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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 211 added, 203 removed, 623 unchanged (40% of the section changed)

1 unchanged sentence

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.

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.

Accordingly, we have compared our results of operations for the three months ended September 30, 2022 to our results of operations for the three months ended June 30, 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 June 30, 2022, please refer to our second quarter Form 10-Q filed with the SEC on August 5, 2022.

Our net income for the three months ended September 30, 2022 was $80.6 million, or $0.63 diluted earnings per share, increases of $53.1 million and $0.42, respectively, compared to the three months ended June 30, 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 September 30, 2022 also include adjustments for the loss from early retirement of trust preferred securities and the gain on sale of intellectual property, and results for the three months ended June 30, 2022 also include 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 September 30, 2022 were $82.3 million, or $0.64 adjusted diluted earnings per share, compared to $66.8 million, or $0.52 adjusted diluted earnings per share for the three months ended June 30, 2022.

Net income for the first nine months of 2022 was $173.2 million, or $1.40 diluted earnings per share, compared to $222.9 million, or $2.05 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 nine months of 2021.

Excluding these certain items, year-to-date adjusted earnings were $216.3 million, a decrease of $2.5 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.

Adjusted diluted earnings per share for the first nine months of 2022 were $1.75 compared to $2.01 for the same period in 2021.

Third quarter results were strong and demonstrate our ability to navigate the current economic environment and volatile market conditions.

Highlights for the quarter include an increase in revenue, well contained operating expense growth, improved asset quality, strong organic loan growth, marked improvement in the efficiency ratio, 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.

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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.

Asset quality metrics remain at historically low-levels and reflect our conservative credit culture, as well as the impact of our strategic decision in 2019 designed to de-risk certain elements of loan portfolios that were acquired in connection with our geographic diversification and expansion.

As a result of this strategic decision, over the past two years we have 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 September 30, 2022, December 31, 2021, and September 30, 2021 were $57.8 million, $68.6 million, and $59.4 million, respectively.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.24% at September 30, 2022, compared to 0.33% at December 31, 2021 and 0.33% at September 30, 2021.

Stockholders’ equity as of September 30, 2022 was $3.16 billion, book value per share was $24.87 and tangible book value per share was $13.51.

Our ratio of common stockholders’ equity to total assets was 11.66% and the ratio of tangible common stockholders’ equity to tangible assets was 6.69% at September 30, 2022.

The Company’s Tier 1 leverage ratio of 9.24%, 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.

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.

In January 2022, our Board of Directors authorized the 2022 Program, which replaced the 2019 Program and under which we may repurchase up to $175.0 million of its Class A common stock currently issued and outstanding.

We repurchased approximately 1.9 million shares of our common stock under the 2022 Program during the third quarter of 2022.

Total loans were $15.61 billion at September 30, 2022, compared to $12.01 billion at December 31, 2021.The increase in total loans 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.

While activity in our commercial pipeline slowed to $1.55 billion due to, in large part, the impact of the rapidly rising interest rates and our emphasis on maintaining prudent underwriting standards and pricing discipline, our unfunded commitments increased for the sixth consecutive quarter to $5.14 billion, and were up 15% from the prior quarter end.

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, and 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.

See the GAAP Reconciliation of Non-GAAP Financial 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 September 30, 2022, has approximately $27.1 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

CRITICAL ACCOUNTING ESTIMATES

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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.

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 noninterest bearing liabilities supporting earning assets.

Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis.

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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.

As of September 30, 2022, our interest rate sensitivity shows that approximately 41% of our loans and 85% 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.

For the three month period ended September 30, 2022, net interest income on a fully taxable equivalent basis was $199.8 million, an increase of $8.6 million, or 4.5%, compared to the three months ended June 30, 2022.

The increase in net interest income was primarily the result of a $25.9 million increase in fully tax equivalent interest income partially offset by a $17.3 million increase in interest expense.

The increase in interest income primarily resulted from a $23.9 million increase in interest income on loans, coupled with an increase of $3.1 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.

Regarding the increase in interest income on loans during the third quarter of 2022, the increase in loan volume resulted in an increase of $9.9 million, in addition to an increase of $14.0 million of interest income from a 32 basis point increase in loan yield.

The loan yield for the third quarter of 2022 was 4.86% compared to 4.54% from the preceding sequential quarter.

The additional loan volume was due to strong organic loan growth which was widespread across our geographic markets.

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.

The $17.3 million increase in interest expense is mostly due to the increase in deposit account rates, as we continue to manage the challenging rising rate environment.

Interest expense increased $15.0 million due to the increase in rate of 40 basis points on interest-bearing deposit accounts.

Additionally, interest expense increased $1.7 million due to the increase in rate of 58 basis points on other borrowings.

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.

For the nine month period ended September 30, 2022, net interest income on a fully taxable equivalent basis was $542.2 million, an increase of $90.1 million, or 19.9%, over the same period in 2021.

The increase in net interest income was the result of a $101.1 million increase in fully tax equivalent interest income partially offset by an $11.0 million increase in interest expense.

The increase in interest income during the nine month period ended September 30, 2022 resulted from increases in interest income on loans and investments.

The increase in interest income on loans of $61.3 million reflects an increase in loan volume of $74.0 million partially offset by a 14 basis point decline in loan yield that resulted in a $12.7 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.

The increase in our loan volume during the first nine months of 2022 was primarily due to the Spirit acquisition in the second quarter of 2022, along with the acquisition of Landmark and Triumph in the fourth quarter of 2021, as well as organic loan growth.

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.

The decline in loan yield for the nine month period ended September 30, 2022 compared to the same period in 2021 is primarily due to an 8 basis point positive impact of PPP loan accretion on loan yield in 2021.

The increase in interest income on investment securities of $29.9 million was due to our investment portfolio average balances which increased by $2.1 billion or 32.8%, as we re-invested excess liquidity in our investment security portfolio throughout 2021.

Additionally, an aggregated increase of $6.9 million in interest income on investment securities was due to yield increases over the nine month period of 18 basis points and 5 basis points for our taxable and non-taxable investment security portfolios, respectively.

The $11.0 million increase in interest expense is mainly due to the increase in our deposit account rates.

Interest expense increased $2.4 million due to the increase in deposit volume over the period and increased $6.5 million due to the increase in rate of 4 basis points on interest-bearing deposit accounts.

Impacts to our balance sheet that affected interest expense during the nine

month period ended September 30, 2022, as compared to the same period ended September 30, 2021, include the Spirit, Landmark and Triumph acquisitions noted above, as well as a rising interest rate environment throughout 2022, as the market experiences a shift in consumer sentiment given the attractiveness of higher yielding time deposits in the current higher interest rate environment.

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

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.

Our net interest margin on a fully tax equivalent basis increased 10 basis points to 3.34% for the three month period ended September 30, 2022, when compared to 3.24% for the three months ended June 30, 2022.

For the nine month period ended September 30, 2022, our net interest margin increased 21 basis points to 3.12% when compared to 2.91% for the same period in 2021.

The increase in the net interest margin during the three months ended September 30, 2022 compared to the three months ended June 30, 2022 was primarily due to the rising rate environment and driven by increases in our loan and investment rates.

The increase in net interest margin on a year-over-year basis is primarily due to the overall increase in our earning assets average balances over the comparative periods which has improved interest income, coupled with the effective management of our interest bearing liabilities, 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.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended September 30, 2022 and June 30, 2022 and the nine months ended September 30, 2022 and 2021, respectively.

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, March 31, June 30, June 30,

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30,

(In thousands) 2022 2022 2022 2021

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Changes in Fully Taxable Equivalent Net Interest Margin

Three Months Ended

June 30, Six Months Ended

(In thousands) June 30, 2022 compared to March 31, 2022 June 30, 2022 compared to June 30, 2021

Three Months Ended Nine Months Ended

(In thousands) September 30, 2022 compared to June 30, 2022 September 30, 2022 compared to September 30, 2021

Increase due to change in earning assets $ 6,054 $ 101,305

Increase (decrease) due to change in earning asset yields 19,865 (234)

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

Decrease due to change in interest bearing liabilities (101) (1,900)

Decrease due to change in interest rates paid on interest bearing liabilities (17,225) (9,083)

Increase in net interest income $ 8,593 $ 90,088

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.

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 September 30, 2022 and June 30, 2022 and the nine months ended September 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.

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Three Months Ended

June 30, 2022 March 31, 2022

September 30, 2022 June 30, 2022

Average Income/ Yield/ Average Income/ Yield/

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Total interest bearing liabilities 17,310,465 37,033 0.85 17,264,177 19,707 0.46

Non-interest bearing liabilities:

Non-interest bearing deposits 5,926,304 5,184,828

Noninterest bearing liabilities:

Noninterest bearing deposits 6,022,899 5,926,304

Other liabilities 243,296 216,848

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Net interest margin – FTE $ 199,788 3.34 $ 191,195 3.24

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

Average Income/ Yield/ Average Income/ Yield/

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Total interest bearing liabilities 16,950,266 72,861 0.57 15,227,860 61,878 0.54

Non-interest bearing liabilities:

Non-interest bearing deposits 5,557,611 4,624,158

Noninterest bearing liabilities:

Noninterest bearing deposits 5,714,412 4,684,485

Other liabilities 222,715 165,694

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Net interest margin – FTE $ 542,191 3.12 $ 452,103 2.91

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.

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended September 30, 2022 as compared to the three months ended June 30, 2022 and the nine months ended September 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.

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Three Months Ended

June 30, Six Months Ended

June 30, 2022 compared to March 31, 2022 June 30, 2022 compared to June 30, 2021

September 30, Nine Months Ended

September 30,

September 30, 2022 compared to June 30, 2022 September 30, 2022 compared to September 30, 2021

(In thousands, on a fully taxable equivalent basis) Volume Yield/

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

The provision for credit losses for the three 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.

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.

Non-Interest Income

The provision for credit losses for the three months ended September 30, 2022 was an expense of $103,000 as compared to an expense of $33.9 million for the three months ended June 30, 2022.

For the nine months ended September 30, 2022, the Company’s provision for credit losses was $14.0 million as compared to a recapture of $31.4 million for the same period ended September 30, 2021.

During the three month period ended September 30, 2022, provision expense included the recapture of credit losses primarily driven by a reduction in qualitative factors for the restaurant, hospitality, student housing and office space industries due to the improvement from pandemic related stresses as well as improved credit quality metrics.

This recapture was offset by the additional reserve for unfunded commitments related to an overall increase in unfunded commitments, primarily made up of

commercial construction loans, which receive a higher reserve allocation than other loans.

The change for the three month period ended September 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 during the three month period ended June 30, 2022.

The provision for credit losses for the nine month period ended September 30, 2022 reflected the adjustments due to the Spirit Day 2 provision discussed above, offset by improved credit quality metrics and improved macroeconomic factors.

The recapture of credit losses for the nine month period ended September 30, 2021 was driven by improved credit quality metrics and improved macroeconomic factors.

NONINTEREST INCOME

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

Noninterest 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 noninterest income was $43.0 million for the three month period ended September 30, 2022, an increase of approximately $2.8 million, or 7.1%, as compared to the three month period ended June 30, 2022, primarily driven by the incremental increases in service charges on deposit accounts and wealth management fees.

For the nine month period ended September 30, 2022, total noninterest income was $125.4 million, a decrease of approximately $19.8 million, or 13.6%, 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 nine months of 2021, we sold approximately $342.6 million of investment securities resulting in a net gain of $15.8 million.

Additionally, the Company recognized $5.3 million on the gain on sale of branches, which we exclude from adjusted earnings, during the first nine months of 2021, primarily related to the sale of Illinois branches.

A decrease of $7.4 million in mortgage lending income for the nine month period ended September 30, 2022 was due to the higher interest rate environment and softening market conditions.

An increase of $3.3 million in service charges on deposit accounts and an increase of $2.6 million in debit and credit card fees partially offset the overall decrease in noninterest income during the first nine 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 noninterest income for the three month period ended September 30, 2022 as compared to the three month period ended June 30, 2022 and the nine month periods ended September 30, 2022 and 2021, respectively.

Noninterest Income

Three Months Ended

June 30, Six Months Ended

June 30, March 31, Change June 30, June 30, Change

September 30, Nine Months Ended

September 30,

30, June 30, Change Sept.

(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 $ 12,560 $ 11,379 $ 1,181 10.4% $ 34,635 $ 31,322 $ 3,313 10.6%

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 7,685 8,224 (539) (6.6) 23,358 20,785 2,573 12.4

8,224 7,449 775 10.4 15,673 13,683 1,990 14.5

Wealth management fees 8,562 7,214 1,348 18.7 23,744 23,130 614 2.7

Mortgage lending income 2,593 2,240 353 15.8 9,383 16,755 (7,372) (44.0)

Bank owned life insurance income 2,902 2,563 339 13.2 8,171 6,134 2,037 33.2

Other service charges and fees 2,085 1,871 214 11.4 5,593 5,934 (341) (5.8)

Gain (loss) on sale of securities, net (22) (150) 128 * (226) 15,846 (16,072) *

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Other income 6,658 6,837 (179) (2.6) 20,761 19,992 769 3.9

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.

Total noninterest income $ 43,023 $ 40,178 $ 2,845 7.1% $ 125,419 $ 145,214 $ (19,795) (13.6)%

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for the three month period ended September 30, 2022 was $30.9 million, an increase of $2.2 million as compared to the three month period ended June 30, 2022.

Recurring fee income for the nine month period ended September 30, 2022, was $87.3 million, an increase of $6.2 million from the nine month period ended September 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.

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.

NONINTEREST EXPENSE

Noninterest 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 noninterest expense through the continued use of expense control measures.

We utilize an extensive profit planning and reporting system involving all subsidiaries.

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

For the three month period ended June 30, 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.

For the three month period ended September 30, 2022, noninterest expense was $138.9 million, a decrease of $17.9 million, or 11.4%, from the three month period ended June 30, 2022.

Noninterest expense for the nine months ended September 30, 2022 was $424.2 million, an increase of $82.2 million, or 24.0%, from the same period in 2021.

Salaries and employee benefits expense decreased $2.2 million during the three month period ended September 30, 2022 as compared to the preceding sequential quarter and increased $31.5 million during the nine month period September 30, 2022 as compared to same period in 2021.

The decrease for the three month period reflects incentive accrual adjustments, while the increase for the nine month period includes impacts from the Landmark, Triumph and Spirit acquisitions.

In addition, the Bank has added associates in our lending, wealth and mortgage programs.

Merger related costs for the three and nine month periods ended September 30, 2022 as compared to the three months ended June 30, 2022 and nine months ended September 30, 2021, decreased by $17.7 million and increased by $20.1 million, respectively, and is primarily related to the timing of the Spirit acquisition which was completed during the three months ended June 30, 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.

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.

Non-Interest Expense

Adjusted noninterest expense, which excludes branch right sizing and merger related costs, for the three and nine months ended September 30, 2022, decreased $1.0 million, or 0.8%, and increased $57.5 million, or 16.8%, respectively, as compared to the three months ended June 30, 2022 and nine months ended September 30, 2021.

Marketing expense decreased by $2.1 million during the three month period ended September 30, 2022 as compared to the three months ended June 30, 2022 and increased by $8.6 million during the nine month period ended September 30, 2022 as compared to the same period in 2021.

The decrease during the three month period ended September 30, 2022 was primarily related to a nonrecurrent $1.6 million contribution to the Simmons First Foundation Conservation Fund during the three months ended June 30, 2022, reflecting a portion of paper statement fees collected as part of a promotion to encourage customers to enroll in eStatements.

The increase during the nine month period ended September 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.

Table 6 below shows noninterest expense for the three month period ended September 30, 2022 as compared to the three month period ended June 30, 2022 and the nine month periods ended September 30, 2022 and 2021, respectively.

Noninterest Expense

Three Months Ended

June 30, Six Months Ended

June 30, March 31, Change June 30, June 30, Change

September 30, Nine Months Ended

September 30,

30, June 30, Change Sept.

(Dollars in thousands) 2022 2022 $ % 2022 2021 $ %

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Debit and credit card 3,149 3,037 112 3.7 8,892 7,588 1,304 17.2

3,037 2,706 331 12.2 5,743 4,861 882 18.1

Marketing 6,662 8,754 (2,092) (23.9) 21,556 12,912 8,644 67.0

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Other 10,705 9,399 1,306 13.9 28,534 22,008 6,526 29.6

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.

Total noninterest expense $ 138,943 $ 156,813 $ (17,870) (11.4)% $ 424,173 $ 341,992 $ 82,181 24.0%

* Not meaningful

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

HTM and AFS investment securities were $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.

HTM and AFS investment securities were $3.8 billion and $3.9 billion, respectively, at September 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.

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

Furthermore, as of June 30, 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.

Furthermore, as of September 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.

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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.

Table 7 reflects the amortized cost and estimated fair value of securities at September 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

September 30, 2022

1 year 5 years Total

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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.

Our loan portfolio averaged $13.91 billion and $11.77 billion during the first nine months of 2022 and 2021, respectively.

As of September 30, 2022, total loans were $15.61 billion, an increase of $3.6 billion from December 31, 2021.

The increase in the average loan balance during the first nine months of 2022 when compared to the same period in 2021 was due to the acquisitions of Spirit, Landmark and Triumph.

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.

This period-to-period increase was partially offset by the decline in average PPP loan balance, which totaled $56.6 million for the nine months ended September 30, 2022 as compared to $675.8 million for the same period ended September 30, 2021.

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

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Loan Portfolio

June 30, December 31,

September 30, December 31,

(In thousands) 2022 2021

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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.

Consumer loans were $373.2 million at September 30, 2022, or 2.4% 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 September 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.

Real estate loans were $12.09 billion at September 30, 2022, or 77.5% of total loans, compared to $9.17 billion, or 76.3%, of total loans at December 31, 2021, an increase of $2.92 billion, or 31.9%.

Our C&D loans increased by $1.05 billion, or 78.9%, single family residential loans increased by $365.0 million, or 17.4%, and CRE loans increased by $1.51 billion, or 26.3%.

The increases were largely due to the Spirit acquisition noted above, coupled with strong organic loan growth, particularly in the third quarter of 2022.

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

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

Total commercial loans were $2.83 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.

Total commercial loans were $2.79 billion at September 30, 2022, or 17.9% of total loans, compared to $2.16 billion, or 18.0% of total loans at December 31, 2021, an increase of $628.0 million, or 29.1%, which was primarily due to the combined acquired and organic loan growth.

Agricultural loans increased $94.8 million, or 56.2%, 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.

Other loans mainly consist of mortgage warehouse lending and municipal loans.

Mortgage volume experienced a market driven decline during the first nine months of 2022 when compared to 2021, but was more than offset by the Spirit acquisition combined with organic growth, leading to an increase of $26.9 million in other loans.

Loan growth was widespread throughout our geographic markets and was generally broad-based by loan type and more than offset continued market-driven weakness in mortgage warehouse lending.

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.

Additionally, loan growth was weighted toward the latter half of the quarter as period-end loans exceeded average total loans of $15.32 billion for the third quarter of 2022.

Our loan pipeline consisting of all loan opportunities was $1.55 billion at September 30, 2022 compared to $2.31 billion at December 31, 2021.

Loans approved and ready to close at the end of the quarter totaled $551.8 million.

ASSET QUALITY

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

Total non-performing assets decreased $6.3 million from December 31, 2021 to June 30, 2022.

Total non-performing assets decreased $13.7 million from December 31, 2021 to September 30, 2022.

Nonaccrual loans decreased by $10.7 million during the period and foreclosed assets held for sale and other real estate owned decreased by $2.4 million.

The decrease in nonaccrual loans was primarily due to an overall improvement in economic conditions.

The decrease in nonaccrual loans was primarily due to an improvement in economic conditions from pandemic related stresses.

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

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

Our TDR balance decreased to $5.2 million as of June 30, 2022, compared to $6.9 million as of December 31, 2021.

Our TDR balance decreased to $4.9 million as of September 30, 2022, compared to $6.9 million as of December 31, 2021.

TDRs are individually evaluated for expected credit losses.

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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

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 as a percent of total loans was 1.27% as of September 30, 2022.

Non-performing loans equaled 0.37% of total loans.

Non-performing assets were 0.23% of total assets, an 8 basis point decrease from December 31, 2021.

The allowance for credit losses was 342% 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.

Our annualized net charge-offs to average total loans for the first nine months of 2022 was 0.07%.

Annualized net credit card charge-offs to average total credit card loans were 1.41% for the first nine months of 2022, compared to 1.40% during the full year 2021, and 56 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.

Non-performing Assets

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2022 2021

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_______________________________________

(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.

(1) Includes nonaccrual TDRs of approximately $3,027,000 at September 30, 2022 and $2,650,000 at December 31, 2021.

The interest income on nonaccrual loans is not considered material for the three and nine month periods ended September 30, 2022 and 2021.

ALLOWANCE FOR CREDIT LOSSES

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Acquisition adjustment for PCD loans 5,100 —

Balance, June 30, $ 212,611 $ 227,239

Balance, September 30, $ 197,589 $ 202,508

Loans charged off:

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Provision for Credit Losses

The amount of provision added to or released from the allowance during the three and six months ended June 30, 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.

The amount of provision added to or released from the allowance during the three and nine months ended September 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.

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.

As of September 30, 2022, the allowance for credit losses reflected a decrease of approximately $7.7 million from December 31, 2021 while total loans increased by $3.59 billion over the same nine month period.

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

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.

The decrease in the allowance for credit losses during the first nine months of 2022 was primarily due to 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 decrease was partially offset due to the Spirit acquisition, which provided $2.29 billion in total loans after purchase accounting discounts.

Our allowance for credit losses at September 30, 2022 was considered appropriate given the current economic environment and other related factors.

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

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Allocation of Allowance for Credit Losses

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(Dollars in thousands) Allowance

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

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 233 financial centers as of June 30, 2022.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 230 financial centers as of September 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.

As of September 30, 2022, core deposits comprised 86.1% of our total deposits.

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

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

Our total deposits as of June 30, 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.

Our total deposits as of September 30, 2022, were $22.15 billion, an increase of $2.78 billion from December 31, 2021, primarily driven by the acquisition of Spirit, which contributed $2.72 billion, net of fair value adjustments.

Noninterest bearing transaction

accounts, interest bearing transaction accounts and savings accounts totaled $18.32 billion at September 30, 2022, compared to $16.91 billion at December 31, 2021, an increase of $1.41 billion.

Total time deposits increased $1.37 billion to $3.83 billion at September 30, 2022, from $2.45 billion at December 31, 2021.

We had $1.82 billion and $466.0 million of brokered deposits at September 30, 2022, and December 31, 2021, respectively.

These category increases were primarily related to the Spirit acquisition.

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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;

Our total debt was $1.33 billion and $1.72 billion at September 30, 2022 and December 31, 2021, respectively.

The outstanding balance for September 30, 2022 includes $934.1 million in FHLB short-term advances;

$366.0 million in subordinated notes and unamortized debt issuance costs;

and $30.6 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.

All of the FHLB short-term advances outstanding at the end of the third 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.

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

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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.

At June 30, 2022, total capital was $3.26 billion.

During the third quarter of 2022, the Company redeemed the five issuances of trust preferred securities which had an outstanding aggregate principal amount of $56.2 million.

The Company recorded a loss of $365,000 related to the early retirement of debt, which represented the unamortized purchase discounts associated with the previously acquired trust preferred securities.

At September 30, 2022, total capital was $3.16 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.

At September 30, 2022, our common equity to asset ratio was 11.66% compared to 13.14% at year-end 2021.

Capital Stock

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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.

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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.

During the three month period ended September 30, 2022, the Company repurchased 1,883,713 shares at an average price of $23.91 per share under the 2022 Program.

During the nine month period ended September 30, 2022, the Company repurchased 513,725 shares at an average price of $31.25 per share under the 2019 Program and 3,919,037 shares at an average price of $24.26 per share under the 2022 Program, respectively.

The 2022 Program repurchases were all completed during the second and third quarters of 2022.

During the three and nine month periods ended September 30, 2021, the Company repurchased 1,806,205 shares at an average pri ce of $28.48 per share and 1,937,121 shares at an average price of $28.14 per share, respectively, under the 2019 Program.

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.

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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%.

We declared cash dividends on our common stock of $0.57 per share for the first nine months of 2022 compared to $0.54 per share for the first nine months of 2021, an increase of $0.03, or 6%.

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

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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.

The redemption of our trust preferred securities during the third quarter of 2022 did not have a meaningful impact on the Parent Company’s liquidity.

We continually assess our 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

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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.

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.

Management believes that, as of September 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.

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

Our risk-based capital ratios at June 30, 2022 and December 31, 2021 are presented in Table 12 below:

Our risk-based capital ratios at September 30, 2022 and December 31, 2021 are presented in Table 12 below:

Risk-Based Capital

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2022 2021

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Total risk-based capital ratio 14.08 % 16.75 %

June 30, December 31,

(Dollars in thousands) 2022 2021

Minimum guidelines:

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_______________________________________

Regulatory Capital Changes

Regulatory Capital

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 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.

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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.

All of the Company’s trust preferred securities were redeemed during the quarter ended September 30, 2022.

Qualifying subordinated debt of $366.0 million is included as Tier 2 and total capital as of September 30, 2022.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

These forward-looking statements include, without limitation, those relating to the Company’s future growth, 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 include, without limitation, those relating to the Company’s future growth, completed acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, dividends, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies and estimates, net interest margin, noninterest 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, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, repricing of loans and time deposits, 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:

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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;

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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).

The tables below present computations of adjusted earnings (net income excluding certain items {gain on sale of branches, loss from early retirement of TruPS, gain on sale of intellectual property, 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 noninterest expense (non-GAAP).

Adjusted items are included in financial results presented in accordance with generally accepted accounting principles (US GAAP).

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• 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.

We have $1.442 billion and $1.252 billion total goodwill and other intangible assets for the periods ended September 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).

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Three Months Ended

June 30, Six Months Ended

June 30, March 31, June 30, June 30,

September 30, Nine Months Ended

September 30,

September 30, June 30, September 30, September 30,

(In thousands, except per share data) 2022 2022 2022 2021

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

Loss from early retirement of TruPS 365 — 365 —

Gain on sale of intellectual property (750) — (750) —

Merger related costs 1,422 19,133 22,441 2,320

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(594) (13,928) (15,253) 1,451

Net certain items 39,364 2,064 41,429 (2,888)

Certain items, net of tax 1,678 39,364 43,106 (4,099)

Adjusted earnings (non-GAAP) $ 82,281 $ 66,818 $ 216,258 $ 218,780

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Gain on sale of branches — — — (0.05)

Loss from early retirement of TruPS — — — —

Gain on sale of intellectual property (0.01) — (0.01) —

Merger related costs 0.01 0.15 0.18 0.02

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— (0.11) (0.12) 0.01

Net certain items 0.31 0.01 0.34 (0.03)

Certain items, net of tax 0.01 0.31 0.35 (0.04)

Adjusted diluted earnings per share (non-GAAP) $ 0.64 $ 0.52 $ 1.75 $ 2.01

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(2) See Note 17, Earnings Per Share, for number of shares used to determine EPS.

See Table 14 below for the reconciliation of adjusted other income and adjusted non-interest expense for the periods presented.

Reconciliation of Adjusted Other Income and Adjusted Non-Interest Expense (non-GAAP)

See Table 14 below for the reconciliation of adjusted other income and adjusted noninterest expense for the periods presented.

Reconciliation of Adjusted Other Income and Adjusted Noninterest Expense (non-GAAP)

Three Months Ended

June 30, Six Months Ended

June 30, March 31, June 30, June 30,

September 30, Nine Months Ended

September 30,

September 30, June 30, September 30, September 30,

(In thousands) 2022 2022 2022 2021

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

Loss from early retirement of TruPS 365 — 365 —

Gain on sale of intellectual property (750) — (750) —

Branch right sizing 65 88 153 (367)

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Adjusted other income (non-GAAP) $ 6,338 $ 6,925 $ 20,529 $ 19,625

Non-interest expense $ 156,813 $ 128,417 $ 285,230 $ 227,659

Noninterest expense $ 138,943 $ 156,813 $ 424,173 $ 341,992

Certain items:

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Total certain items (2,592) (19,425) (24,812) (133)

Adjusted non-interest expense (non-GAAP) $ 137,388 $ 125,622 $ 263,010 $ 225,647

Adjusted noninterest expense (non-GAAP) $ 136,351 $ 137,388 $ 399,361 $ 341,859

See Table 15 below for the reconciliation of tangible book value per common share.

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

June 30, December 31,

September 30, December 31,

(In thousands, except per share data) 2022 2021

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

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2022 2021

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis