SIMMONS FIRST NATIONAL CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Overview 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. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the determination of the adequacy of the allowance for credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes. Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected credit losses and risks inherent in the loan portfolio. Our allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with Accounting Standard Codification (“ASC”) Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. For further information see the section Allowance for Credit Losses below. Our evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. The actual amounts of credit losses realized in the near term could differ from the amounts estimated in arriving at the allowance for credit losses reported in the financial statements. On January 1, 2020, the Company adopted the new Current Expected Credit Losses, or “CECL”, methodology. See Note 20, New Accounting Standards, in the accompanying Notes to Consolidated Financial Statements for additional information. Prior to the adoption of the CECL methodology in 2020, the allowance for credit losses was calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for credit losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that affected specific loans and categories of loans. We established general allocations for each major loan category. This category also included allocations to loans which were collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. General reserves were established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances were accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeded the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. 32 Acquisition Accounting, Loans We account for our acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. 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 Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other , as amended by ASU 2011-08 – T esting Goodwill for Impairment and ASU 2017-04 - Intangibles – Goodwill and Other . 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. Stock-Based Compensation Plans We have adopted various stock-based compensation plans. 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 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. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Employee Benefit Plans, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report. Income Taxes We are subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. 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. 33 2021 Overview 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 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. 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. Louis. 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. 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. See GAAP Reconciliation of Non-GAAP Financial Measures for additional discussion and reconciliation of non-GAAP measures. The Company’s Tier I leverage ratio of 9.1%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” minimum requirements. See Table 18 – Risk-Based Capital for regulatory capital ratios. 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. 34 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. Total (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. We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. 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, 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 Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135%. The FRB sets various benchmark interest rates which influence the general market rates of interest, including the deposit and loan rates offered by financial institutions. 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% - 0.50% 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. During March 2020, the Federal Open Market Committee (“FOMC”) of the FRB substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic. The federal funds rate was cut to a range of 0.00% - 0.25% and rates have continued to remain low through 2021. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, also increased from 3.25% to 5.50% during the years 2015 through 2018. 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 35 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. In the last several years, on average, approximately 43% of our loan portfolio and approximately 78% of our time deposits have repriced in one year or less. 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, 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. 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 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. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate may increase or decrease based on payment histories and loss expectations of the loans. The resulting adjustment to interest income is spread on a level-yield basis over the remaining expected lives of the loans. 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 $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 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. 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 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. 36 Table 1: Analysis of Net Interest Margin (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, (In thousands) 2021 2020 2019 Interest income $ 671,061 $ 759,718 $ 783,123 FTE adjustment 19,231 11,001 7,322 Interest income - FTE 690,292 770,719 790,445 Interest expense 79,529 119,984 181,370 Net interest income - FTE $ 610,763 $ 650,735 $ 609,075 Yield on earning assets - FTE 3.27 % 4.00 % 5.00 % Cost of interest bearing liabilities 0.52 % 0.84 % 1.49 % Net interest spread - FTE 2.75 % 3.16 % 3.51 % Net interest margin - FTE 2.89 % 3.38 % 3.85 % Table 2: Changes in Fully Taxable Equivalent Net Interest Margin (In thousands) 2021 vs. 2020 2020 vs. 2019 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 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. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans. 37 Table 3: Average Balance Sheets and Net Interest Income Analysis (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, 2021 2020 2019 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 2,376,421 $ 2,795 0.12 $ 1,970,852 $ 4,383 0.22 $ 451,946 $ 7,486 1.66 Investment securities - taxable 4,512,564 58,976 1.31 1,813,640 35,039 1.93 1,717,566 43,618 2.54 Investment securities - non-taxable 2,343,117 71,207 3.04 1,113,851 39,666 3.56 681,231 26,675 3.92 Mortgage loans held for sale 55,204 1,565 2.83 113,854 3,031 2.66 35,815 1,326 3.70 Loans 11,810,480 555,749 4.71 14,260,689 688,600 4.83 12,938,013 711,340 5.50 Total interest earning assets 21,097,786 690,292 3.27 19,272,886 770,719 4.00 15,824,571 790,445 5.00 Non-earning assets 2,394,522 2,317,859 2,047,177 Total assets $ 23,492,308 $ 21,590,745 $ 17,871,748 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 10,638,665 $ 19,568 0.18 $ 9,128,936 $ 38,462 0.42 $ 7,417,104 $ 80,314 1.08 Time deposits 2,804,851 21,604 0.77 3,006,768 41,398 1.38 3,094,094 58,697 1.90 Total interest bearing deposits 13,443,516 41,172 0.31 12,135,704 79,860 0.66 10,511,198 139,011 1.32 Federal funds purchased and securities sold under agreements to repurchase 247,448 579 0.23 362,629 1,715 0.47 128,547 1,010 0.79 Other borrowings 1,340,185 19,495 1.45 1,353,738 19,652 1.45 1,199,274 23,008 1.92 Subordinated debt and debentures 383,182 18,283 4.77 385,294 18,757 4.87 359,804 18,341 5.10 Total interest bearing liabilities 15,414,331 79,529 0.52 14,237,365 119,984 0.84 12,198,823 181,370 1.49 Non-interest bearing liabilities: Non-interest bearing deposits 4,836,839 4,225,618 3,021,917 Other liabilities 169,140 205,956 251,631 Total liabilities 20,420,310 18,668,939 15,472,371 Stockholders’ equity 3,071,998 2,921,806 2,399,377 Total liabilities and stockholders’ equity $ 23,492,308 $ 21,590,745 $ 17,871,748 Net interest spread 2.75 3.16 3.51 Net interest margin $ 610,763 2.89 $ 650,735 3.38 $ 609,075 3.85 38 Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the years 2021 versus 2020 and 2020 versus 2019. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume. Table 4: Volume/Rate Analysis Years Ended December 31, 2021 vs. 2020 2020 vs. 2019 Yield/ Yield/ (In thousands, on a fully taxable equivalent basis) Volume Rate Total Volume Rate Total Increase (decrease) in: Interest income: Interest bearing balances due from banks and federal funds sold $ 773 $ (2,361) $ (1,588) $ 7,840 $ (10,943) $ (3,103) Investment securities - taxable 38,285 (14,348) 23,937 2,329 (10,908) (8,579) Investment securities - non-taxable 38,110 (6,569) 31,541 15,597 (2,606) 12,991 Mortgage loans held for sale (1,651) 185 (1,466) 2,170 (465) 1,705 Loans (115,686) (17,165) (132,851) 68,681 (91,421) (22,740) Total (40,169) (40,258) (80,427) 96,617 (116,343) (19,726) Interest expense: Interest bearing transaction and savings accounts 5,548 (24,442) (18,894) 15,431 (57,283) (41,852) Time deposits (2,618) (17,176) (19,794) (1,615) (15,684) (17,299) Federal funds purchased and securities sold under agreements to repurchase (439) (697) (1,136) 1,238 (533) 705 Other borrowings (197) 40 (157) 2,713 (6,069) (3,356) Subordinated notes and debentures (103) (371) (474) 1,264 (848) 416 Total 2,191 (42,646) (40,455) 19,031 (80,417) (61,386) Increase (decrease) in net interest income $ (42,360) $ 2,388 $ (39,972) $ 77,586 $ (35,926) $ 41,660 Provision for Credit Losses The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for credit losses at a level considered appropriate in relation to the estimated lifetime risk inherent in the loan portfolio. The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, assessment of current economic conditions, past due and non-performing loans and historical net credit 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. Management updates credit loss forecasts using multiple Moody’s economic scenarios, the most recent of which were published in December 2021. 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, 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. The increase 39 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. 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. The increase in provision expense during 2019 was necessary to maintain an appropriate allowance for credit losses for the company’s growing portfolio. Significant loan growth in our markets required an allowance to be established for those loans through an increased provision. Additionally, during 2019, a special provision was made related to White Star, in which we were a participant in a shared national credit. White Star became the subject of bankruptcy proceedings during 2019, and in September 2019, the bankruptcy court authorized the sale of White Star assets through a Section 363 proceeding under the U.S. Bankruptcy Code. Our portion of the shared national credit was $19.1 million. Based upon the anticipated net proceeds from the pending bankruptcy sale, our loss recorded in 2019 was $14.7 million. As a result, we recorded additional provision expense of $15 million to increase the allowance to an appropriate level. 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. Non-Interest Income 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 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. 40 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. Table 5: Non-Interest Income Years Ended December 31, 2021 Change from 2020 Change from (Dollars in thousands) 2021 2020 2019 2020 2019 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) Other service charges and fees 7,696 6,624 5,824 1,072 16.2 800 13.7 Mortgage lending income 21,798 34,469 15,017 (12,671) (36.8) 19,452 129.5 Debit and credit card fees 28,245 24,711 22,137 3,534 14.3 2,574 11.6 Bank owned life insurance income 8,902 5,815 4,768 3,087 53.1 1,047 22.0 Gain on sale of securities, net 15,498 54,806 13,314 (39,308) (71.7) 41,492 * Gain on sale of Visa Inc. class B common stock — — 42,860 — — (42,860) (100.0) Gain on sale of branches 5,316 8,368 — (3,052) (36.5) 8,368 * Other income 29,957 31,508 21,824 (1,551) (4.9) 9,684 44.4 Total non-interest income $ 191,815 $ 239,769 $ 197,879 $ (47,954) 20.0 % $ 41,890 21.2 % _________________________ *Not meaningful 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 Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for our operations. Management remains committed to controlling the level of non-interest expense through the continued use of expense control measures. We utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. 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 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: $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 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 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 41 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. 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. See Note 8, Goodwill and Other Intangible Assets, in the accompanying Notes to Consolidated Financial Statements for additional information regarding our intangibles. Table 6 below shows non-interest expense for the years ended December 31, 2021, 2020 and 2019, respectively, as well as changes in 2021 from 2020 and in 2020 from 2019. Table 6: Non-Interest Expense Years Ended December 31, 2021 Change from 2020 Change from (Dollars in thousands) 2021 2020 2019 2020 2019 Salaries and employee benefits $ 246,335 $ 239,573 $ 224,331 $ 6,762 2.8 % $ 15,242 6.8 % Early retirement program — 2,901 3,464 (2,901) (100.0) (563) (16.3) Occupancy expense, net 38,797 37,556 32,008 1,241 3.3 5,548 17.3 Furniture and equipment expense 19,890 24,038 18,220 (4,148) (17.3) 5,818 31.9 Other real estate and foreclosure expense 2,121 1,752 3,442 369 21.1 (1,690) (49.1) Deposit insurance 6,973 9,184 4,416 (2,211) (24.1) 4,768 108.0 Merger related costs 15,911 4,531 36,379 11,380 251.2 (31,848) (87.6) Other operating expenses: Professional services 18,921 18,688 16,897 233 1.3 1,791 10.6 Postage 8,276 7,538 6,363 738 9.8 1,175 18.5 Telephone 6,234 8,833 7,685 (2,599) (29.4) 1,148 14.9 Credit card expenses 11,112 10,199 9,011 913 9.0 1,188 13.2 Marketing 22,234 19,396 16,499 2,838 14.6 2,897 17.6 Software and technology 40,608 39,724 25,146 884 2.2 14,578 58.0 Operating supplies 2,766 3,322 2,322 (556) (16.7) 1,000 43.1 Amortization of intangibles 13,494 13,495 11,805 (1) — 1,690 14.3 Branch right sizing expense (537) 14,097 3,129 (14,634) (103.8) 10,968 * Other expense 30,454 29,909 32,843 545 1.8 (2,934) (8.9) Total non-interest expense $ 483,589 $ 484,736 $ 453,960 $ (1,147) (0.2) % $ 30,776 6.8 % _________________________ *Not meaningful 42 Income Taxes The provision for income taxes for 2021 was $61.3 million, compared to $64.9 million in 2020 and $64.3 million in 2019. The effective income tax rates for the years ended 2021, 2020 and 2019 were 18.4%, 20.3% and 21.2%, respectively. Loan Portfolio Our loan portfolio averaged $11.81 billion during 2021 and $14.26 billion during 2020. 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. The loan portfolio is diversified by borrower, purpose, industry and geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for credit losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits. Consumer loans consist of credit card loans and other consumer loans. 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 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. Our credit card portfolio has remained a stable source of lending for several years. Real estate loans consist of construction and development (“C&D”) loans, single family residential loans and other CRE loans. 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 $2.16 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. 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. 43 Other loans mainly consists of mortgage warehouse lending. 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. Table 7: Loan Portfolio Years Ended December 31, (In thousands) 2021 2020 2019 2018 2017 Consumer: Credit cards $ 187,052 $ 188,845 $ 204,802 $ 204,173 $ 185,422 Other consumer 168,318 202,379 249,694 215,763 336,393 Total consumer 355,370 391,224 454,496 419,936 521,815 Real Estate: Construction and development 1,326,371 1,596,255 2,236,861 1,736,817 1,296,698 Single family residential 2,101,975 1,880,673 2,442,064 1,994,716 1,934,167 Other commercial 5,738,904 5,746,863 6,205,599 5,073,994 4,881,415 Total real estate 9,167,250 9,223,791 10,884,524 8,805,527 8,112,280 Commercial: Commercial 1,992,043 2,574,386 2,495,516 2,192,497 1,809,374 Agricultural 168,717 175,905 315,454 166,225 156,244 Total commercial 2,160,760 2,750,291 2,810,970 2,358,722 1,965,618 Other 329,123 535,591 275,714 139,081 180,390 Total loans before allowance for credit losses $ 12,012,503 $ 12,900,897 $ 14,425,704 $ 11,723,266 $ 10,780,103 Table 8 reflects the remaining maturities and interest rate sensitivity of loans at December 31, 2021. Table 8: Maturity and Interest Rate Sensitivity of Loans 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 Real estate 3,722,185 4,931,856 459,453 53,756 9,167,250 Commercial 1,291,316 798,768 48,115 22,561 2,160,760 Other 329,123 — — — 329,123 Total $ 5,540,387 $ 5,872,665 $ 507,664 $ 91,787 $ 12,012,503 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 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 44 Asset Quality Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. The subsidiary bank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectibility of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses. When credit card loans reach 90 days past due and there are attachable assets, the accounts are considered for litigation. Credit card loans are generally charged off when payment of interest or principal exceeds 150 days past due. The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible. Total non-performing assets decreased $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. The increase in nonaccrual loans during 2020 is primarily related to one energy loan totaling $22.0 million which moved to nonaccrual during the fourth quarter of 2020. The remaining increase was related to various other CRE loans and commercial loan relationships. 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 decreased by $6.4 million. Total non-performing assets decreased by $23.2 million from December 31, 2017, to December 31, 2018. Nonaccrual loans decreased by $13.3 million during 2018, primarily commercial loans. Foreclosed assets held for sale decreased by $6.6 million. During 2018, we sold approximately $32 million of substandard rated loans that consisted of both legacy and acquired loans. The loans had adequate reserves, thus no provision expense was required. However, the sale increased net charge-offs by approximately $4.6 million. From time to time, including in connection with the COVID-19 pandemic, certain borrowers are experiencing declines in income and cash flow. As a result, these borrowers are seeking to reduce contractual cash outlays, the most prominent being debt payments. In an effort to preserve our net interest margin and earning assets, we are open to working with existing customers in order to maximize the collectibility of the debt. When we restructure a loan to a borrower that is experiencing financial difficulty and grant a concession that we would not otherwise consider, a “troubled debt restructuring,” or “TDR,” results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. 45 Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; 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 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. We assess the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determine if a specific allowance for credit losses is needed. We return TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months. The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act and is following the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by regulatory agencies. 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. 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. Strong asset quality remains a primary focus of our company. The allowance for credit losses as a percent of total loans was 1.71% as of December 31, 2021. Non-performing loans equaled 0.57% of total loans. Non-performing assets were 0.31% of total assets, a 33 basis point increase from December 31, 2020. The allowance for credit losses was 300% of non-performing loans. Our annualized net charge-offs to total loans for 2021 was 0.13%. Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.11%. Annualized net credit card charge-offs to total credit card loans were 1.40%, compared to 1.60% during 2020, and 27 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks. We do not own any securities backed by subprime mortgage assets, and offer no mortgage loan products that target subprime borrowers. 46 Table 9 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for sale. Table 9: Non-performing Assets Years Ended December 31, (Dollars in thousands) 2021 2020 2019 2018 2017 Nonaccrual loans (1) $ 68,204 $ 122,879 $ 93,330 $ 55,841 $ 69,127 Loans past due 90 days or more (principal or interest payments) 349 578 856 226 3,488 Total non-performing loans 68,553 123,457 94,186 56,067 72,615 Other non-performing assets: Foreclosed assets held for sale and other real estate owned 6,032 18,393 19,121 25,565 32,118 Other non-performing assets 1,667 2,016 1,964 553 675 Total other non-performing assets 7,699 20,409 21,085 26,118 32,793 Total non-performing assets $ 76,252 $ 143,866 $ 115,271 $ 82,185 $ 105,408 Performing TDRs $ 4,289 $ 3,138 $ 5,887 $ 7,436 $ 7,925 Allowance for credit losses to non-performing loans 300 % 193 % 72 % 101 % 58 % Non-performing loans to total loans 0.57 % 0.96 % 0.65 % 0.48 % 0.67 % Non-performing assets (including performing TDRs) to total assets 0.33 % 0.66 % 0.57 % 0.54 % 0.75 % Non-performing assets to total assets 0.31 % 0.64 % 0.54 % 0.50 % 0.70 % _________________________ (1) Includes nonaccrual TDRs of approximately $2.7 million, $4.4 million, $1.6 million, $6.3 million and $3.4 million at December 31, 2021, 2020, 2019, 2018 and 2017, respectively. There was no interest income on nonaccrual loans recorded for the years ended December 31, 2021, 2020 and 2019. Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical correlation with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. We also include qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor. • Changes in the nature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors. • Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics. • Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management. 47 • Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors. • Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors. • Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within our reasonable and supportable forecast. • Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or that are classified as a TDR. 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. Additional information related to net charge-offs is shown in Table 10. 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 2021 Credit cards $ (2,577) $ 180,975 (1.42) % Other consumer (649) 181,573 (0.36) % Real estate (5,781) 8,678,137 (0.07) % Commercial (5,953) 2,363,701 (0.25) % Other — 406,094 — % Total $ (14,960) $ 11,810,480 (0.13) % 2020 Credit cards $ (3,099) $ 189,488 (1.64) % Other consumer (2,557) 223,347 (1.14) % Real estate (12,883) 10,487,469 (0.12) % Commercial (45,520) 2,894,537 (1.57) % Other — 465,848 — % Total $ (64,059) $ 14,260,689 (0.45) % 48 Allowance for Credit Losses Allocation 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. During the first quarter of 2020, we recorded an additional allowance for credit losses for loans of approximately $151.4 million due to the adoption of CECL. The significant impact to the allowance for credit losses at the date of CECL’s adoption was driven by the substantial amount of loans acquired held by the Company. We had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology. As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank. The decrease in the allowance for credit losses during 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. The table also reflects the percentage of loans in each category to the total loan portfolio for each of the periods indicated. The allowance for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories. Table 11: Allocation of Allowance for Credit Losses December 31, 2021 2020 2019 2018 2017 (Dollars in thousands) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Credit cards $ 3,987 1.6% $ 7,472 1.4% $ 4,051 1.4% $ 3,923 1.7% $ 3,784 1.7% Other consumer 2,676 1.4% 4,100 1.6% 1,998 1.7% 2,380 1.9% 3,489 3.1% Real estate 179,270 76.3% 182,868 71.5% 39,161 75.5% 29,838 75.1% 27,699 75.3% Commercial 17,458 18.0% 42,093 21.3% 22,863 19.5% 20,514 20.1% 7,007 18.2% Other 1,941 2.7% 1,517 4.2% 171 1.9% 39 1.2% 107 1.7% 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 % _________________________ (1) Percentage of loans in each category to total loans. 49 Investments and Securities 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 (“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 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. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities and municipal securities. 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. 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. Our investment portfolio as of December 31, 2021 also included $3.03 billion, or 35.1%, of tax-exempt obligations of state and political subdivisions. A portion of the state and political subdivision debt obligations are rated bonds, primarily issued in states in which we are located, and are evaluated on an ongoing basis. During 2020 in an effort to balance our interest risk profile, we decided to increase our asset allocation in the tax-exempt securities portfolio due to the acceleration of pre-payment speeds for mortgage-backed securities. We continue to invest in high credit tax-exempt securities with a weighted average rating of AA. There are no securities of any one state or political subdivision issuer exceeding ten percent of our stockholders’ equity at December 31, 2021. We had approximately $4.52 billion, or 52.3%, of our total portfolio invested in mortgaged-backed securities at December 31, 2021. These mortgage-backed securities were issued by agencies of the U.S. government. 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 50 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. An allowance for credit losses related to mortgage-backed securities and U.S. government agencies was not recorded as of December 31, 2021 due to those securities being explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. See Note 3, Investment Securities, in the accompanying Notes to Consolidated Financial Statements for additional information related to our allowance for credit losses on investment securities held. 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. 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, 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. 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. 51 Table 12 presents the amortized cost, fair value and allowance for credit losses on investment securities for each of the years indicated. Table 12: Investment Securities (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Held-to-maturity December 31, 2021 U.S. Government agencies $ 232,609 $ — $ 232,609 $ — $ (7,914) $ 224,695 Mortgage-backed securities 70,342 — 70,342 232 (1,425) 69,149 State and political subdivisions 1,210,248 (1,197) 1,209,051 6,166 (8,462) 1,206,755 Other securities 17,301 (82) 17,219 — (440) 16,779 Total HTM $ 1,530,500 $ (1,279) $ 1,529,221 $ 6,398 $ (18,241) $ 1,517,378 December 31, 2020 Mortgage-backed securities $ 22,354 $ — $ 22,354 $ 683 $ — $ 23,037 State and political subdivisions 312,416 (2,307) 310,109 8,148 (30) 318,227 Other securities 1,176 (608) 568 93 — 661 Total HTM $ 335,946 $ (2,915) $ 333,031 $ 8,924 $ (30) $ 341,925 (In thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Available-for-sale December 31, 2021 U.S. Treasury $ 300 $ — $ — $ — $ 300 U.S. Government agencies 374,754 — 495 (10,608) 364,641 Mortgage-backed securities 4,485,548 — 6,307 (43,239) 4,448,616 State and political subdivisions 1,791,097 — 30,556 (1,995) 1,819,658 Other securities 479,162 — 6,647 (5,479) 480,330 Total AFS $ 7,130,861 $ — $ 44,005 $ (61,321) $ 7,113,545 December 31, 2020 U.S. Government agencies $ 477,693 $ — $ 844 $ (1,300) $ 477,237 Mortgage-backed securities 1,374,769 — 21,261 (1,094) 1,394,936 State and political subdivisions 1,416,136 (217) 55,111 (307) 1,470,723 Other securities 128,445 (95) 2,447 (95) 130,702 Total AFS $ 3,397,043 $ (312) $ 79,663 $ (2,796) $ 3,473,598 52 Table 13 reflects the amortized cost and estimated fair value of securities at December 31, 2021, by contractual maturity and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a 26.135% tax rate) of such securities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. Table 13: Maturity Distribution of Investment Securities December 31, 2021 Over Over 1 year 5 years Total 1 year through through Over No fixed Amortized Par Fair (In thousands) or less 5 years 10 years 10 years maturity Cost Value Value Held-to-Maturity U.S. Government agencies $ — $ — $ — $ 232,609 $ — $ 232,609 $ 236,350 $ 224,695 Mortgage-backed securities — — — — 70,342 70,342 68,730 69,149 State and political subdivisions 5,333 4,801 9,780 1,190,334 — 1,210,248 1,199,362 1,206,755 Other securities — — 17,301 — — 17,301 16,958 16,779 Total $ 5,333 $ 4,801 $ 27,081 $ 1,422,943 $ 70,342 $ 1,530,500 $ 1,521,400 $ 1,517,378 Percentage of total 0.4 % 0.3 % 1.8 % 92.9 % 4.6 % 100.0 % Weighted average yield 2.7 % 3.1 % 2.5 % 2.0 % 1.7 % 2.0 % Available-for-Sale U.S. Treasury $ 300 $ — $ — $ — $ — $ 300 $ 300 $ 300 U.S. Government agencies — 12,431 105,787 256,536 — 374,754 372,018 364,641 Mortgage-backed securities — — — — 4,485,548 4,485,548 4,370,613 4,448,616 State and political subdivisions 7,521 17,229 23,282 1,743,065 — 1,791,097 1,704,788 1,819,658 Other securities — 31,796 403,016 43,725 625 479,162 470,867 480,330 Total $ 7,821 $ 61,456 $ 532,085 $ 2,043,326 $ 4,486,173 $ 7,130,861 $ 6,918,586 $ 7,113,545 Percentage of total 0.1 % 0.9 % 7.5 % 28.6 % 62.9 % 100.0 % Weighted average yield 1.9 % 1.5 % 2.6 % 2.1 % 1.0 % 1.4 % Deposits 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 more than $250,000 and brokered deposits. As of December 31, 2021, core deposits comprised 93.5% of our total deposits. We continually monitor the funding requirements along with competitive interest rates in the markets we serve. Because of our community banking philosophy, our executives in the local markets, with oversight by the Asset Liability Committee and the Bank’s Treasury Department, establish the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe we are paying a competitive rate when compared with pricing in those markets. 53 We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. 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, 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 $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. Table 14: Average Deposit Balances and Rates December 31, 2021 2020 2019 (In thousands) Average Amount Average Rate Paid Average Amount Average Rate Paid Average Amount Average Rate Paid Non-interest bearing transaction accounts $ 4,836,839 — % $ 4,225,618 — % $ 3,021,917 — % Interest bearing transaction and savings deposits 10,638,665 0.18 % 9,128,936 0.42 % 7,417,104 1.08 % Time deposits 2,804,851 0.77 % 3,006,768 1.38 % 3,094,094 1.90 % Total $ 18,280,355 0.23 % $ 16,361,322 0.49 % $ 13,533,115 1.03 % The Company’s maturities of time deposits not covered by deposit insurance at December 31, 2021 are presented in Table 15. Table 15: Maturities of Time Deposits Not Covered by Deposit Insurance December 31, 2021 (In thousands) Balance Percent Maturing Three months or less $ 196,897 39.6 % Over 3 months to 6 months 101,374 20.4 % Over 6 months to 12 months 111,881 22.5 % Over 12 months 87,472 17.6 % Total $ 497,624 100.0 % 54 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. We have historically funded our growth in earning assets through the use of core deposits, large certificates of deposits from local markets, reciprocal brokered deposits, FHLB borrowings and Federal funds purchased. Management anticipates that these sources will provide necessary funding in the foreseeable future. Other Borrowings and Subordinated Debentures 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; $330.0 million in subordinated notes; $54.1 million of trust preferred securities and unamortized debt issuance costs; and $31.8 million of other long-term debt. The FHLB long-term advances outstanding at the end of 2021 included $1.30 billion of FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Our FOTO advances outstanding at the end of the year had original maturity dates of 10 years to 15 years with lockout periods that have expired. During the fourth quarter of 2020, we reclassified the FOTO advances as long-term advances due to the current low interest rate environment and the expectation that FHLB will not exercise the option to terminate the FOTO advances prior to its stated maturity date. We continually analyze the possibility of the FHLB exercising the options along with the market expected rate outcome. 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, 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. Table 16: Short-Term Borrowings December 31, (Dollars in thousands) 2021 2020 2019 Amount outstanding at year-end $ — $ — $ 1,250,000 Weighted-average interest rate at year-end — % — % 1.44 % Maximum amount outstanding at any month-end during the year $ — $ 1,350,000 $ 1,435,000 Average amount outstanding during the year $ — $ 1,094,808 $ 1,183,873 Weighted-average interest rate for the year — % 1.69 % 1.89 % 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 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. We incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and will be subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries. 55 Aggregate annual maturities of debt at December 31, 2021 are presented in Table 17. Table 17: Maturities of Debt Annual Maturities Year (In thousands) 2022 $ 1,833 2023 1,789 2024 2,425 2025 4,956 2026 1,881 Thereafter 1,709,220 Total $ 1,722,104 Capital Overview At December 31, 2021, total capital was $3.25 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At December 31, 2021, our common equity to asset ratio was 13.14% compared to 13.31% at year-end 2020. Capital Stock 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 $80.0 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. 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. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that we are required to file with the SEC at the time of the specific offering. On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares of Common Stock from 120,000,000 to 175,000,000. Stock Repurchase 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. 56 Under the 2022 Program, we may repurchase shares of our common stock through open market and privately negotiated transactions or otherwise. The timing, pricing, and amount of any repurchases under the 2022 Program will be determined by management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and legal requirements. 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 the 2022 Program to come from available sources of liquidity, including cash on hand and future cash flow. Cash Dividends We declared cash dividends on our common stock of $0.72 per share for the twelve months ended December 31, 2021, compared to $0.68 per share for the twelve months ended December 31, 2020, an increase of $0.04, or 6%. The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all. Parent Company Liquidity The primary liquidity needs of the Parent Company are the payment of dividends to shareholders, the funding of debt obligations and cash needs for acquisitions. The primary sources for meeting these liquidity needs are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends by Simmons Bank is subject to various regulatory limitations. 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, which is incorporated herein by reference. Risk-Based Capital The Company and Simmons Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 2021, we met all capital adequacy requirements to which we are subject. As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and Simmons Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the bank’s categories. 57 Our risk-based capital ratios at December 31, 2021 and 2020 are presented in Table 18 below: Table 18: Risk-Based Capital December 31, (Dollars in thousands) 2021 2020 Tier 1 capital: Stockholders’ equity $ 3,248,841 $ 2,976,656 CECL transition provision 114,458 131,430 Goodwill and other intangible assets (1,226,686) (1,163,797) Unrealized gain on available-for-sale securities, net of income taxes 10,545 (59,726) Total Tier 1 capital 2,147,158 1,884,563 Tier 2 capital: Trust preferred securities and subordinated debt 384,131 382,874 Qualifying allowance for credit losses and reserve for unfunded commitments 71,853 89,546 Total Tier 2 capital 455,984 472,420 Total risk-based capital $ 2,603,142 $ 2,356,983 Risk weighted assets $ 15,538,967 $ 14,048,608 Assets for leverage ratio $ 23,647,901 $ 20,765,127 Ratios at end of year: Common equity Tier 1 ratio (CET1) 13.82 % 13.41 % Tier 1 leverage ratio 9.08 % 9.08 % 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 % Total risk-based capital ratio 16.75 % 16.78 % Minimum guidelines: Common equity Tier 1 ratio (CET1) 4.50 % 4.50 % Tier 1 leverage ratio 4.00 % 4.00 % Tier 1 risk-based capital ratio 6.00 % 6.00 % Total risk-based capital ratio 8.00 % 8.00 % _________________________ (1) PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. Tier 1 leverage ratio, excluding average PPP loans is a non-GAAP measurement. Regulatory Capital Changes 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 with a more risk-sensitive approach. The Basel III Capital Rules established risk-weighting 58 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 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. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital. Trust preferred securities and qualifying subordinated debt of $384.1 million is included as Tier 2 and total capital as of December 31, 2021. Liquidity 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). 59 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}) (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 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). We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business because management does not consider these non-core items to be relevant to ongoing financial performance. Management and the Board of Directors utilize “core earnings” (non-GAAP) for the following purposes: • Preparation of the Company’s operating budgets • Monthly financial performance reporting • Monthly “flash” reporting of consolidated results (management only) • Investor presentations of Company performance We believe the presentation of “core earnings” on a diluted per share basis, “core diluted earnings per share” (non-GAAP) and core net interest margin (non-GAAP), provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business, because management does not consider these non-core items to be relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize “core diluted earnings per share” (non-GAAP) for the following purposes: • Calculation of annual performance-based incentives for certain executives • Calculation of long-term performance-based incentives for certain executives • Investor presentations of Company performance 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 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 “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. Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, including the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance. Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance. We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that is applied by management and the Board of Directors. 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 60 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. In particular, a measure of earnings that excludes non-core items does not represent the amount that effectively accrues directly to stockholders (i.e., non-core items are included in earnings and stockholders’ equity). Additionally, similarly titled non-GAAP financial measures used by other companies may not be computed in the same or similar fashion. 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. We also had non-core net branch right sizing costs of $13.7 million, primarily due to branch closures across our footprint during the year. Additionally, we had total gains on sale of branches of $8.4 million mostly due to the gains on sale from the Texas Branch Sale and Colorado Branch Sale. The net after-tax impact of these items was $9.4 million, or $0.09 per diluted earnings per share. 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, Arkansas corporate offices. The net after-tax impact of these items was $31.7 million, or $0.32 per diluted earnings per share. See Table 19 below for the reconciliation of core earnings, which exclude non-core items for the periods presented. Table 19: Reconciliation of Core Earnings (non-GAAP) (In thousands, except per share data) 2021 2020 2019 Twelve months ended Net income available to common stockholders $ 271,109 $ 254,852 $ 237,828 Non-core items: Gain on sale of branches (5,316) (8,368) — Merger related costs 15,911 4,531 36,379 Early retirement program — 2,901 3,464 Branch right sizing, net (906) 13,727 3,129 Tax effect (1) (2,532) (3,343) (11,234) Net non-core items 7,157 9,448 31,738 Core earnings (non-GAAP) $ 278,266 $ 264,300 $ 269,566 Diluted earnings per share $ 2.46 $ 2.31 $ 2.41 Non-core items: Gain on sale of branches (0.05) (0.07) — Merger related costs 0.15 0.04 0.37 Early retirement program — 0.03 0.03 Branch right sizing, net (0.01) 0.12 0.03 Tax effect (1) (0.02) (0.03) (0.11) 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%. 61 See Table 20 below for the reconciliation of core other income and core non-interest expense for the periods presented. Table 20: Reconciliation of Core Other Income and Core Non-Interest Expense (non-GAAP) (In thousands) 2021 2020 2019 Other income $ 35,273 $ 39,876 $ 64,684 Gain on sale of branches (5,316) (8,368) — Branch right sizing (369) (370) — Core other income (non-GAAP) $ 29,588 $ 31,138 $ 64,684 Non-interest expense $ 483,589 $ 484,736 $ 453,960 Non-core items: Merger related costs (15,911) (4,531) (36,379) Early retirement program — (2,901) (3,464) Branch right sizing 537 (14,097) (3,129) Total non-core items (15,374) (21,529) (42,972) Core non-interest expense (non-GAAP) $ 468,215 $ 463,207 $ 410,988 See Table 21 below for the reconciliation of tangible book value per common share. Table 21: Reconciliation of Tangible Book Value per Common Share (non-GAAP) (In thousands, except per share data) 2021 2020 2019 Total stockholders’ equity $ 3,248,841 $ 2,976,656 $ 2,988,924 Preferred stock — (767) (767) Total common stockholders’ equity 3,248,841 2,975,889 2,988,157 Intangible assets: Goodwill (1,146,007) (1,075,305) (1,055,520) Other intangible assets (106,235) (111,110) (127,340) Total intangibles (1,252,242) (1,186,415) (1,182,860) Tangible common stockholders’ equity $ 1,996,599 $ 1,789,474 $ 1,805,297 Shares of common stock outstanding 112,715,444 108,077,662 113,628,601 Book value per common share $ 28.82 $ 27.53 $ 26.30 Tangible book value per common share (non-GAAP) $ 17.71 $ 16.56 $ 15.89 62 See Table 22 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets. Table 22: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) (Dollars in thousands) 2021 2020 2019 Total common stockholders’ equity $ 3,248,841 $ 2,975,889 $ 2,988,157 Intangible assets: Goodwill (1,146,007) (1,075,305) (1,055,520) Other intangible assets (106,235) (111,110) (127,340) Total intangibles (1,252,242) (1,186,415) (1,182,860) Tangible common stockholders’ equity $ 1,996,599 $ 1,789,474 $ 1,805,297 Total assets $ 24,724,759 $ 22,359,752 $ 21,259,143 Intangible assets: Goodwill (1,146,007) (1,075,305) (1,055,520) Other intangible assets (106,235) (111,110) (127,340) Total intangibles (1,252,242) (1,186,415) (1,182,860) Tangible assets $ 23,472,517 $ 21,173,337 $ 20,076,283 PPP loans (116,659) (904,673) Total assets excluding PPP loans $ 24,608,100 $ 21,455,079 Tangible assets excluding PPP loans $ 23,355,858 $ 20,268,664 Ratio of common equity to assets 13.14 % 13.31 % 14.06 % Ratio of tangible common equity to tangible assets (non-GAAP) 8.51 % 8.45 % 8.99 % See Table 23 below for the calculation of Tier 1 leverage ratio excluding average PPP loans for the period presented. Table 23: Reconciliation of Tier 1 Leverage Ratio Excluding Average PPP Loans (non-GAAP) (Dollars in thousands) 2021 2020 Total Tier 1 capital $ 2,147,158 $ 1,884,563 Adjusted average assets for leverage ratio $ 23,647,901 $ 20,765,127 Average PPP loans (172,130) (937,544) Adjusted average assets excluding average PPP loans $ 23,475,771 $ 19,827,583 Tier 1 leverage ratio 9.08 % 9.08 % Tier 1 leverage ratio excluding average PPP loans (non-GAAP) 9.15 % 9.50 % 63 See Table 24 below for the calculation of core return on average assets. Table 24: Calculation of Core Return on Average Assets (non-GAAP) (Dollars in thousands) 2021 2020 2019 Twelve months ended Net income available to common stockholders $ 271,109 $ 254,852 $ 237,828 Net non-core items, net of taxes, adjustment 7,157 9,448 31,738 Core earnings $ 278,266 $ 264,300 $ 269,566 Average total assets $ 23,492,308 $ 21,590,745 $ 17,871,748 Return on average assets 1.15 % 1.18 % 1.33 % Core return on average assets (non-GAAP) 1.18 % 1.22 % 1.51 % See Table 25 below for the calculation of return on tangible common equity. Table 25: Calculation of Core Return on Tangible Common Equity (non-GAAP) (Dollars in thousands) 2021 2020 2019 Twelve months ended Net income available to common stockholders $ 271,109 $ 254,852 $ 237,828 Amortization of intangibles, net of taxes 9,967 9,968 8,720 Total income available to common stockholders $ 281,076 $ 264,820 $ 246,548 Net non-core items, net of taxes 7,157 9,448 31,738 Core earnings 278,266 264,300 269,566 Amortization of intangibles, net of taxes 9,967 9,968 8,720 Total core income available to common stockholders $ 288,233 $ 274,268 $ 278,286 Average common stockholders’ equity $ 3,071,313 $ 2,921,039 $ 2,396,024 Average intangible assets: Goodwill (1,090,967) (1,065,190) (921,635) Other intangible assets (105,820) (118,812) (104,000) Total average intangibles (1,196,787) (1,184,002) (1,025,635) Average tangible common stockholders’ equity $ 1,874,526 $ 1,737,037 $ 1,370,389 Return on average common equity 8.83 % 8.72 % 9.93 % Return on average tangible common equity (non-GAAP) 14.99 % 15.25 % 17.99 % Core return on average common equity (non-GAAP) 9.06 % 9.05 % 11.25 % Core return on average tangible common equity (non-GAAP) 15.38 % 15.79 % 20.31 % 64 See Table 26 below for the calculation of core net interest margin for the periods presented. Table 26: Reconciliation of Core Net Interest Margin (non-GAAP) (Dollars in thousands) 2021 2020 2019 Twelve months ended Net interest income $ 591,532 $ 639,734 $ 601,753 FTE adjustment 19,231 11,001 7,322 Fully tax equivalent net interest income 610,763 650,735 609,075 Total accretable yield (22,129) (41,507) (41,244) Core net interest income $ 588,634 $ 609,228 $ 567,831 PPP loan and additional liquidity interest income (36,011) (18,539) Net interest income adjusted for PPP loans and additional liquidity $ 574,752 $ 632,196 Average earning assets $ 21,097,786 $ 19,272,886 $ 15,824,571 Average PPP loan balance and additional liquidity (595,222) (1,854,016) Average earnings assets adjusted for PPP loans and additional liquidity $ 20,502,564 $ 17,418,870 Net interest margin 2.89 % 3.38 % 3.85 % Core net interest margin (non-GAAP) 2.79 % 3.16 % 3.59 % Net interest margin adjusted for PPP loans and additional liquidity (non-GAAP) 2.80 % 3.63 % See Table 27 below for the calculation of the efficiency ratio for the periods presented. Table 27: Calculation of Efficiency Ratio (non-GAAP) (Dollars in thousands) 2021 2020 2019 Twelve months ended Non-interest expense $ 483,589 $ 484,736 $ 453,960 Non-core non-interest expense adjustment (15,374) (21,529) (42,972) Other real estate and foreclosure expense adjustment (2,121) (1,706) (3,282) Amortization of intangibles adjustment (13,494) (13,495) (11,805) Efficiency ratio numerator $ 452,600 $ 448,006 $ 395,901 Net-interest income $ 591,532 $ 639,734 $ 601,753 Non-interest income 191,815 239,769 197,879 Non-core non-interest income adjustment (5,685) (8,738) — Fully tax-equivalent adjustment 19,231 11,001 7,322 Gain on sale of securities (15,498) (54,806) (13,314) Efficiency ratio denominator $ 781,395 $ 826,960 $ 793,640 Efficiency ratio (non-GAAP) 57.92 % 54.18 % 49.88 % 65 See Table 28 below for the calculation of loan yield excluding PPP loans for the period presented. Table 28: Reconciliation of Loan Yield Excluding PPP Loans (non-GAAP) (Dollars in thousands) 2021 2020 Loan interest income - FTE $ 555,749 $ 688,600 PPP loan interest income (36,011) (15,861) Loan interest income excluding PPP loans $ 519,738 $ 672,739 Average loan balance $ 11,810,480 $ 14,260,689 Average PPP loan balance (595,222) (637,006) Average loan balance excluding PPP loans $ 11,215,258 $ 13,623,683 Loan yield - FTE 4.71 % 4.83 % Loan yield excluding PPP loans (non-GAAP) - FTE 4.63 % 4.94 % 66