“HTM”), available-for-sale (“AFS”) or trading.

HTM securities, which include any security for which we have the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.

Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life.

Prepayments are anticipated for mortgage-backed and SBA securities.

Premiums on callable securities are amortized to their earliest call date.

AFS securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.

Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income.

Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity.

Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity.

Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the estimated life of the security.

Prepayments are anticipated for mortgage-backed and SBA securities.

Premiums on callable securities are amortized to their earliest call date.

Our philosophy regarding investments is conservative based on investment type and maturity.

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

Held-to-maturity (or “HTM”) and available-for-sale (or “AFS”) investment securities were $333.0 million and $3.5 billion, respectively, at December 31, 2020, compared to the held-to-maturity amount of $40.9 million and available-for-sale amount of $3.3 billion at December 31, 2019.

As of December 31, 2020, $477.2 million, or 13.7%, of the available-for-sale securities were invested in obligations of U.S.

HTM and AFS investment securities were $1.53 billion and $7.1 billion, respectively, at December 31, 2021, compared to the HTM amount of $333.0 million and AFS amount of $3.47 billion at December 31, 2020.

As of December 31, 2021, $597.3 million, or 6.9%, of our total portfolio was invested in obligations of U.S.

government agencies, 0.2% of which will mature in one year or less.

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These mortgage-backed securities were issued by agencies of the U.S.

We anticipate our security portfolio to continue to increase during 2021 as we reinvest PPP loan repayments and utilize the additional liquidity currently held in Cash and Cash Equivalents.

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

During 2021, we purchased $5.27 billion of investment securities.

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

During the third quarter of 2021, we 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.

Additionally, during the third quarter of 2021, we transferred, at fair value, $500.8 million of securities from the AFS portfolio to the HTM portfolio.

The related net unrealized gains of $1.0 million remained in accumulated other comprehensive income (loss) at December 31, 2021 and will be amortized over the remaining life of the securities.

No gains or losses on these securities were recognized at the time of transfer.

The adoption of ASU 2016-13 at the beginning of 2020 required us to replace the existing impairment models for financial assets, which includes investment securities.

Under this model, an estimate of expected credit losses that represents all contractual cash flows that is deemed uncollectible over the contractual life of the financial asset must be recorded.

Based upon our analysis of the underlying risk characteristics of the AFS portfolio, including credit ratings and other qualitative factors, no allowance for credit losses related to AFS securities was deemed necessary at December 31, 2021.

Our allowance for credit losses related to HTM

securities was $1.3 million at December 31, 2021.

Our allowance for credit losses related to HTM and AFS securities was $2.9 million and $312,000, respectively, at December 31, 2020.

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We had $15.9 million of gross realized gains and $422,000 of gross realized losses from the sale of securities during the year ended December 31, 2021 compared to $54.8 million of gross realized gains and $15,000 of gross realized losses from the sale of securities during the year ended December 31, 2020.

Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time we expect to receive full value for the securities.

We have the ability and intent to hold the securities classified as HTM until they mature, at which time we expect to receive full value for the securities.

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 December 31, 2020, management also had the ability and intent to hold the securities classified as available-for-sale for a period of time sufficient for a recovery of cost.

Furthermore, as of December 31, 2021, we 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.

The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.

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

Accordingly, as of December 31, 2020, management believes the declines in fair value detailed in the table below are temporary.

We do not believe any of the securities are impaired due to reasons of credit quality.

Accordingly, as of December 31, 2021, we believe the declines in fair value detailed in the table below are temporary.

Table 12 presents the amortized cost, fair value and allowance for credit losses on investment securities for each of the years indicated.

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December 31, 2021

Government agencies $ 232,609 $ — $ 232,609 $ — $ (7,914) $ 224,695

Mortgage-backed securities 70,342 — 70,342 232 (1,425) 69,149

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December 31, 2021

Treasury $ 300 $ — $ — $ — $ 300

Government agencies 374,754 — 495 (10,608) 364,641

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December 31, 2020

Treasury $ 449,729 $ — $ 112 $ (112) $ 449,729

Government agencies $ 477,693 $ — $ 844 $ (1,300) $ 477,237

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Held-to-Maturity

Government agencies $ — $ — $ — $ 232,609 $ — $ 232,609 $ 236,350 $ 224,695

Mortgage-backed securities — — — — 70,342 70,342 68,730 69,149

$ — $ — $ — $ — $ 22,354 $ 22,354 $ 22,000 $ 23,037

State and political subdivisions 5,333 4,801 9,780 1,190,334 — 1,210,248 1,199,362 1,206,755

5,821 10,708 4,051 291,836 — 312,416 311,301 318,227

Other securities — — 17,301 — — 17,301 16,958 16,779

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Weighted average yield 2.7 % 3.1 % 2.5 % 2.0 % 1.7 % 2.0 %

2.4 % 2.9 % 6.3 % 2.2 % 2.2 % 2.3 %

Available-for-Sale

Treasury $ 300 $ — $ — $ — $ — $ 300 $ 300 $ 300

Government agencies — 12,431 105,787 256,536 — 374,754 372,018 364,641

$ — $ 3,768 $ 79,309 $ 394,616 $ — $ 477,693 $ 475,802 $ 477,237

Mortgage-backed securities — — — — 4,485,548 4,485,548 4,370,613 4,448,616

— — — — 1,374,767 1,374,767 1,324,452 1,394,936

State and political subdivisions 7,521 17,229 23,282 1,743,065 — 1,791,097 1,704,788 1,819,658

14,017 21,683 27,404 1,353,034 — 1,416,138 1,396,550 1,470,723

Other securities — 31,796 403,016 43,725 625 479,162 470,867 480,330

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Weighted average yield 1.9 % 1.5 % 2.6 % 2.1 % 1.0 % 1.4 %

2.4 % 3.0 % 3.5 % 2.4 % 1.4 % 2.1 %

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 204 financial centers.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 199 financial centers.

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.

Our core deposits consist of all deposits excluding time deposits of more than $250,000 and brokered deposits.

As of December 31, 2021, core deposits comprised 93.5% of our total deposits.

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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 December 31, 2020, were $17.0 billion, an increase of $878.1 million from December 31, 2019.

Our total deposits as of December 31, 2021, were $19.37 billion, an increase of $2.38 billion from December 31, 2020.

The 2021 acquisitions of Landmark and Triumph contributed $1.52 billion to this increase.

Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $16.91 billion at December 31, 2021, compared to $14.15 billion at December 31, 2020, a $2.76 billion increase.

Total time deposits decreased $379.9 million to $2.45 billion at December 31, 2021, from $2.83 billion at December 31, 2020.

We had $512.3 million and $1.1 billion of brokered deposits at December 31, 2020, and December 31, 2019, respectively.

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

We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits.

We had $466.0 million and $512.3 million of brokered deposits at December 31, 2021, and December 31, 2020, respectively.

Our uninsured deposits as of December 31, 2021 and 2020 were $7.48 billion and $5.98 billion, respectively.

Both consumer and commercial deposit balances have grown since the COVID-19 related the various economic stimulus legislation packages.

We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits as well as hone our product offerings to give customers flexibility of choice while maintaining the ability to adjust interest rates timely in the current rate environment.

Table 14 reflects the classification of the average deposits and the average rate paid on each deposit category which is in excess of 10 percent of average total deposits for the three years ended December 31, 2021.

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Time deposits 2,804,851 0.77 % 3,006,768 1.38 % 3,094,094 1.90 %

$100,000 or more 1,823,198 1.37 % 1,994,276 2.02 % 1,366,745 1.50 %

Other time deposits 1,183,570 1.39 % 1,099,818 1.67 % 977,558 1.00 %

Total $ 18,280,355 0.23 % $ 16,361,322 0.49 % $ 13,533,115 1.03 %

The Company’s maturities of large denomination time deposits at December 31, 2020 and 2019 are presented in Table 17.

Maturities of Large Denomination Time Deposits

Time Certificates of Deposit

($100,000 or more)

(In thousands) Balance Percent Balance Percent

The Company’s maturities of time deposits not covered by deposit insurance at December 31, 2021 are presented in Table 15.

Maturities of Time Deposits Not Covered by Deposit Insurance

December 31, 2021

(In thousands) Balance Percent

Three months or less $ 196,897 39.6 %

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Total $ 497,624 100.0 %

Fed Funds Purchased and Securities Sold under Agreements to Repurchase

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Federal funds purchased and securities sold under agreements to repurchase were $185.4 million at December 31, 2021, as compared to $299.1 million at December 31, 2020.

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Other Borrowings and Subordinated Debentures

Our total debt was $1.72 billion and $1.69 billion at December 31, 2020 and December 31, 2019, respectively.

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

The outstanding balance for December 31, 2021 includes $1.31 billion in FHLB long-term advances;

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We also held typical FHLB short-term advances, with original maturities of less than one year, at various times during 2021, as well as in previous years.

At December 31, 2020, there were no FHLB short-term advances outstanding.

At December 31, 2021, the Company had $98,000 of FHLB advances outstanding with original or expected maturities of one year or less.

A summary of information related to our FHLB short-term advances, including FOTO advances in 2020 and 2019, is presented in Table 16.

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We assumed trust preferred securities and other subordinated debt in an aggregate principal amount, net of discounts, of $33.9 million related to the Landrum acquisition during 2019.

During the second quarter of 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.

During 2017, we entered into a Revolving Credit Agreement with U.S.

Bank National Association and executed an unsecured Revolving Credit Agreement (“Credit Agreement”) pursuant to which we may borrow, prepay and reborrow up to $75.0 million, the proceeds of which were primarily used to pay off amounts outstanding under a term note assumed with the First Texas acquisition.

In October 2018, we entered into a First Amendment to the Credit Agreement with U.S.

Bank National Association, which primarily extended the expiration date to October 2019 and reduced the $75.0 million to $50.0 million.

In December 2018, we entered into a Second Amendment to the Credit Agreement that clarified the financial metrics contained in certain affirmative covenants of the Credit Agreement are evaluated on a consolidated basis.

We did not renew the Credit Agreement upon the expiration date in October 2019.

During 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.

In March 2018, we issued $330.0 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.

During 2018, the Company used a portion of the net proceeds from the sale of the Notes to repay certain outstanding indebtedness, including the amounts borrowed under the Credit Agreement and the unsecured debt from correspondent banks.

During 2018, we repaid the $75.0 million outstanding balance on the Credit Agreement, $43.3 million in notes payable, $94.9 million in trust preferred securities and $19.1 million in subordinated debt acquired from First Texas.

Aggregate annual maturities of debt at December 31, 2021 are presented in Table 17.

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On February 27, 2009, at a special meeting, our shareholders approved an amendment to the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value.

The aggregate liquidation preference of all shares of preferred stock cannot exceed $80,000,000.

On February 12, 2019, we filed Amended and Restated Articles of Incorporation (“February Amended Articles”) with the Arkansas Secretary of State.

The February Amended Articles classified and designated three series of preferred stock out of our authorized preferred stock:

Series A Preferred Stock, Par Value $0.01 Per Share (having 40,000 authorized shares);

Series B Preferred Stock, Par Value $0.01 Per Share (having 2,000.02 authorized shares);

and 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C (having 140 authorized shares).

On October 29, 2019, we filed our Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State.

The aggregate liquidation preference of all shares of preferred stock cannot exceed $80.0 million.

On October 29, 2019, we filed Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State.

The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share, out of our authorized preferred stock.

The October Amended Articles also canceled our 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C Preferred Stock, of which no shares were ever issued or outstanding.

On January 18, 2018, our Board of Directors approved a two-for-one stock split of the Company’s outstanding Class A common stock, $0.01 par value (“Common Stock”), in the form of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018.

The new shares were distributed by our transfer agent, Computershare, and our common stock began trading on a split-adjusted basis on the Nasdaq Global Select Market on February 9, 2018.

All previously reported share and per share data included in filings subsequent to February 8, 2018 are restated to reflect the retroactive effect of this two-for-one stock split.

On November 30, 2021, we redeemed all of the Series D Preferred Stock, including accrued and unpaid dividends.

On March 31, 2021, we filed a shelf registration with the SEC.

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Stock Repurchase

On July 23, 2012, our Board of Directors approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares (split adjusted) of common stock (“2012 Program”).

On October 22, 2019, we announced a new stock repurchase program (the “Program”), under which we may repurchase up to $60,000,000 of our Class A common stock currently issued and outstanding.

On October 22, 2019, we announced a stock repurchase program (the “2019 Program”) under which we could repurchase up to $60.0 million of our Class A Common Stock currently issued and outstanding.

On March 5, 2020, we announced an amendment to the 2019 Program that increased the maximum amount that could be repurchased under the 2019 Program from $60.0 million to $180.0 million.

Effective July 23, 2021, a second amendment was approved that increased the maximum amount that could be repurchased to $276.5 million.

During 2021, we repurchased 4,562,469 shares of the Company’s common stock at an average price of $29.03 per share under the 2019 Program.

We repurchased 5,956,700 shares at an average price of $19.03 per share under the 2019 Program during 2020.

During January 2022, we substantially exhausted the remaining capacity under the 2019 Program and authorized a new stock repurchase program (the “2022 Program”) under which we may repurchase up to $175.0 million of our Class A Common Stock currently issued and outstanding.

The 2022 Program replaced the 2019 Program.

On March 5, 2020, we announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000 to $180,000,000.

The Program will terminate on October 31, 2021 (unless terminated sooner).

Under the 2022 Program, we may repurchase shares of our common stock through open market and privately negotiated transactions or otherwise.

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The 2022 Program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice.

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

During 2020, we repurchased 5,956,700 shares at an average price of $19.03 per share under the Program.

We repurchased 390,000 shares at an average price of $25.97 per share under the Program during 2019.

We anticipate funding for the 2022 Program to come from available sources of liquidity, including cash on hand and future cash flow.

Cash Dividends

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The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising in the market via stock or debt offerings.

See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional information regarding the parent company’s liquidity.

See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, for additional information regarding the parent company’s liquidity, which is incorporated herein by reference.

Risk-Based Capital

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Tier 1 leverage ratio, excluding average PPP loans (non-GAAP) (1)

9.15 % 9.50 %

Tier 1 risk-based capital ratio 13.82 % 13.41 %

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Regulatory Capital Changes

In July 2013, the Company’s primary federal regulator, the Federal Reserve, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S.

The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards.

The Basel III Capital Rules introduced substantial revisions to the risk-based capital requirements applicable to bank holding companies and depository institutions.

In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact of the adoption on earnings and Tier 1 capital (the “CECL Transition Provision”).

In March 2020, in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13.

The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”).

The Company elected to apply the 2020 CECL Transition Provision.

The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios.

The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach.

The Basel III Capital Rules expanded the risk-weighting categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S.

government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories, including many residential mortgages and certain commercial real estate.

The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios with a more risk-sensitive approach.

The Basel III Capital Rules established risk-weighting

categories depending on the nature of the assets, generally ranging from 0% for U.S.

government and agency securities, to 600% for certain equity exposures.

The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets.

The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%.

The Basel III Capital Rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance with all of the final rule’s requirements on January 1, 2019.

The rules also set the minimum ratio of Tier 1 capital to risk-weighted assets to 6.0% and require a minimum leverage ratio of 4.0%.

Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules.

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Trust preferred securities and qualifying subordinated debt of $384.1 million is included as Tier 2 and total capital as of December 31, 2021.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

In the normal course of business, the Company enters into a number of financial commitments.

Examples of these commitments at December 31, 2020, include but are not limited to long-term debt financing, operating lease obligations, unfunded loan commitments and letters of credit.

Our long-term debt at December 31, 2020, includes subordinated debt, notes payable and FHLB advances, all of which we are contractually obligated to repay in future periods.

Beginning January 1, 2019, the Company recognizes all leases under ASC Topic 842, Leases , that requires lessees to record assets and liabilities on the balance sheet for all leases with a lease term of 12 months or longer.

See Note 6, Right-of-Use Lease Assets and Lease Liabilities and Note 20, New Accounting Standards, for additional information regarding our operating leases and the impact of adoption of the new lease accounting standard.

Commitments to extend credit and letters of credit are legally binding, conditional agreements generally having fixed expiration or termination dates.

These commitments generally require customers to maintain certain credit standards and are established based on management’s credit assessment of the customer.

The commitments may expire without being drawn upon.

Therefore, the total commitment does not necessarily represent future funding requirements.

The funding requirements of the Company’s most significant financial commitments at December 31, 2020 are shown in Table 21.

Funding Requirements of Financial Commitments

Payments due by period

Less than 1-3 3-5 Greater than

(In thousands) 1 Year Years Years 5 Years Total

Long-term debt $ 2,812 $ 3,679 $ 7,347 $ 1,711,103 $ 1,724,941

Undiscounted minimum lease payments 9,192 12,632 5,603 8,000 35,427

Credit card loan commitments 671,488 — — — 671,488

Other loan commitments 2,355,953 — — — 2,355,953

Letters of credit 49,029 — — — 49,029

In the normal course of business we have entered into a number of contractual obligations and have made commitments to make future payments.

Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2021.

Examples of these commitments include but are not limited to long-term debt financing (Note 12, Other Borrowings and Subordinated Debentures), operating lease obligations (Note, 6, Right-of-Use Lease Assets and Lease Liabilities), time deposits with stated maturity dates (Note 9, Time Deposits), and unfunded loan commitments and letters of credit (Note 19, Commitments and Credit Risk).

GAAP Reconciliation of Non-GAAP Financial Measures

The tables below present computations of core earnings (net income excluding non-core items {merger-related costs, early retirement program costs, net branch right sizing costs, gain on sale of branches, gain from early retirement of trust preferred securities, gain on sale of insurance lines of business, 2017 donation to the Simmons First Foundation and the one-time deferred income tax adjustment from tax reform}) and core diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), core net interest margin (non-GAAP), core other income (non-GAAP), core non-interest expense (non-GAAP), core return on average assets (non-GAAP), return on tangible common equity (non-GAAP), core return on average common equity (non-GAAP), core return on tangible common equity (non-GAAP), and efficiency ratio (non-GAAP).

The tables below present computations of core earnings (net income excluding non-core items {merger-related costs, early retirement program costs, net branch right sizing costs, gain on sale of branches}) (non-GAAP) and core diluted earnings per share (non-GAAP) as well as a computation of tangible book value per common share (non-GAAP), tangible common equity to tangible assets (non-GAAP), core net interest margin (non-GAAP), core other income (non-GAAP), core non-interest expense (non-GAAP), core return on average assets (non-GAAP), return on tangible common equity (non-GAAP), core return on average common equity (non-GAAP), core return on tangible common equity (non-GAAP), and efficiency ratio (non-GAAP).

The tables below also present computations of certain figures that are exclusive of the impact of PPP loans:

the ratios of common equity to total assets and tangible common equity to tangible assets, each adjusted for PPP loans (each non-GAAP), Tier 1 leverage ratio excluding average PPP loans (non-GAAP), net interest income and net interest margin, each adjusted for PPP loans and additional liquidity (each Non-GAAP), and loan yield excluding PPP loans (non-GAAP).

the ratios of Tier 1 leverage ratio excluding average PPP loans (non-GAAP), net interest income and net interest margin, each adjusted for PPP loans and additional liquidity (each non-GAAP), and loan yield excluding PPP loans (non-GAAP).

Non-core items are included in financial results presented in accordance with generally accepted accounting principles (GAAP).

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We have $1.25 billion and $1.19 billion total goodwill and other intangible assets for the periods ended December 31, 2021 and 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), tangible common equity to tangible assets (non-GAAP) and return on tangible equity (non-GAAP).

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

We believe the exclusion of PPP loans or their impact, as applicable, in expressing earnings and certain other financial measures provides a meaningful basis for period-to-period and company-to-company comparisons because PPP loans are 100% federally guaranteed and have very low interest rates.

The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “common equity to total assets” and “tangible common equity to tangible assets,” each adjusted for PPP loans (each non-GAAP), “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “net interest margin,” each adjusted for PPP loans and additional liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP).

The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “net interest margin,” each adjusted for PPP loans and additional liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP).

Additional liquidity is defined as average interest bearing balances due from banks greater than normal liquidity levels.

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Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited.

To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as non-core to ensure that the Company’s “core” results are properly reflected for period-to-period comparisons.

To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as non-core to ensure that the

Company’s “core” results are properly reflected for period-to-period comparisons.

Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

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All per share data has been restated to reflect the retroactive effect of the two-for-one stock split which occurred during February 2018.

During 2021, non-core items consisted of $15.9 million of merger-related costs, related to the Landmark and Triumph acquisitions and net branch right sizing gains of $0.9 million, primarily due to branch closures across our footprint during the year.

Additionally, we had total gains on sale of branches of $5.3 million due to the Illinois Branch Sale.

The net after-tax impact of these items was $7.2 million, or $0.07 per diluted earnings per share.

During 2020, non-core items consisted of $4.5 million of merger-related costs, related to the Landrum and Reliance acquisitions, and $2.9 million in early retirement program expenses.

3 unchanged sentences

During 2019, non-core items consisted of $36.4 million of merger-related costs, related to the Landrum and Reliance acquisitions, and $3.5 million in early retirement program expenses.

In addition, we had non-core branch right sizing costs of $3.1 million, primarily related to the relocation of the Little Rock corporate offices.

The net after-tax impact of these items was $31.7 million, or $0.32 per diluted earnings per share.

During 2018, non-core items included $6.1 million of merger-related and branch right sizing costs.

The net after-tax impact of these items was $4.5 million, or $0.05 per diluted earnings per share.

During 2017, non-core items included $22.1 million of merger-related and branch right sizing costs, a one-time non-cash charge of $11.5 million from the revaluation of the deferred tax assets and liabilities as a result of the tax reform signed into law, a $5.0 million donation to the Simmons First Foundation and a $3.7 million gain on the sale of our property and casualty insurance lines of business.

In addition, we had non-core branch right sizing costs of $3.1 million, primarily related to the relocation of the Little Rock, Arkansas corporate offices.

The net after-tax impact of these items was $31.7 million, or $0.32 per diluted earnings per share.

During 2016, we recorded after-tax merger-related costs of $2.9 million, primarily related to the Citizens acquisition, resulting in a nonrecurring charge of $0.05 to diluted earnings per share and $2.0 million in after-tax branch-right sizing costs in relation to the closure of ten underperforming branches, resulting in a nonrecurring charge of $0.04 to diluted earnings per share.

Also, during 2016, we recognized $361,000 in net after-tax gains from the early retirement of trust preferred securities.

See Table 19 below for the reconciliation of core earnings, which exclude non-core items for the periods presented.

5 unchanged sentences

Gain on sale of branches (5,316) (8,368) —

Gain from early retirement of trust preferred securities — — — — (594)

Gain on sale of insurance lines of business — — — (3,708) —

Donation to Simmons First Foundation — — — 5,000 —

Merger related costs 15,911 4,531 36,379

3 unchanged sentences

(2,532) (3,343) (11,234)

Net non-core items (before SAB 118 adjustment) 9,448 31,738 4,520 14,638 4,619

SAB 118 adjustment (2)

— — — 11,471 —

Net non-core items 7,157 9,448 31,738

Core earnings (non-GAAP) $ 278,266 $ 264,300 $ 269,566

2 unchanged sentences

Gain on sale of branches (0.05) (0.07) —

Gain from early retirement of trust preferred securities — — — — (0.01)

Gain on sale of insurance lines of business — — — (0.04) —

Donation to Simmons First Foundation — — — 0.07 —

Merger related costs 0.15 0.04 0.37

3 unchanged sentences

(0.02) (0.03) (0.11)

Net non-core items (before SAB 118 adjustment) 0.09 0.32 0.05 0.21 0.08

SAB 118 adjustment (2)

Net non-core items 0.07 0.09 0.32

Core diluted earnings per share (non-GAAP) $ 2.53 $ 2.40 $ 2.73

_________________________

(1) Effective tax rate of 26.135% for periods beginning on or after January 1, 2018 and 39.225% for periods prior to 2018 adjusted for non-deductible merger-related costs and deferred tax items on the sale of the insurance lines of business.

(2) Tax adjustment to revalue deferred tax assets and liabilities to account for the future impact of lower corporate tax rates resulting from the 2017 Act, signed into law on December 22, 2017.

(1) Effective tax rate of 26.135%.

See Table 20 below for the reconciliation of core other income and core non-interest expense for the periods presented.

3 unchanged sentences

Gain on sale of branches (5,316) (8,368) —

Gain on sale of insurance lines of business — — — (3,708) —

Branch right sizing (369) (370) —

2 unchanged sentences

Non-core items:

Donation to Simmons Foundation — — — (5,000) —

Merger related costs (15,911) (4,531) (36,379)

38 unchanged sentences

8.51 % 8.45 % 8.99 %

Ratio of common equity to assets excluding PPP loans (non-GAAP) 13.87 %

Ratio of tangible common equity to tangible assets excluding PPP loans (non-GAAP) 8.83 %

See Table 23 below for the calculation of Tier 1 leverage ratio excluding average PPP loans for the period presented.

Reconciliation of Tier 1 Leverage Ratio Excluding Average PPP Loans (non-GAAP)

(Dollars in thousands) Three Months Ended December 31, 2020

(Dollars in thousands) 2021 2020

Total Tier 1 capital $ 2,147,158 $ 1,884,563

78 unchanged sentences

(Dollars in thousands) 2021 2020

Loan interest income $ 688,600

Loan interest income - FTE $ 555,749 $ 688,600

PPP loan interest income (36,011) (15,861)

3 unchanged sentences

Average loan balance excluding PPP loans $ 11,215,258 $ 13,623,683

Loan yield 4.83 %

Loan yield excluding PPP loans (non-GAAP) 4.94 %

Quarterly Results

Selected unaudited quarterly financial information for the last eight quarters is shown in Table 32.

Quarterly Results

(In thousands, except per share data) First Second Third Fourth Total

Interest income $ 209,231 $ 191,654 $ 179,725 $ 179,108 $ 759,718

Interest expense 41,748 27,973 26,115 24,148 119,984

Net interest income 167,483 163,681 153,610 154,960 639,734

Provision for credit losses 23,134 21,915 22,981 6,943 74,973

Gain on sale of securities 32,095 390 22,305 16 54,806

Non-interest income, net of gain on sale of securities

50,299 49,837 49,546 44,040 193,722

Non-interest expense 128,813 117,598 118,949 128,135 493,495

Net income available to common stockholders 77,223 58,789 65,885 52,955 254,852

Basic earnings per share (1)

0.68 0.54 0.60 0.49 2.32

Diluted earnings per share (1)

0.68 0.54 0.60 0.49 2.31

Interest income $ 178,085 $ 195,241 $ 196,406 $ 213,391 $ 783,123

Interest expense 42,090 45,813 47,142 46,325 181,370

Net interest income 135,995 149,428 149,264 167,066 601,753

Provision for credit losses 9,285 7,079 21,973 4,903 43,240

Gain on sale of securities 2,740 2,823 7,374 377 13,314

Non-interest income, net of gain on sale of securities 32,052 37,111 77,301 45,253 191,717

Non-interest expense 101,409 110,743 106,865 142,095 461,112

Net income available to common stockholders 47,695 55,598 81,826 52,709 237,828

Basic earnings per share (1)

0.52 0.58 0.85 0.49 2.42

Diluted earnings per share (1)

0.51 0.58 0.84 0.49 2.41

_________________________

(1) EPS are computed independently for each quarter and therefore the sum of each quarterly EPS may not equal the year-to-date EPS.

As a result of the large stock issuances as part of the Company’s acquisitions, the computed independent quarterly average common shares outstanding and the computed year-to-date average common shares may differ significantly.

The difference is based on the direct result of the varying denominator for each period presented.

Loan yield - FTE 4.71 % 4.83 %

Loan yield excluding PPP loans (non-GAAP) - FTE 4.63 % 4.94 %

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-K

Item 7. Management’s Discussion and Analysis