SIMMONS FIRST NATIONAL CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations As permitted by SEC rules, management presents a sequential quarterly analysis of the Company’s performance as we believe that comparing current quarter results to those of the immediately preceding fiscal quarter is more useful in identifying current business trends and provides a more relevant analysis of our business results than comparing to the same period in the prior year. Accordingly, we have compared our results of operations for the three months ended June 30, 2022 to our results of operations for the three months ended March 31, 2022, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For additional information regarding the Company’s results for the three months ended March 31, 2022, please refer to our first quarter Form 10-Q filed with the SEC on May 6, 2022. OVERVIEW Our net income for the three months ended June 30, 2022 was $27.5 million, or $0.21 diluted earnings per share, decreases of $37.6 million and $0.37, respectively, compared to the three months ended March 31, 2022. Included in both period end results were certain items related to our acquisitions and branch right sizing initiatives, while the results for the three months ended June 30, 2022 also include the Day 2 accounting provision required for loans and unfunded commitments acquired in connection with the Spirit acquisition. Excluding these certain items, adjusted earnings for the three months ended June 30, 2022 were $66.8 million, or $0.52 adjusted diluted earnings per share, compared to $67.2 million, or $0.59 adjusted diluted earnings per share for the three months ended March 31, 2022. Net income for the first six months of 2022 was $92.5 million, or $0.77 diluted earnings per share, compared to $142.3 million, or $1.31 diluted earnings per share, for the same period in 2021. In addition to the certain items referenced above, gains associated with the sale of branch operations were included in the results for the first six months of 2021. Excluding these certain items, year-to-date adjusted earnings were $134.0 million, a decrease of $5.5 million compared to the same period in the prior year. Adjusted diluted earnings per share for the first half of 2022 were $1.11 compared to $1.28 for the same period in 2021. Although second quarter results were significantly impacted by accounting adjustments and one-time merger expenses related to our acquisition of Spirit during the quarter, our adjusted operating results excluding these items were very strong. Highlights for the quarter include a significant increase in revenue, well contained operating expense growth, improved asset quality, strong organic loan growth, marked improvement in the efficiency ratio, substantial expansion of the net interest margin, and excellent capital ratios. On April 8, 2022 we completed our acquisition of Spirit, headquartered in Conroe, Texas, including its wholly-owned bank subsidiary, Spirit of Texas Bank SSB. We were able to obtain all necessary approvals, consummate the transaction and successfully complete the systems conversion less than five months after 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 this acquisition. Simmons Bank was named to Forbes magazine’s list of “World’s Best Banks” for the third consecutive year and ranked among the top 45 banks in Forbes’ list of “America’s Best Banks” for 2022 and our Chief Digital Officer was recently recognized by American Banker as a 2022 Digital Banker of the Year. We continue to work to develop new and innovative products and services using digital channels to provide an enhanced customer experience to “bank when you want, where you want”. Asset quality metrics show continued improvement and reflect both economic conditions in the markets we serve, as well as the impact of the Company’s strategic decision in 2019 designed to de-risk loan portfolios that were acquired in connection with its geographic diversification and expansion. As a result of this strategic decision, over the past two years the Company has prudently and systematically exited certain non-relationship credits and non-core industries while also significantly reducing its exposure to commercial real estate to more acceptable levels. Total nonperforming loans as of June 30, 2022, December 31, 2021, and June 30, 2021 were $63.6 million, $68.6 million, and $80.9 million, respectively. Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.27% at June 30, 2022, compared to 0.33% at December 31, 2021 and 0.43% at June 30, 2021. Stockholders’ equity as of June 30, 2022 was $3.26 billion, book value per share was $25.31 and tangible book value per share was $14.07. Our ratio of common stockholders’ equity to total assets was 11.98% and the ratio of tangible common stockholders’ equity to tangible assets was 7.03% at June 30, 2022. The Company’s Tier 1 leverage ratio of 9.22%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” guidelines (see Table 12 in the Capital section of this Item). In January 2022, our Board of Directors authorized the 2022 Program, which replaced the 2019 Program and under which the Company may repurchase up to $175.0 million of its Class A common stock currently issued and outstanding. We repurchased approximately 2.0 million shares of our common stock under the 2022 Program during the second quarter of 2022. 54 Total deposits were $22.04 billion at June 30, 2022, compared to $19.37 billion at December 31, 2021. Total loans were $15.11 billion at June 30, 2022, compared to $12.01 billion at December 31, 2021.The increase in total loans and deposits during these periods primarily reflects the acquisition of Spirit during the second quarter of 2022. Net loan growth has also been driven by increased activity throughout our geographic footprint. Our commercial pipeline rose for the seventh consecutive quarter to $3.02 billion and was up 28% from the prior quarter end and we are seeing activity from repeat customers across most of our business lines. Our strategy of restructuring our loan portfolio over the past two years not only diversified the risk profile but also established capacity which should provide the foundation for additional loan and revenue growth, which is evident in our loan pipeline and unfunded commitments. Our liquidity is solid, and our capital is strong. We are growing in all markets as demonstrated by the addition of nearly 2,000 new business deposit accounts in the quarter. In our discussion and analysis of our financial condition and results of operation in this Item 2, “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 adjusted 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 a Mid-South based financial holding company that, as of June 30, 2022, has approximately $27.2 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. CRITICAL ACCOUNTING ESTIMATES Overview We follow accounting and reporting policies that conform, in all material respects, to US GAAP and to general practices within the financial services industry. The 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 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. 55 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 a 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 – Testing 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 16, Stock-Based Compensation, in the accompanying Condensed 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. 56 NET INTEREST INCOME Overview 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%. 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 42% of our loans and 87% of our time deposits will reprice in the next year. Net Interest Income - Sequential Quarter Analysis For the three month period ended June 30, 2022, net interest income on a fully taxable equivalent basis was $191.2 million, an increase of $40.0 million, or 26.4%, compared to the three months ended March 31, 2022. The increase in net interest income was primarily the result of a $43.6 million increase in fully tax equivalent interest income partially offset by a $3.6 million increase in interest expense. The increase in interest income primarily resulted from a $36.6 million increase in interest income on loans, coupled with an increase of $4.4 million in interest income on investment securities. Regarding the increase in interest income on loans during the second quarter of 2022, the increase in loan volume resulted in an increase of $28.9 million, in addition to an increase of $7.7 million of interest income from a 20 basis point increase in loan yield. The loan yield for the second quarter of 2022 was 4.54% compared to 4.34% from the preceding sequential quarter. The additional loan volume was due to the acquisition of Spirit early in the second quarter, along with strong organic loan growth. The increase in both loan and investment yield was due to the rising rate environment and was also positively impacted by a significant decrease in the level of variable rate loans and securities at or below their interest rate floors during the quarter. The $3.6 million increase in interest expense is mostly due to the increase in deposit account rates, as we manage the challenging rising rate environment. Interest expense increased $2.3 million due to the increase in yield of 6 basis points on interest-bearing deposit accounts. Net Interest Income - Year-over-Year Analysis For the six month period ended June 30, 2022, net interest income on a fully taxable equivalent basis was $342.4 million, an increase of $40.5 million, or 13.4%, over the same period in 2021. The increase in net interest income was the result of a $33.1 million increase in fully tax equivalent interest income combined with a $7.4 million decrease in interest expense. The increase in interest income during the six month period ended June 30, 2022 resulted from increases in interest income on loans and investments. The increase in interest income on loans of $5.8 million reflects an increase in loan volume of $23.7 million partially offset by a 29 basis point decline in loan yield that resulted in a $17.9 million decrease. The increase in our loan volume during the first six months of 2022 was primarily due to the Spirit acquisition noted above, along with the acquisition of Landmark and Triumph in the fourth quarter of 2021. Forgiveness of PPP loans partially offset the additional loan volume provided by these acquisitions. The increase in interest income on investment securities of $25.6 million was due to the growth in our investment portfolio average balances which increased by $3.1 billion or 56.4%, as we re-invested excess liquidity in our investment security portfolio throughout 2021. The $7.4 million decrease in interest expense is mostly due to the decrease in our deposit account rates. Interest expense decreased $7.3 million due to the decrease in rate of 15 basis points on interest-bearing deposit accounts as we continued efforts to improve our mix of deposits into lower cost deposits. 57 Net Interest Margin Our net interest margin on a fully tax equivalent basis increased 48 basis points to 3.24% for the three month period ended June 30, 2022, when compared to 2.76% for the three months ended March 31, 2022. For the six month period ended June 30, 2022, our net interest margin increased 7 basis points to 3.01% when compared to 2.94% for the same period in 2021. The increase in the net interest margin during the three months ended June 30, 2022 compared to the three months ended March 31, 2022 was primarily due to the rising rate environment and driven by increases in our loan and investment rates. The slight increase in net interest margin on a year-over-year basis is mostly due to the effective management of our deposit costs, as we continued our effort to improve the mix of deposits into lower cost deposits and manage rates effectively. Net Interest Income Tables Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended June 30, 2022 and March 31, 2022 and the six months ended June 30, 2022 and 2021, respectively. Table 1: Analysis of Net Interest Margin (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Three Months Ended June 30, Six Months Ended June 30, June 30, March 31, June 30, June 30, (In thousands) 2022 2022 2022 2021 Interest income $ 204,806 $ 161,727 $ 366,533 $ 336,403 FTE adjustment 6,096 5,602 11,698 8,711 Interest income – FTE 210,902 167,329 378,231 345,114 Interest expense 19,707 16,121 35,828 43,189 Net interest income – FTE $ 191,195 $ 151,208 $ 342,403 $ 301,925 Yield on earning assets – FTE 3.57 % 3.06 % 3.32 % 3.36 % Cost of interest bearing liabilities 0.46 % 0.40 % 0.43 % 0.57 % Net interest spread – FTE 3.11 % 2.66 % 2.89 % 2.79 % Net interest margin – FTE 3.24 % 2.76 % 3.01 % 2.94 % Table 2: Changes in Fully Taxable Equivalent Net Interest Margin Three Months Ended June 30, Six Months Ended June 30, (In thousands) June 30, 2022 compared to March 31, 2022 June 30, 2022 compared to June 30, 2021 Increase due to change in earning assets $ 27,805 $ 49,622 Increase (decrease) due to change in earning asset yields 15,768 (16,505) Increase (decrease) due to change in interest bearing liabilities (700) 81 Increase (decrease) due to change in interest rates paid on interest bearing liabilities (2,886) 7,280 Increase in net interest income $ 39,987 $ 40,478 58 Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended June 30, 2022 and March 31, 2022 and the six months ended June 30, 2022 and 2021, respectively. 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. Table 3: Average Balance Sheets and Net Interest Income Analysis (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Three Months Ended June 30, 2022 March 31, 2022 Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 777,098 $ 1,117 0.58 $ 1,728,694 $ 649 0.15 Investment securities - taxable 5,674,470 21,794 1.54 5,688,306 18,148 1.29 Investment securities - non-taxable 2,725,610 21,733 3.20 2,844,777 20,937 2.98 Mortgage loans held for sale 17,173 200 4.67 27,633 190 2.79 Other loans held for sale 22,114 2,063 37.42 — — — Loans - including fees 14,478,183 163,995 4.54 11,895,805 127,405 4.34 Total interest earning assets 23,694,648 210,902 3.57 22,185,215 167,329 3.06 Non-earning assets 3,074,384 2,640,984 Total assets $ 26,769,032 $ 24,826,199 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 12,807,502 $ 6,879 0.22 $ 12,083,516 $ 4,314 0.14 Time deposits 2,586,567 2,875 0.45 2,241,123 2,503 0.45 Total interest bearing deposits 15,394,069 9,754 0.25 14,324,639 6,817 0.19 Federal funds purchased and securities sold under agreements to repurchase 210,280 119 0.23 218,186 68 0.13 Other borrowings 1,241,501 4,844 1.56 1,337,654 4,779 1.45 Subordinated debt and debentures 418,327 4,990 4.78 384,187 4,457 4.70 Total interest bearing liabilities 17,264,177 19,707 0.46 16,264,666 16,121 0.40 Non-interest bearing liabilities: Non-interest bearing deposits 5,926,304 5,184,828 Other liabilities 216,848 207,597 Total liabilities 23,407,329 21,657,091 Stockholders’ equity 3,361,703 3,169,108 Total liabilities and stockholders’ equity $ 26,769,032 $ 24,826,199 Net interest spread – FTE 3.11 2.66 Net interest margin – FTE $ 191,195 3.24 $ 151,208 2.76 59 Six Months Ended June 30, 2022 June 30, 2021 Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 1,250,266 $ 1,766 0.28 $ 3,088,816 $ 1,449 0.09 Investment securities - taxable 5,681,352 39,943 1.42 3,373,375 24,714 1.48 Investment securities - non-taxable 2,784,863 42,669 3.09 2,039,153 32,338 3.20 Mortgage loans held for sale 22,375 390 3.51 73,202 1,025 2.82 Other loans held for sale 11,118 2,063 37.42 — — — Loans - including fees 13,194,144 291,400 4.45 12,149,041 285,588 4.74 Total interest earning assets 22,944,118 378,231 3.32 20,723,587 345,114 3.36 Non-earning assets 2,858,864 2,276,218 Total assets $ 25,802,982 $ 22,999,805 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 12,447,510 $ 11,193 0.18 $ 10,249,756 $ 10,809 0.21 Time deposits 2,414,798 5,378 0.45 2,986,201 13,152 0.89 Total interest bearing deposits 14,862,308 16,571 0.22 13,235,957 23,961 0.37 Federal funds purchased and securities sold under agreements to repurchase 214,211 187 0.18 274,024 437 0.32 Other borrowings 1,289,311 9,623 1.51 1,340,531 9,699 1.46 Subordinated debt and debentures 401,351 9,447 4.75 383,011 9,092 4.79 Total interest bearing liabilities 16,767,181 35,828 0.43 15,233,523 43,189 0.57 Non-interest bearing liabilities: Non-interest bearing deposits 5,557,611 4,624,158 Other liabilities 212,255 164,686 Total liabilities 22,537,047 20,022,367 Stockholders’ equity 3,265,935 2,977,438 Total liabilities and stockholders’ equity $ 25,802,982 $ 22,999,805 Net interest spread – FTE 2.89 2.79 Net interest margin – FTE $ 342,403 3.01 $ 301,925 2.94 60 Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended June 30, 2022 as compared to the three months ended March 31, 2022 and the six months ended June 30, 2022 and 2021, respectively. 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 Three Months Ended June 30, Six Months Ended June 30, June 30, 2022 compared to March 31, 2022 June 30, 2022 compared to June 30, 2021 (In thousands, on a fully taxable equivalent basis) Volume Yield/ Rate Total Volume Yield/ Rate Total Increase (decrease) in: Interest income: Interest bearing balances due from banks and federal funds sold $ (522) $ 990 $ 468 $ (1,258) $ 1,575 $ 317 Investment securities - taxable (44) 3,690 3,646 16,265 (1,036) 15,229 Investment securities - non-taxable (901) 1,697 796 11,460 (1,129) 10,331 Mortgage loans held for sale (90) 100 10 (841) 206 (635) Other loans held for sale 446 1,617 2,063 302 1,761 2,063 Loans - including fees 28,916 7,674 36,590 23,694 (17,882) 5,812 Total 27,805 15,768 43,573 49,622 (16,505) 33,117 Interest expense: Interest bearing transaction and savings accounts 272 2,293 2,565 2,116 (1,732) 384 Time deposits 384 (12) 372 (2,170) (5,604) (7,774) Federal funds purchased and securities sold under agreements to repurchase (2) 53 51 (81) (169) (250) Other borrowings (358) 423 65 (378) 302 (76) Subordinated notes and debentures 404 129 533 432 (77) 355 Total 700 2,886 3,586 (81) (7,280) (7,361) Increase (decrease) in net interest income $ 27,105 $ 12,882 $ 39,987 $ 49,703 $ (9,225) $ 40,478 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, reasonable and supportable forecasts, 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. The provision for credit losses for the three months ended June 30, 2022 was an expense of $33.9 million as compared to a recapture of $19.9 million for the three months ended March 31, 2022. For the six months ended June 30, 2022, the Company’s provision for credit losses was $13.9 million as compared to a recapture of $11.5 million for the same period ended June 30, 2021. The change for the three month period ended June 30, 2022 as compared to the preceding quarter is primarily due to the Spirit acquisition and the related Day 2 provision expense for the acquired loans and additional unfunded commitments added to the Company’s portfolio. The recapture of credit losses for the three month period ended March 31, 2022, and the three and six month periods ended June 30, 2021 was driven by improved credit quality metrics and improved macroeconomic factors. 61 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 $40.2 million for the three month period ended June 30, 2022, a decrease of approximately $2.0 million, or 4.8%, as compared to the three month period ended March 31, 2022, primarily driven by the decrease in mortgage lending income due to a decline in refinancing demand and mortgage loan volume driven by the current rising rate environment. For the six month period ended June 30, 2022, total non-interest income was $82.4 million, a decrease of approximately $14.3 million, or 14.8%, compared to the same period in 2021, primarily due to decreases in the gains on sale of securities, gains on sale of branches and mortgage lending income. During the first six months of 2021, we sold approximately $249.5 million of investment securities resulting in a net gain of $10.6 million. Additionally, the Company recognized $5.9 million on the gain on sale of branches, which we exclude from adjusted earnings, during the first six months of 2021, primarily related to the sale of Illinois branches. A decrease of $4.1 million in mortgage lending income for the six month period ended June 30, 2022 was due to the higher interest rate environment and softening market conditions. An increase of $2.3 million in service charges on deposit accounts and an increase of $2.0 million in debit and credit card fees partially offset the overall decrease in non-interest income during the first six months of 2022 as a result of the additional customer base from the Landmark, Triumph and Spirit acquisitions and additional transactions due to the changes in customer spending habits, respectively. Table 5 shows non-interest income for the three month period ended June 30, 2022 as compared to the three month period ended March 31, 2022 and the six month periods ended June 30, 2022 and 2021, respectively. Table 5: Non-Interest Income Three Months Ended June 30, Six Months Ended June 30, June 30, March 31, Change June 30, June 30, Change (Dollars in thousands) 2022 2022 $ % 2022 2021 $ % Wealth management fees $ 7,214 $ 7,968 $ (754) (9.5)% $ 15,182 $ 15,253 $ (71) (0.5)% Service charges on deposit accounts 11,379 10,696 683 6.4 22,075 19,765 2,310 11.7 Other service charges and fees 1,871 1,637 234 14.3 3,508 3,970 (462) (11.6) Mortgage lending income 2,240 4,550 (2,310) (50.8) 6,790 10,937 (4,147) (37.9) Debit and credit card fees (1) 8,224 7,449 775 10.4 15,673 13,683 1,990 14.5 Bank owned life insurance income 2,563 2,706 (143) (5.3) 5,269 3,561 1,708 48.0 Gain (loss) on sale of securities, net (150) (54) (96) * (204) 10,598 (10,802) * Gain on sale of branches (88) — (88) — (88) 5,922 (6,010) * Other income 6,925 7,266 (341) (4.7) 14,191 12,975 1,216 9.4 Total non-interest income $ 40,178 $ 42,218 $ (2,040) (4.8)% $ 82,396 $ 96,664 $ (14,268) (14.8)% _________________________ (1) During the second and third quarters of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. Prior periods have been adjusted to reflect this reclassification. Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for the three month period ended June 30, 2022 was $28.7 million, an increase of $938,000 as compared to the three month period ended March 31, 2022. Recurring fee income for the six month period ended June 30, 2022, was $56.4 million, an increase of $3.8 million from the six month period ended June 30, 2021. The increases in the periods presented are primarily the result of changes in total service charges and debit and credit card fees, previously discussed as well as the recent acquisitions. 62 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. For the three month period ended June 30, 2022, non-interest expense was $156.8 million, an increase of $28.4 million, or 22.1%, from the three month period ended March 31, 2022. Non-interest expense for the six months ended June 30, 2022 was $285.2 million, an increase of $57.6 million, or 25.3%, from the same period in 2021. Salaries and employee benefits expense increased $6.2 million during the three month period ended June 30, 2022 as compared to the preceding sequential quarter and $21.4 million during the six month period June 30, 2022 as compared to same period in 2021. The increase for the three month period reflects the impacts of the Spirit acquisition, while the increase for the six month period includes impacts from the Landmark, Triumph and Spirit acquisitions. In addition, the Bank continues to add associates in our lending, wealth and mortgage programs as we continue to actively recruit new producers. Merger related costs for the three and six month periods ended June 30, 2022 as compared to the three months ended March 31, 2022 and six months ended June 30, 2021, increased by $17.2 million and $20.1 million, respectively, and is primarily related to the Spirit acquisition completed April 8, 2022. See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements for additional information related to this acquisition. Adjusted non-interest expense, which excludes branch right sizing and merger related costs, for the three and six months ended June 30, 2022, increased $11.8 million, or 9.4%, and increased $37.4 million, or 16.6%, respectively, as compared to the three months ended March 31, 2022 and six months ended June 30, 2021. Marketing expense increased by $2.6 million during the three month period ended June 30, 2022 as compared to the three months ended March 31, 2022 and increased by $7.0 million during the six month period ended June 30, 2022 as compared to the same period in 2021. The increase during the three month period ended June 30, 2022 was primarily related to a $1.6 million contribution to the Simmons First Foundation Conservation Fund, reflecting a portion of paper statement fees collected as part of a promotion to encourage customers to enroll in eStatements. The increase during the six month period ended June 30, 2022 includes the previously mentioned contribution related to paper statement fees, in addition to increased advertising and public relations expenses, including a multi-university corporate sponsorship program designed to support female student athletes and serve as a program for developing women leaders in the corporate world. 63 Table 6 below shows non-interest expense for the three month period ended June 30, 2022 as compared to the three month period ended March 31, 2022 and the six month periods ended June 30, 2022 and 2021, respectively. Table 6: Non-Interest Expense Three Months Ended June 30, Six Months Ended June 30, June 30, March 31, Change June 30, June 30, Change (Dollars in thousands) 2022 2022 $ % 2022 2021 $ % Salaries and employee benefits $ 74,135 $ 67,906 $ 6,229 9.2% $ 142,041 $ 120,601 $ 21,440 17.8% Occupancy expense, net 11,004 10,023 981 9.8 21,027 18,403 2,624 14.3 Furniture and equipment expense 5,104 4,775 329 6.9 9,879 10,274 (395) (3.8) Other real estate and foreclosure expense 142 343 (201) (58.6) 485 1,206 (721) (59.8) Deposit insurance 2,812 1,838 974 53.0 4,650 2,995 1,655 55.3 Merger related costs 19,133 1,886 17,247 * 21,019 919 20,100 * Other operating expenses: Professional services 4,202 5,446 (1,244) (22.8) 9,648 9,808 (160) (1.6) Postage 2,217 2,126 91 4.3 4,343 4,313 30 0.7 Telephone 1,695 1,558 137 8.8 3,253 3,242 11 0.3 Debit and credit card (1) 3,037 2,706 331 12.2 5,743 4,861 882 18.1 Marketing 8,754 6,140 2,614 42.6 14,894 7,893 7,001 88.7 Software and technology 10,078 10,147 (69) (0.7) 20,225 20,108 117 0.6 Operating supplies 713 698 15 2.2 1,411 1,408 3 0.2 Amortization of intangibles 4,096 3,486 610 17.5 7,582 6,676 906 13.6 Branch right sizing 292 909 (617) (67.9) 1,201 1,093 108 9.9 Other 9,399 8,430 969 11.5 17,829 13,859 3,970 28.7 Total non-interest expense $ 156,813 $ 128,417 $ 28,396 22.1% $ 285,230 $ 227,659 $ 57,571 25.3% _________________________ (1) During the second and third quarters of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. Prior periods have been adjusted to reflect this reclassification. * Not meaningful 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 HTM or AFS. 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, MBS and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized MBS for which collection of principal and interest is not subordinated to significant superior rights held by others. HTM and AFS investment securities were $3.8 billion and $4.3 billion, respectively, at June 30, 2022, compared to the HTM amount of $1.5 billion and AFS amount of $7.1 billion at December 31, 2021. We will continue to look for opportunities to maximize the value of the investment portfolio. During our second quarter review of the Company’s balance sheet composition, liquidity and capital levels, along with our analysis of the macroeconomic factors influencing interest rates, we determined the need to reclassify certain securities from the AFS portfolio to the HTM portfolio. During the quarter ended June 30, 2022, the Company transferred, at fair value, $ 1.99 billion of securities from the AFS portfolio to the HTM portfolio. Previously, during the quarter ended September 30, 2021, the Company transferred, at fair value, $ 500.8 million of securities from AFS to HTM. The related remaining net unrealized losses of $ 151.9 million and net unrealized gains of $ 791,000 , respectively, in accumulated other comprehensive income (loss) are being amortized over the remaining life of the securities. No gains or losses on these securities were recognized at the time of transfer. 64 Management has 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 June 30, 2022, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. During the third quarter of 2021, the Company began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio. These swap agreements involve the payment of fixed interest rates with a weighted average of 1.21% in exchange for variable interest rates based on federal funds rates and consist of a two year forward start date and maturity dates varying between 2028 and 2029. Table 7: Maturity Distribution of Investment Securities Table 7 reflects the amortized cost and estimated fair value of securities at June 30, 2022, 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 and is presented due to the reclassification of certain securities during the quarter. 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. June 30, 2022 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 $ — $ — $ 48,038 $ 398,751 $ — $ 446,789 $ 480,246 $ 379,503 Mortgage-backed securities — — — — 1,244,713 1,244,713 1,313,282 1,186,682 State and political subdivisions 3,794 6,384 12,296 1,846,553 — 1,869,027 1,879,997 1,472,083 Other securities — 1,129 253,390 6,015 — 260,534 274,878 240,694 Total $ 3,794 $ 7,513 $ 313,724 $ 2,251,319 $ 1,244,713 $ 3,821,063 $ 3,948,403 $ 3,278,962 Percentage of total 0.1 % 0.2 % 8.2 % 58.9 % 32.6 % 100.0 % Weighted average yield 4.9 % 3.5 % 3.4 % 2.5 % 3.1 % 2.8 % Available-for-Sale U.S. Treasury $ — $ 1,447 $ — $ — $ — $ 1,447 $ 1,500 $ 1,441 U.S. Government agencies 77 94,672 51,810 55,969 — 202,528 200,230 198,333 Mortgage-backed securities — — — — 3,150,519 3,150,519 3,088,139 2,963,934 State and political subdivisions 4,007 15,948 20,685 1,062,620 — 1,103,260 1,115,494 915,255 Other securities — 59,614 206,005 6,196 609 272,424 271,976 262,684 Total $ 4,084 $ 171,681 $ 278,500 $ 1,124,785 $ 3,151,128 $ 4,730,178 $ 4,677,339 $ 4,341,647 Percentage of total 0.1 % 3.6 % 5.9 % 23.8 % 66.6 % 100.0 % Weighted average yield 2.1 % 1.6 % 3.4 % 2.1 % 1.2 % 1.6 % 65 LOAN PORTFOLIO Our loan portfolio averaged $13.19 billion and $12.15 billion during the first six months of 2022 and 2021, respectively. As of June 30, 2022, total loans were $15.11 billion, an increase of $3.1 billion from December 31, 2021. The increase in the average loan balance during the first six months of 2022 when compared to the same period in 2021 was due to the 2021 acquisitions of Landmark and Triumph and the 2022 acquisition of Spirit. See Note 2, Acquisitions, in the accompanying Notes to Consolidated Financial Statements for additional information related to these acquisitions. This period-to-period increase was partially offset by the decline in average PPP loan balance, which totaled $70.9 million for the six months ended June 30, 2022 as compared to $802.4 million for the same period ended June 30, 2021. Loan growth was weighted toward the latter half of the quarter. The higher level of period end loan balances should provide a platform for interest income growth going forward. 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). 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. The balances of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan. Table 8: Loan Portfolio June 30, December 31, (In thousands) 2022 2021 Consumer: Credit cards $ 189,684 $ 187,052 Other consumer 204,692 168,318 Total consumer 394,376 355,370 Real estate: Construction and development 2,082,688 1,326,371 Single family residential 2,357,942 2,101,975 Other commercial 7,082,055 5,738,904 Total real estate 11,522,685 9,167,250 Commercial: Commercial 2,612,256 1,992,043 Agricultural 218,743 168,717 Total commercial 2,830,999 2,160,760 Other 362,284 329,123 Total loans before allowance for credit losses $ 15,110,344 $ 12,012,503 Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $394.4 million at June 30, 2022, or 2.6% of total loans, compared to $355.4 million, or 3.0% of total loans at December 31, 2021. The increase in consumer loans from December 31, 2021, to June 30, 2022, was primarily due to the combined acquired and organic growth in direct consumer loans. Real estate loans consist of C&D loans, single-family residential loans and CRE loans. Real estate loans were $11.52 billion at June 30, 2022, or 76.3% of total loans, compared to $9.17 billion, or 76.3%, of total loans at December 31, 2021, an increase of $2.36 billion, or 25.7%. Our C&D loans increased by $756.3 million, or 57.0%, single family residential loans increased by $256.0 million, or 12.2%, and CRE loans increased by $1.34 billion, or 23.4%. The increases were largely due to the Spirit acquisition noted above, coupled with strong organic loan growth. In the near term, we expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers. 66 Commercial loans consist of non-real estate loans related to business and agricultural loans. Total commercial loans were $2.83 billion at June 30, 2022, or 18.7% of total loans, compared to $2.16 billion, or 18.0% of total loans at December 31, 2021, an increase of $670.2 million, or 31.0%, was primarily due to the combined acquired and organic growth. Agricultural loans increased $50.0 million, or 29.7%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter. Other loans mainly consists of mortgage warehouse lending. Mortgage volume experienced a market driven decline during the first six months of 2022 when compared to 2021, but was more than offset by the Spirit acquisition, leading to an increase of $33.2 million in other loans. Loan demand appears to be returning to more normalized levels similar to levels experienced prior to the onset of the COVID-19 pandemic. For the seventh consecutive quarter, we have experienced an increase in commercial loan demand. We are seeing loan growth in our metro, community and corporate banking groups and continue to add new producers in these areas. Our loan pipeline consisting of all loan opportunities was $3.02 billion at June 30, 2022 compared to $2.31 billion at December 31, 2021. Loans approved and ready to close at the end of the quarter totaled $1.11 billion. 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. Simmons 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 collectability 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 $6.3 million from December 31, 2021 to June 30, 2022. Nonaccrual loans decreased by $5.5 million during the period and foreclosed assets held for sale and other real estate owned decreased by $1.9 million. The decrease in nonaccrual loans was primarily due to an overall improvement in economic conditions. Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.27% at June 30, 2022, compared to 0.33% at December 31, 2021. From time to time, certain borrowers experience declines in income and cash flow. As a result, these borrowers seek 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 collectability of the debt. When we restructure a loan for a borrower experiencing financial difficulty and grant a concession we would not otherwise consider, a “troubled debt restructuring” occurs and the loan is classified 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. Once an obligation has been restructured due to 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 $5.2 million as of June 30, 2022, compared to $6.9 million as of December 31, 2021. TDRs are individually evaluated for expected credit losses. We assess the exposure for each modification, using either 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. We continue to maintain good asset quality compared to the industry and strong asset quality remains a primary focus of our strategy. The allowance for credit losses as a percent of total loans was 1.41% as of June 30, 2022. Non-performing loans equaled 67 0.42% of total loans. Non-performing assets were 0.26% of total assets, a 5 basis point decrease from December 31, 2021. The allowance for credit losses was 334% of non-performing loans. Our annualized net charge-offs to average total loans for the first six months of 2022 was 0.11%. Annualized net credit card charge-offs to average total credit card loans were 1.47% for the first six months of 2022, compared to 1.40% during the full year 2021, and 35 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks. 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 June 30, December 31, (Dollars in thousands) 2022 2021 Nonaccrual loans (1) $ 62,670 $ 68,204 Loans past due 90 days or more (principal or interest payments) 904 349 Total non-performing loans 63,574 68,553 Other non-performing assets: Foreclosed assets held for sale and other real estate owned 4,084 6,032 Other non-performing assets 2,314 1,667 Total other non-performing assets 6,398 7,699 Total non-performing assets $ 69,972 $ 76,252 Performing TDRs $ 2,655 $ 4,289 Allowance for credit losses to non-performing loans 334 % 300 % Non-performing loans to total loans 0.42 % 0.57 % Non-performing assets (including performing TDRs) to total assets 0.27 % 0.33 % Non-performing assets to total assets 0.26 % 0.31 % _______________________________________ (1) Includes nonaccrual TDRs of approximately $2,523,000 at June 30, 2022 and $2,650,000 at December 31, 2021. The interest income on nonaccrual loans is not considered material for the three and six month periods ended June 30, 2022 and 2021. 68 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, non-performing 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. • 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 imprecision 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. 69 An analysis of the allowance for credit losses on loans is shown in Table 10. Table 10: Allowance for Credit Losses (In thousands) 2022 2021 Balance, beginning of year $ 205,332 $ 238,050 Loans charged off: Credit card 1,924 2,049 Other consumer 932 1,113 Real estate 600 2,126 Commercial 7,007 1,168 Total loans charged off 10,463 6,456 Recoveries of loans previously charged off: Credit card 523 534 Other consumer 689 729 Real estate 817 1,926 Commercial 1,178 2,467 Total recoveries 3,207 5,656 Net loans charged off 7,256 800 Provision for credit losses 10,492 (10,011) Acquisition adjustment for PCD loans 4,043 — Balance, June 30, $ 212,611 $ 227,239 Loans charged off: Credit card 1,576 Other consumer 940 Real estate 8,565 Commercial 9,445 Total loans charged off 20,526 Recoveries of loans previously charged off: Credit card 514 Other consumer 675 Real estate 2,984 Commercial 2,193 Total recoveries 6,366 Net loans charged off 14,160 Provision for credit losses (21,198) Acquisition adjustment for PCD loans 13,451 Balance, end of year $ 205,332 Provision for Credit Losses The amount of provision added to or released from the allowance during the three and six months ended June 30, 2022 and 2021, and for the year ended December 31, 2021, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience. It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance. 70 Allowance for Credit Losses Allocation As of June 30, 2022, the allowance for credit losses reflected an increase of approximately $7.3 million from December 31, 2021 while total loans increased by $3.10 billion over the same six month period. The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix. The increase in the allowance for credit losses during the first six months of 2022 was primarily due to the Spirit acquisition, which provided $2.29 billion in total loans after purchase accounting discounts. The increase was partially offset by improved credit quality metrics and improved macroeconomic factors, coupled with the planned exit of several large oil and gas relationships during the year. Additionally, there was a reduction of pandemic-era qualitative factors that were established based on unidentifiable risks with borrowers in at-risk industries. Our allowance for credit losses at June 30, 2022 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 June 30, 2022 December 31, 2021 (Dollars in thousands) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Credit cards $ 6,609 1.3 % $ 3,987 1.6 % Other consumer 2,865 1.4 % 2,676 1.4 % Real estate 166,481 76.3 % 179,270 76.3 % Commercial 32,817 18.6 % 17,458 18.0 % Other 3,839 2.4 % 1,941 2.7 % Total $ 212,611 100.0 % $ 205,332 100.0 % Allowance for credit losses to period-end loans 1.41 % 1.71 % _______________________________________ (1) Percentage of loans in each category to total loans. 71 DEPOSITS Deposits are our primary source of funding for earning assets and are primarily developed through our network of 233 financial centers as of June 30, 2022. 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 $250,000 or more and brokered deposits. As of June 30, 2022, core deposits comprised 89.3% 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 Chief Deposit Officer, 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. 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 June 30, 2022, were $22.04 billion, an increase of $2.67 billion from December 31, 2021, primarily driven by the acquisition of Spirit, which contributed $2.72 billion, net of fair value adjustments. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $18.87 billion at June 30, 2022, compared to $16.91 billion at December 31, 2021, an increase of $1.96 billion. Total time deposits increased $710.0 million to $3.16 billion at June 30, 2022, from $2.45 billion at December 31, 2021. We had $1.35 billion and $466.0 million of brokered deposits at June 30, 2022, and December 31, 2021, respectively. These category increases were primarily related to the Spirit acquisition. 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. OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES Our total debt was $1.48 billion and $1.72 billion at June 30, 2022 and December 31, 2021, respectively. The outstanding balance for June 30, 2022 includes $1.0 billion in FHLB short-term advances; $367.3 million in subordinated notes; $54.4 million of trust preferred securities and unamortized debt issuance costs; and $31.0 million of other long-term debt. All of the FHLB short-term advances outstanding at the end of the second quarter 2022 are FOTO advances which are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Our FOTO advances outstanding at June 30, 2022 had original maturity dates of 10 years to 15 years with lockout periods that have expired and, as a result, are considered and monitored as short-term advances. We continually analyze the possibility of the FHLB exercising the options along with the market expected rate outcome. In March 2018, we issued $330 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The Company incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and are 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. The Company assumed Fixed-to-Floating Rate Subordinated Notes in an aggregate principal amount, net of premium adjustments, of $37.4 million in connection with the Spirit acquisition in April 2022. The Spirit Notes will mature on July 31, 2030, and initially bear interest at a fixed annual rate of 6.00%, payable quarterly, in arrears, to, but excluding, July 31, 2025. From and including July 31, 2025, to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be the then-current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York (provided, that in the event the benchmark rate is less than zero, the benchmark rate will be deemed to be zero) plus 592 basis points, payable quarterly, in arrears. The Company has received approval from the Federal Reserve to redeem the five issuances of trust preferred securities and expects to complete the redemptions during the third quarter of 2022. 72 CAPITAL Overview At June 30, 2022, total capital was $3.26 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At June 30, 2022, our common equity to asset ratio was 11.98% compared to 13.14% at year-end 2021. 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 $80,000,000. 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, the Company redeemed all of the Series D Preferred Stock, including accrued and unpaid dividends. On April 27, 2022, shareholders of the Company approved an increase in the number of authorized shares of its Class A common stock from 175,000,000 to 350,000,000. Stock Repurchase Program Effective July 23, 2021, our Board of Directors approved an amendment to the Company’s stock repurchase program originally approved in October 2019 (“2019 Program”) that increased the amount of our common stock that could be repurchased under the 2019 Program from a maximum of $180 million to a maximum of $276.5 million and extended the term of the 2019 Program from October 31, 2021, to October 31, 2022 (unless terminated sooner). During January 2022, the Company substantially exhausted the remaining capacity under the 2019 Program. As a result, in January 2022, the Company’s Board of Directors authorized a new stock repurchase program (the “2022 Program”) under which the Company may repurchase up to $175.0 million of its Class A common stock currently issued and outstanding. The 2022 Program will terminate on January 31, 2024 (unless terminated sooner). During the six month period ended June 30, 2022, we repurchased 513,725 shares at an average price per share of $31.25 under the 2019 Program and 2,035,324 shares at an average price per share of $24.59 under the 2022 Program. During the six month period ended June 30, 2021, we repurchased 130,916 shares at an average price per share of $23.53 under the 2019 Program. No shares were repurchased under the 2019 Program during the three months ended June 30, 2021. Under the 2022 Program, which replaced the 2019 Program, the Company may repurchase shares of its 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 the Company’s management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of the Company’s common stock, corporate considerations, the Company’s working capital and investment requirements, general market and economic conditions, and legal requirements. The 2022 Program does not obligate the Company to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. The Company anticipates funding for this 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 $0.38 per share for the first six months of 2022 compared to $0.36 per share for the first six months of 2021, an increase of $0.02, 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. 73 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. See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10Q for additional information regarding the parent company’s liquidity. 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. 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. The Company and Simmons Bank must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of June 30, 2022, we meet all capital adequacy requirements to which we are subject. As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action. 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 institution’s categories. Our risk-based capital ratios at June 30, 2022 and December 31, 2021 are presented in Table 12 below: Table 12: Risk-Based Capital June 30, December 31, (Dollars in thousands) 2022 2021 Tier 1 capital: Stockholders’ equity $ 3,259,895 $ 3,248,841 CECL transition provision 92,619 114,458 Goodwill and other intangible assets (1,423,323) (1,226,686) Unrealized loss (gain) on available-for-sale securities, net of income taxes 450,428 10,545 Total Tier 1 capital 2,379,619 2,147,158 Tier 2 capital: Trust preferred securities and subordinated debt 421,693 384,131 Qualifying allowance for credit losses and reserve for unfunded commitments 114,733 71,853 Total Tier 2 capital 536,426 455,984 Total risk-based capital $ 2,916,045 $ 2,603,142 Risk weighted assets $ 19,669,149 $ 15,538,967 Assets for leverage ratio $ 25,807,113 $ 23,647,901 Ratios at end of period: Common equity Tier 1 ratio (CET1) 12.10 % 13.82 % Tier 1 leverage ratio 9.22 % 9.08 % Tier 1 risk-based capital ratio 12.10 % 13.82 % Total risk-based capital ratio 14.83 % 16.75 % 74 June 30, December 31, (Dollars in thousands) 2022 2021 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 % _______________________________________ 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 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules established risk-weighting categories depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures. The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets 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 $421.7 million is included as Tier 2 and total capital as of June 30, 2022. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS See the Recently Issued Accounting Standards section in Note 1, Preparation of Interim Financial Statements, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on the Company’s ongoing financial position and results of operation. 75 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this quarterly report may not be based on historical facts and should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “estimate,” “expect,” “foresee,” “intend,” “indicate,” “target,” “plan,” positions,” “prospects,” “project,” “predict,” or “potential,” by future conditional verbs such as “could,” “may,” “might,” “should,” “will,” or “would,” or by variations of such words or by similar expressions. These forward-looking statements include, without limitation, those relating to the Company’s future growth, completed acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies and estimates, net interest margin, non-interest revenue, market conditions related to and the impact of the Company’s stock repurchase program, consumer behavior and liquidity, the adequacy of the allowance for credit losses, the impacts of the COVID-19 pandemic and the ability of the Company to manage the impacts of the COVID-19 pandemic, the impacts of the Company’s and its customers’ participation in the PPP, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FOTO advances, capital resources, market risk, plans for investments in securities, effect of pending and future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, staffing initiatives, acquisition strategy and activity, legal and regulatory limitations and compliance and competition. These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation: changes in the Company’s operating, acquisition, or expansion strategy; the effects of future economic conditions (including unemployment levels and slowdowns in economic growth), governmental monetary and fiscal policies, including policies of the Federal Reserve, as well as legislative and regulatory changes, including in response to the COVID-19 pandemic; the impacts of the COVID-19 pandemic on the Company’s operations and performance; the ultimate effect of measures the Company takes or has taken in response to the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic, including the effectiveness of vaccination efforts and developments with respect to COVID-19 variants; the pace of recovery when the COVID-19 pandemic subsides and the heightened impact it has on many of the risks described herein; changes in real estate values; changes in interest rates; inflation; changes in the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest sensitive assets and liabilities; changes in the securities markets generally or the price of the Company’s common stock specifically; developments in information technology affecting the financial industry; cyber threats, attacks or events; reliance on third parties for the provision of key services; further changes in accounting principles relating to loan loss recognition; uncertainty and disruption associated with the discontinued use of the London Inter-Bank Offered Rate; the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; possible adverse rulings, judgements, settlements, and other outcomes of pending or future litigation; market disruptions, including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts (including the ongoing military conflict between Russia and Ukraine) or other major events, or the prospect of these events; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans, other real estate owned, and other cautionary statements set forth elsewhere in this report. Please also refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report and the Company’s annual report on Form 10-K for the year ended December 31, 2021, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. Many of these factors are beyond our ability to predict or control, and actual results could differ materially from those in the forward-looking statements due to these factors and others. In addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of future performance. We believe the assumptions and expectations that underlie or are reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations or whether our future performance will differ materially from the performance reflected in or implied by our forward-looking statements, and you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this section. 76 GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES The tables below present computations of adjusted earnings (net income excluding certain items {gain on sale of branches, merger related costs, net branch right sizing costs, and the Day 2 CECL Provision}) (non-GAAP), and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted other income (non-GAAP) and adjusted non-interest expense (non-GAAP). Adjusted items are included in financial results presented in accordance with generally accepted accounting principles (US GAAP). We believe the exclusion of these certain items in expressing earnings and certain other financial measures, including “adjusted 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 adjusted 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 certain items to be relevant to ongoing financial performance. Management and the Board of Directors utilize “adjusted 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 “adjusted earnings” on a diluted per share basis (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 adjusted 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 certain items to be relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize “adjusted 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 $1.448 billion and $1.252 billion total goodwill and other intangible assets for the periods ended June 30, 2022 and December 31, 2021, respectively. Because our acquisition strategy has resulted in a high level of intangible assets, management believes useful calculations include tangible book value per share (non-GAAP) and tangible common equity to tangible assets (non-GAAP). 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 adjusted to ensure that the Company’s “adjusted” 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 certain items does not represent the amount that effectively accrues directly to stockholders (i.e., certain 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. 77 See Table 13 below for the reconciliation of non-GAAP financial measures, which exclude certain items for the periods presented. Table 13: Reconciliation of Adjusted Earnings (non-GAAP) Three Months Ended June 30, Six Months Ended June 30, June 30, March 31, June 30, June 30, (In thousands, except per share data) 2022 2022 2022 2021 Net income available to common stockholders $ 27,454 $ 65,095 $ 92,549 $ 142,318 Certain items: Gain on sale of branches — — — (5,316) Merger related costs 19,133 1,886 21,019 919 Branch right sizing (net) 380 909 1,289 487 Day 2 CECL Provision 33,779 — 33,779 — Tax effect (1) (13,928) (731) (14,658) 1,022 Net certain items 39,364 2,064 41,429 (2,888) Adjusted earnings (non-GAAP) $ 66,818 $ 67,159 $ 133,978 $ 139,430 Diluted earnings per share (2) $ 0.21 $ 0.58 $ 0.77 $ 1.31 Certain items: Gain on sale of branches — — — (0.05) Merger related costs 0.15 0.01 0.17 0.01 Branch right sizing (net) — 0.01 0.01 — Day 2 CECL Provision 0.27 — 0.28 — Tax effect (1) (0.11) (0.01) (0.12) 0.01 Net certain items 0.31 0.01 0.34 (0.03) Adjusted diluted earnings per share (non-GAAP) $ 0.52 $ 0.59 $ 1.11 $ 1.28 _______________________________________ (1) Effective tax rate of 26.135%. (2) See Note 17, Earnings Per Share, for number of shares used to determine EPS. 78 See Table 14 below for the reconciliation of adjusted other income and adjusted non-interest expense for the periods presented. Table 14: Reconciliation of Adjusted Other Income and Adjusted Non-Interest Expense (non-GAAP) Three Months Ended June 30, Six Months Ended June 30, June 30, March 31, June 30, June 30, (In thousands) 2022 2022 2022 2021 Other income $ 6,837 $ 7,266 $ 14,103 $ 18,897 Certain items: Gain on sale of branches — — — (5,316) Branch right sizing 88 — 88 (606) Total certain items 88 — 88 (5,922) Adjusted other income (non-GAAP) $ 6,925 $ 7,266 $ 14,191 $ 12,975 Non-interest expense $ 156,813 $ 128,417 $ 285,230 $ 227,659 Certain items: Merger related costs (19,133) (1,886) (21,019) (919) Branch right sizing (292) (909) (1,201) (1,093) Total certain items (19,425) (2,795) (22,220) (2,012) Adjusted non-interest expense (non-GAAP) $ 137,388 $ 125,622 $ 263,010 $ 225,647 See Table 15 below for the reconciliation of tangible book value per common share. Table 15: Reconciliation of Tangible Book Value per Common Share (non-GAAP) June 30, December 31, (In thousands, except per share data) 2022 2021 Total common stockholders’ equity $ 3,259,895 $ 3,248,841 Intangible assets: Goodwill (1,310,528) (1,146,007) Other intangible assets (137,285) (106,235) Total intangibles (1,447,813) (1,252,242) Tangible common stockholders’ equity $ 1,812,082 $ 1,996,599 Shares of common stock outstanding 128,787,764 112,715,444 Book value per common share $ 25.31 $ 28.82 Tangible book value per common share (non-GAAP) $ 14.07 $ 17.71 79 See Table 16 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets. Table 16: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) June 30, December 31, (Dollars in thousands) 2022 2021 Total common stockholders’ equity $ 3,259,895 $ 3,248,841 Intangible assets: Goodwill (1,310,528) (1,146,007) Other intangible assets (137,285) (106,235) Total intangibles (1,447,813) (1,252,242) Tangible common stockholders’ equity $ 1,812,082 $ 1,996,599 Total assets $ 27,218,609 $ 24,724,759 Intangible assets: Goodwill (1,310,528) (1,146,007) Other intangible assets (137,285) (106,235) Total intangibles (1,447,813) (1,252,242) Tangible assets $ 25,770,796 $ 23,472,517 Ratio of common equity to assets 11.98 % 13.14 % Ratio of tangible common equity to tangible assets (non-GAAP) 7.03 % 8.51 %