What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-02-25 · 262 added, 380 removed, 686 unchanged (48% of the section changed)

57 unchanged sentences

Our net income available to common shareholders for the year ended December 31, 2022 was $256.4 million, or $2.06 diluted earnings per share, compared to $271.1 million, or $2.46 diluted earnings per share, for the same period in 2021.

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

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

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

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

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

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

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

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

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

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

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

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

Included in 2022 results were $42.2 million of certain items, net of tax, that were primarily related to our acquisitions, Day 2 accounting provision in connection with acquisitions, gain on an insurance settlement related to a weather event, and branch right sizing initiatives.

Included in 2021 results were $23.9 million of certain items, net of tax, that were primarily related to our acquisitions, Day 2 accounting provision in connection with acquisitions and gains associated with the sale of branches.

Adjusting for these certain items, adjusted earnings for the year ended December 31, 2022 were $298.6 million, or $2.40 adjusted diluted earnings per share, compared to $295.0 million, or $2.68 adjusted diluted earnings per share, in 2021.

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

Results during 2022 were strong and demonstrate our ability to navigate the current economic environment and volatile market conditions.

Highlights for the year include an increase in revenue, well contained operating expense growth, improved asset quality, strong organic loan growth, 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 Bank.

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.

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

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

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

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

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

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

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 A merican Banker as a 2022 Digital Banker of the Year.

We continue our efforts in developing 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 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 our exposure to commercial real estate to more acceptable levels.

Total nonperforming loans as of December 31, 2022 were $58.9 million, as compared to $68.6 million at December 31, 2021.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.23%, compared to 0.33% at December 31, 2022 and 2021, respectively.

Stockholders’ equity as of December 31, 2022 was $3.3 billion, book value per share was $25.73 and tangible book value per common share was $14.33.

Our ratio of common stockholders’ equity to total assets was 11.9% and the ratio of tangible common stockholders’ equity to tangible assets was 7.0% at December 31, 2022.

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

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

The Company’s Tier I leverage ratio of 9.3%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” minimum requirements.

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

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

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

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

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

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

(Dollars in thousands) PPP Loans

Beginning balance, January 1, 2021 $ 904,673

PPP loan originations 318,919

Acquired PPP loans 15,573

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

Ending balance, December 31, 2021 $ 116,659

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

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

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

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

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

The 2022 Program replaced the 2019 Program, which was substantially exhausted during the first quarter of 2022.

In total, under the 2019 Program and the 2022 Program, we repurchased approximately 4.4 million shares of our common stock during 2022.

Total loans were $16.1 billion at December 31, 2022, an increase of $4.1 billion, or 34.4%, from the same time in 2021.

The increase in total loans during the period primarily reflects the acquisition of Spirit during the second quarter of 2022, which provided $2.29 billion in total loans after purchase accounting adjustments, coupled with net loan growth driven by increased activity throughout our geographic footprint.

While activity in our commercial pipeline slowed to $1.1 billion as of December 31, 2022 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 to $5.6 billion at December 31, 2022, as compared to $3.4 billion at December 31, 2021.

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.

As of December 31, 2022, our liquidity is solid, and our capital is strong.

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

4 unchanged sentences

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

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

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

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

During March 2020, the Federal Open Market Committee (“FOMC”) of the FRB substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic.

The federal funds rate was cut to a range of 0.00% - 0.25% and rates have continued to remain low through 2021.

The federal funds rate was cut to a range of 0% - 0.25%, where it remained throughout 2021 and into early 2022.

During March 2022, the FOMC began a series of rate increases in an effort to curb rising inflation.

Overall in 2022, the federal funds rate range was increased on seven occasions and ended 2022 with a range set at 4.25% - 4.50%.

As of early 2023, the FOMC had made one more rate increase, although the 25 basis point increase represents a more gradual increase than seen throughout 2022.

Our loan portfolio is significantly affected by changes in the prime interest rate.

1 unchanged sentence

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

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

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

Similarly to the reduction in the federal funds rate, the prime rate was cut to 3.25% in mid-March of 2020 in response to the COVID-19 pandemic and remained unchanged throughout 2021 and into early 2022.

Paralleling the federal funds rate, multiple increases by the Federal Reserve during 2022 increased the prime rate to 7.50% as of the end of 2022.

Markets continue to anticipate more gradual rate increases by the Federal Reserve during 2023.

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

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Our current interest rate sensitivity shows that approximately 40% of our loans and 87% of our time deposits will reprice in the next year.

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

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

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

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

For the year ended December 31, 2022, net interest income on a fully taxable equivalent basis was $742.0 million, an increase of $131.2 million, or 21.5%, over the same period in 2021.

The increase in net interest income was primarily the result of a $196.1 million increase in interest income, partially offset by a $64.9 million increase in interest expense.

The increase in interest income primarily resulted from a $140.3 million increase in interest income on loans, coupled with an increase of $50.9 million in interest income on investment securities.

Regarding the increase in interest income on loans during 2022, the increase in loan volume resulted in an increase of $125.6 million in interest income, while a 12 basis point increase in yield resulted in a $14.7 million increase in interest income during the year ended December 31, 2022.

The loan yield for 2022 was 4.83%, compared to 4.71% for 2021.

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

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

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

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

The increase in our loan volume during 2022 was primarily due to the Spirit acquisition in the second quarter of 2022, along with the acquisitions of Landmark Community Bank (“Landmark”) and Triumph Bancshares, Inc.

(“Triumph”) in the fourth quarter of 2021, as well as organic loan growth which was widespread across our geographic markets.

Forgiveness of PPP loans partially offset the additional loan volume provided by these acquisitions.

The increase in interest income on investment securities was due to our investment portfolio average balances, which increased by $1.31 billion, or 19.1%, during 2022 as we re-invested excess liquidity in our investment security portfolio.

Additionally, an aggregated increase of $25.5 million during 2022 in interest income on investment securities was due to yield increases over the period of 42 basis points and 16 basis points for our taxable and non-taxable investment security portfolios, respectively.

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 year.

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

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For the years ended December 31, 2022, 2021 and 2020, interest income included $23.9 million, $22.1 million and $41.5 million, respectively, for the yield accretion recognized on loans acquired.

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

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

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

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

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

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

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

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

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

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

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

In addition, our decreased net interest margin is being driven by the decrease in our non-PPP loan portfolio as a result of the COVID-19 pandemic.

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

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

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

The $64.9 million increase in interest expense is mostly due to the increase in our deposit account rates.

Interest expense increased $52.1 million due to the increase in rate of 34 basis points on interest-bearing deposit accounts and increased $5.8 million due to the increase in deposit volume over the period.

Additionally, interest expense increased $8.4 million due to the increase in rate of 71 basis points on other borrowings.

Impacts to our balance sheet that affected interest expense during 2022 as compared to 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.

Our net interest margin on a fully tax equivalent basis was 3.17% for the year ended December 31, 2022, up 28 basis points from 2021.

The increase in the net interest margin was primarily due to the rising rate environment and driven by increases in our loan and investment rates.

Further, the overall increase in our earning assets average balances over the comparative period 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.

Over the course of 2023, we anticipate pressure on our margin due to several factors.

We saw strong organic loan growth during 2022, but our loan pipeline experienced decreased volume throughout the year.

We expect modest organic loan growth during 2023 in the higher interest rate environment.

Additionally, while we increased reliance on wholesale funding towards the end of 2022, we plan to reinvest cash flows from our investment portfolio and other sources back into the loan portfolio to offset reliance on wholesale funding going forward.

Further, we have $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio under swap agreements.

These swap agreements consist of a two year forward start date and 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 beginning in the third quarter of 2023.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended December 31, 2022, 2021 and 2020, respectively, as well as changes in fully taxable equivalent net interest margin for the years 2022 versus 2021 and 2021 versus 2020.

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Increase (decrease) due to change in earning assets $ 147,423 $ (40,169)

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

Increase (decrease) due to change in earning asset yields 48,691 (40,258)

Decrease due to change in interest bearing liabilities (3,274) (2,191)

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

Increase (decrease) due to change in interest rates paid on interest bearing liabilities (61,616) 42,646

Increase (decrease) in net interest income $ 131,224 $ (39,972)

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16,609 720 4.33 55,204 1,565 2.83 113,854 3,031 2.66

Loans 11,810,480 555,749 4.71 14,260,689 688,600 4.83 12,938,013 711,340 5.50

Other loans held for sale 8,322 3,120 37.49 — — — — — —

Loans - including fees 14,419,763 696,033 4.83 11,810,480 555,749 4.71 14,260,689 688,600 4.83

Total interest earning assets

16 unchanged sentences

17,098,835 144,419 0.84 15,414,331 79,529 0.52 14,237,365 119,984 0.84

Non-interest bearing liabilities:

Non-interest bearing deposits

4,836,839 4,225,618 3,021,917

Noninterest bearing liabilities:

Noninterest bearing deposits 5,827,160 4,836,839 4,225,618

Other liabilities 233,179 169,140 205,956

19 unchanged sentences

Mortgage loans held for sale (1,424) 579 (845) (1,651) 185 (1,466)

Loans (115,686) (17,165) (132,851) 68,681 (91,421) (22,740)

Other loans held for sale 791 2,329 3,120 — — —

Loans - including fees 125,617 14,667 140,284 (115,686) (17,165) (132,851)

Total 147,423 48,691 196,114 (40,169) (40,258) (80,427)

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The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for credit losses at a level considered appropriate in relation to the estimated lifetime risk inherent in the loan portfolio.

The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, assessment of current economic conditions, past due and non-performing loans and historical net credit loss experience.

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.

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

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

During 2022, our provision for credit loss expense was $14.1 million, as compared to a recapture of $32.7 million during 2021 and an expense of $75.0 million during 2020.

The provision for credit loss expense during 2022 was impacted by several factors throughout the year, including a $33.8 million Day 2 provision expense required for loans and unfunded commitments related to the Spirit acquisition, and an expense of $16.0 million related to the overall increase in unfunded commitments during the year, primarily made up of commercial construction loans, which receive a higher reserve allocation than other loans.

These expenses were partially offset by a release of $16.0 million, which was driven by a reduction to certain industry specific qualitative factors for the restaurant, hospitality, student housing and office space industries due to the improvement from pandemic related stresses.

Further recapture during 2022 was driven by the planned exit of several large oil and gas relationships during the year, along with our improved asset credit quality metrics and improved Moody’s economic modeling scenarios.

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

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

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

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

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

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

The increase in provision expense during 2019 was necessary to maintain an appropriate allowance for credit losses for the company’s growing portfolio.

Significant loan growth in our markets required an allowance to be established for those loans through an increased provision.

Additionally, during 2019, a special provision was made related to White Star, in which we were a participant in a shared national credit.

White Star became the subject of bankruptcy proceedings during 2019, and in September 2019, the bankruptcy court authorized the sale of White Star assets through a Section 363 proceeding under the U.S.

Bankruptcy Code.

Our portion of the shared national credit was $19.1 million.

Based upon the anticipated net proceeds from the pending bankruptcy sale, our loss recorded in 2019 was $14.7 million.

As a result, we recorded additional provision expense of $15 million to increase the allowance to an appropriate level.

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

Non-Interest Income

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

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

Total non-interest income was $191.8 million in 2021, compared to $239.8 million in 2020 and $197.9 million in 2019.

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

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

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

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

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

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

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

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

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

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

Non-Interest Income

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 $170.1 million in 2022, compared to $191.8 million in 2021 and $239.8 million in 2020.

Noninterest income for 2022 decreased $21.7 million, or 11.3%, from 2021.

Included in 2022 results were $4.3 million of certain items, primarily made up of a $4.1 million gain on an insurance settlement related to a weather event that caused severe damage to one of our branch locations.

Included in 2021 results were $5.7 million of certain items, primarily related to a $5.3 million gain on sale related to the Illinois Branch Sale in 2021.

Adjusting for these certain items, adjusted noninterest income for the year ended December 31, 2022 decreased $20.4 million, or 10.9%, from the prior year.

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

The majority of the decrease during 2022 was related to the decline in the gains on sale of securities and mortgage lending income compared to 2021.

During 2021, we sold approximately $342.6 million of investment securities resulting in a net gain of $15.5 million, while we realized a net loss of $278,000 related to the call of securities during 2022.

Mortgage lending income decreased $11.3 million during 2022 due to the rising interest rate environment and softening market conditions throughout the year, which slowed the demand for mortgage loans compared to the demand associated with the lower interest rate environment in 2021.

We originated $751.0 million and $1.13 billion in mortgage loans during 2022 and 2021, respectively.

These decreases in noninterest income during 2022 were partially offset by an increase of $3.3 million in service charges on deposit accounts and an increase of $3.0 million in debit and credit fees as a result of additional transactions due to the incremental customer base from the Landmark, Triumph and Spirit acquisitions and additional transactions due to the changes in customer spending habits.

Also included in 2022 results is the $4.1 million gain on an insurance settlement previously discussed and an increase of $2.2 million in bank owned life insurance income due to our increased investment in bank owned life insurance.

Table 5 shows noninterest income for the years ended December 31, 2022, 2021 and 2020, respectively, as well as changes in 2022 from 2021 and in 2021 from 2020.

Noninterest Income

Years Ended December 31, 2022

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(Dollars in thousands) 2022 2021 2020 2021 2020

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

Service charges on deposit accounts $ 46,527 $ 43,231 $ 43,082 $ 3,296 7.6 % $ 149 0.4 %

Other service charges and fees 7,696 6,624 5,824 1,072 16.2 800 13.7

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

Debit and credit card fees 31,203 28,245 24,711 2,958 10.5 3,534 14.3

Wealth management fees 31,895 31,172 30,386 723 2.3 786 2.6

Mortgage lending income 10,522 21,798 34,469 (11,276) (51.7) (12,671) (36.8)

Bank owned life insurance income 11,146 8,902 5,815 2,244 25.2 3,087 53.1

Gain on sale of securities, net 15,498 54,806 13,314 (39,308) (71.7) 41,492 *

Gain on sale of Visa Inc.

class B common stock — — 42,860 — — (42,860) (100.0)

Other service charges and fees 7,616 7,696 6,624 (80) (1.0) 1,072 16.2

Gain (loss) on sale of securities, net (278) 15,498 54,806 (15,776) * (39,308) (71.7)

Gain on sale of branches — 5,316 8,368 (5,316) * (3,052) (36.5)

Gain on insurance settlement 4,074 — — 4,074 * — —

Other income 27,361 29,957 31,508 (2,596) (8.7) (1,551) (4.9)

Total non-interest income $ 191,815 $ 239,769 $ 197,879 $ (47,954) 20.0 % $ 41,890 21.2 %

Total noninterest income $ 170,066 $ 191,815 $ 239,769 $ (21,749) (11.3) % $ (47,954) (20.0) %

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*Not meaningful

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

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for our operations.

Management remains committed to controlling the level of non-interest expense through the continued use of expense control measures.

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for 2022 was $117.2 million, an increase of $6.9 million, or 6.3%, when compared to the 2021 amounts.

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

Incremental software and technology expenditures of $14.6 million were

primarily related to this initiative.

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

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

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

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

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

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

Noninterest expense for 2022 was $566.7 million, an increase of $83.2 million, or 17.2%, from 2021.

Included in 2022 were $27.7 million of certain items, primarily made up of $22.5 million of merger-related costs due to the Landmark, Triumph and Spirit acquisitions and $3.5 million from branch-right sizing costs.

Included in 2021 were $15.4 million of certain items, made up of $15.9 million of merger-related costs due to the Landmark and Triumph acquisitions and a $537,000 benefit from branch-right sizing costs.

Adjusting for these certain items, adjusted noninterest expense for the year ended December 31, 2022 increased $70.8 million, or 15.1%, from the prior year.

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

Salaries and employee benefits expense and occupancy expense increased by $40.6 million and $5.5 million, respectively, as compared to 2021, primarily due to impacts from the Landmark, Triumph and Spirit acquisitions.

In addition, we have added associates in our lending, wealth and mortgage programs, as well as in other key functions.

Deposit insurance increased by $4.6 million as compared to 2021 due to assessment rate increases from FDIC insurance and the Arkansas State Bank Department.

Other expense increased by $10.8 million as compared to 2021, primarily due to the impacts from the Landmark, Triumph and Spirit acquisitions, in addition to $1.2 million of accelerated amortization of certain tax credits, the offset of which is recorded in provision for income taxes.

Marketing expense increased by $6.6 million as compared to 2021 due 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.

Additionally, a nonrecurrent $1.6 million contribution was made during the year 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 electronic statements.

Amortization of intangibles recorded for the years ended December 31, 2022, and 2021 was $15.9 million and $13.5 million, respectively.

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

Table 6 below shows non-interest expense for the years ended December 31, 2021, 2020 and 2019, respectively, as well as changes in 2021 from 2020 and in 2020 from 2019.

Non-Interest Expense

Table 6 below shows noninterest expense for the years ended December 31, 2022, 2021 and 2020, respectively, as well as changes in 2022 from 2021 and in 2021 from 2020.

Noninterest Expense

Years Ended December 31, 2022

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Other expense 41,241 30,454 29,909 10,787 35.4 545 1.8

Total non-interest expense $ 483,589 $ 484,736 $ 453,960 $ (1,147) (0.2) % $ 30,776 6.8 %

Total noninterest expense $ 566,748 $ 483,589 $ 484,736 $ 83,159 17.2 % $ (1,147) (0.2) %

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The effective income tax rates for the years ended 2022, 2021 and 2020 were 16.4%, 18.4% and 20.3%, respectively.

The decrease in the provision for income taxes during 2022 was the result of benefits related to tax credits that were recorded during the fourth quarter.

Loan Portfolio

Our loan portfolio averaged $14.42 billion during 2022 and $11.81 billion during 2021.

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

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

As of December 31, 2022, total loans were $16.14 billion, compared to $12.01 billion on December 31, 2021, an increase of $4.13 billion, or 34.4%.

The increase in the overall loan balance during 2022 is primarily due to the acquisition of Spirit which provided $2.29 billion in total loans after purchase accounting discounts, coupled with widespread loan growth throughout our geographic markets during the year.

The increase in total loans more than offset declines in PPP loans, mortgage warehouse lending and planned declines in our energy portfolio.

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

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

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

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

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

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

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Consumer loans were $349.8 million at December 31, 2022, or 2.2% of total loans, compared to $355.4 million, or 3.0% of total loans at December 31, 2021.

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

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

The decrease in consumer loans was primarily due to loan payoffs and pay downs during the year.

The decline in the overall consumer loan balance was partially offset by the $9.9 million increase in our credit card portfolio at December 31, 2022 when compared to the same period in 2021.

Our credit card portfolio has remained a stable source of lending for several years.

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

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

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

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

Real estate loans were $12.58 billion at December 31, 2022, or 77.9% of total loans, compared to $9.17 billion, or 76.3% of total loans at December 31, 2021, an increase of $3.41 billion, or 37.2%.

Our C&D loans increased by $1.24 billion, or 93.5%, single family residential loans increased by $444.1 million, or 21.1%, and CRE loans increased by $1.73 billion, or 30.1%.

The increases were largely due to the Spirit acquisition noted above, coupled with strong organic loan growth, particularly in the latter half 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 $2.16 billion at December 31, 2021, or 18.0% of total loans, compared to $2.75 billion, or 21.3% of total loans at December 31, 2020, a decrease of $589.5 million, or 21.4%.

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

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

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

Loan demand appears to be returning to more normalized levels.

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

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

Total commercial loans were $2.84 billion at December 31, 2022, or 17.6% of total loans, compared to $2.16 billion, or 18.0% of total loans at December 31, 2021, an increase of $677.2 million, or 31.3%, which was primarily due to the combined acquired and organic loan growth.

The balance in our PPP loan portfolio was $8.9 million as of December 31, 2022, as compared to $116.7 million at December 31, 2021, with the decline due to the expected reimbursements from the SBA related to PPP loan forgiveness of both PPP Round 1 and Round 2 loans.

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

Mortgage volume experienced a market driven decline throughout 2022 when compared to 2021, but was more than offset by the Spirit acquisition combined with organic growth, leading to an increase of $44.0 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 $1.12 billion at December 31, 2022, compared to $2.31 billion at December 31, 2021.

The pipeline includes $270.5 million in loans approved and ready to close at the end of the year.

Other loans mainly consists of mortgage warehouse lending.

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

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

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Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower.

The subsidiary bank recognizes income principally on the accrual basis of accounting.

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.

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Nonaccrual loans decreased by $9.8 million during 2022, in addition to a decrease in foreclosed assets held for sale of $3.1 million.

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

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.23% at December 31, 2022 compared to 0.33% at December 31, 2021.

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

Nonaccrual loans decreased by $54.7 million during 2021, in addition to a decrease in foreclosed assets held for sale of $12.4 million.

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

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

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

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

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

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

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

Nonaccrual loans decreased by $13.3 million during 2018, primarily commercial loans.

Foreclosed assets held for sale decreased by $6.6 million.

During 2018, we sold approximately $32 million of substandard rated loans that consisted of both legacy and acquired loans.

The loans had adequate reserves, thus no provision expense was required.

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

From time to time, including in connection with the COVID-19 pandemic, certain borrowers are experiencing declines in income and cash flow.

As a result, these borrowers are seeking to reduce contractual cash outlays, the most prominent being debt payments.

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

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 collectibility of the debt.

When we restructure a loan to a borrower that is experiencing financial difficulty and grant a concession that we would not otherwise consider, a “troubled debt restructuring,” or “TDR,” results and the Company classifies the loan as a TDR.

The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

We grant 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 because of such credit problems, it continues to be considered a TDR until paid in full;

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

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

Our TDR balance decreased to $3.5 million at December 31, 2022 compared to $6.9 million at December 31, 2021, and compared to $7.5 million at December 31, 2020.

TDRs are individually evaluated for expected credit losses.

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We return TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration.

The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019.

The Company elected to adopt these provisions of the CARES Act and is following the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by regulatory agencies.

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

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

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

Strong asset quality remains a primary focus of our company.

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

The allowance for credit losses as a percent of total loans was 1.22% as of December 31, 2022.

Non-performing loans equaled 0.37% of total loans.

Non-performing assets were 0.31% of total assets, a 33 basis point increase from December 31, 2020.

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

The allowance for credit losses was 334% of non-performing loans.

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Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.07%.

Annualized net credit card charge-offs to total credit card loans were 1.40%, compared to 1.60% during 2020, and 27 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Annualized net credit card charge-offs to average total credit card loans were 1.49%, compared to 1.42% during 2021, and 45 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

We do not own any securities backed by subprime mortgage assets, and offer no mortgage loan products that target subprime borrowers.

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Allowance for Credit Losses Allocation

As of December 31, 2021, the allowance for credit losses reflected a decrease of approximately $32.7 million from December 31, 2020 while loans decreased $888.4 million over the same period.

As of December 31, 2022, the allowance for credit losses reflected a decrease of approximately $8.4 million from December 31, 2021, while loans increased $4.13 billion over the same period.

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

During the first quarter of 2020, we recorded an additional allowance for credit losses for loans of approximately $151.4 million due to the adoption of CECL.

The significant impact to the allowance for credit losses at the date of CECL’s adoption was driven by the substantial amount of loans acquired held by the Company.

We had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology.

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

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

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

Our allowance for credit losses at December 31, 2021 was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic recovery, the impact of new COVID-19 variants, future of government assistance related to COVID-19 recovery efforts and other related factors.

The decrease in the allowance for credit losses during 2022 was predominantly 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, which historically required higher allowance levels than most other categories of the loan portfolio.

Additionally, there was a reduction of pandemic-era qualitative factors that were established based on unidentifiable risks with borrowers in at-risk industries.

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 December 31, 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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Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

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

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

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

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

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

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

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

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

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

Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield

method over the estimated life of the security.

Prepayments are anticipated for mortgage-backed and SBA securities.

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

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

HTM and AFS investment securities were $3.76 billion and $3.85 billion, respectively, at December 31, 2022, compared to the HTM amount of $1.53 billion and AFS amount of $7.11 billion at December 31, 2021.

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

As of December 31, 2022, $634.5 million, or 8.3%, of our total portfolio was invested in obligations of U.S.

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

government agencies and U.S.

Treasury securities, 0.1% of which will mature in one year or less.

Our investment portfolio as of December 31, 2022 also included $2.73 billion, or 35.9%, of tax-exempt obligations of state and political subdivisions.

A portion of the state and political subdivision debt obligations are rated bonds, primarily issued in states in which we are located, and are evaluated on an ongoing basis.

During 2020 in an effort to balance our interest risk profile, we decided to increase our asset allocation in the tax-exempt securities portfolio due to the acceleration of pre-payment speeds for mortgage-backed securities.

In an effort to balance our interest risk profile, we have continued to increase our asset allocation in the tax-exempt securities portfolio due to the acceleration of pre-payment speeds for mortgage-backed securities.

We continue to invest in high credit tax-exempt securities with a weighted average rating of AA.

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

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

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

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

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

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

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

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

During the quarters ended June 30, 2022 and September 30, 2021, we transferred, at fair value, $1.99 billion and $500.8 million, respectively, of securities from the available-for-sale portfolio to the held-to-maturity portfolio.

As of December 31, 2022, the related remaining net unrealized losses of $147.0 million and net unrealized gains of $690,000, respectively, in accumulated other comprehensive income (loss) will be amortized over the remaining life of the securities.

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

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

Securities within these swap agreements have maturity dates varying between 2028 and 2029.

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

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

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

Our allowance for credit losses related to HTM

securities was $1.3 million at December 31, 2021.

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

Our allowance for credit losses related to HTM securities was $1.4 million and $1.3 million at December 31, 2022 and 2021, respectively.

An allowance for credit losses related to mortgage-backed securities and U.S.

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See Note 3, Investment Securities , in the accompanying Notes to Consolidated Financial Statements for additional information related to our allowance for credit losses on investment securities held.

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

We had $46,000 of gross realized gains and $324,000 of gross realized losses from the call of securities during the year ended December 31, 2022, compared to $15.9 million of gross realized gains and $422,000 of gross realized losses from the sale of securities during the year ended December 31, 2021.

No securities were sold during 2022, while we sold approximately $342.6 million of investment securities during 2021.

Securities sold during 2021 were part of a strategic plan to realize gains on securities with projected calls within the short-term period.

The decrease in net gains on the call of securities in 2022 as compared to 2021 reflects the rising interest rate environment experienced during the current year as compared to 2021.

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

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December 31, 2021

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

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

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December 31, 2021

Treasury $ 300 $ — $ — $ — $ 300

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

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

Because of our community banking philosophy, our executives in the local markets, with oversight by the Asset Liability Committee and the Bank’s Treasury Department, establish the interest rates offered on both core and non-core deposits.

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.

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

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

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

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

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

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

Our total deposits as of December 31, 2022, were $22.55 billion, an increase of $3.18 billion from December 31, 2021, primarily driven by the acquisition of Spirit, which contributed $2.72 billion, net of fair value adjustments, to this increase.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $17.78 billion at December 31, 2022, compared to $16.91 billion at December 31, 2021, an $865.4 million increase.

Total time deposits increased $2.32 billion to $4.77 billion at December 31, 2022, from $2.45 billion at December 31, 2021.

We had $2.75 billion and $466.0 million of brokered deposits at December 31, 2022, and December 31, 2021, respectively.

Our uninsured deposits as of December 31, 2022 and 2021 were $7.27 billion and $7.48 billion, respectively.

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

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

We made the strategic decision during the fourth quarter 2022 to extend the duration of select wholesale deposits to complement our core deposit base and, due to advantageous rates, added brokered certificates of deposit with maturities of 6-12 months.

Additionally, we are continuing to hone our product offerings to give customers flexibility of choice while maintaining the ability to adjust interest rates timely in the current rate environment.

Table 14 reflects the classification of the average deposits and the average rate paid on each deposit category which is in excess of 10 percent of average total deposits for the three years ended December 31, 2022.

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(In thousands) Average Amount Average Rate Paid Average Amount Average Rate Paid Average Amount Average Rate Paid

Non-interest bearing transaction accounts $ 4,836,839 — % $ 4,225,618 — % $ 3,021,917 — %

Noninterest bearing transaction accounts $ 5,827,160 — % $ 4,836,839 — % $ 4,225,618 — %

Interest bearing transaction and savings deposits

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Total $ 21,175,071 0.47 % $ 18,280,355 0.23 % $ 16,361,322 0.49 %

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

Our maturities of time deposits not covered by deposit insurance at December 31, 2022 are presented in Table 15.

Maturities of Time Deposits Not Covered by Deposit Insurance

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Other Borrowings and Subordinated Debentures

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

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

$330.0 million in subordinated notes;

$54.1 million of trust preferred securities and unamortized debt issuance costs;

Our total debt was $1.23 billion and $1.72 billion at December 31, 2022 and 2021, respectively.

The outstanding balance for December 31, 2022 includes $835.0 million in FHLB short-term advances;

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

and $20.8 million of other long-term debt.

The FHLB long-term advances outstanding at the end of 2021 included $1.30 billion of FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date.

Our FOTO advances outstanding at the end of the year had original maturity dates of 10 years to 15 years with lockout periods that have expired.

During the fourth quarter of 2020, we reclassified the FOTO advances as long-term advances due to the current low interest rate environment and the expectation that FHLB will not exercise the option to terminate the FOTO advances prior to its stated maturity date.

All of the FHLB short-term advances outstanding at December 31, 2022 are FHLB Owns the Option (“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.

During the fourth quarter of 2020, we reclassified the FOTO advances as long-term advances due to the low interest rate environment and the expectation that FHLB will not exercise the option to terminate the FOTO advances prior to the stated maturity date.

We classified the FOTO advances as long-term throughout 2021, during the continued low interest rate environment.

As interest rates increased during 2022, we began classifying the outstanding FOTO advances as short-term with the expectation that the FHLB could terminate the FOTO advances prior to maturity, as current market rates exceeded the outstanding FOTO advance rates.

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

We also held typical FHLB short-term advances, with original maturities of less than one year, at various times during 2022, as well as in previous years.

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

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

At December 31, 2022, we had $785.0 million of FHLB advances outstanding with original or expected maturities of one year or less.

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

Short-Term Borrowings

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Weighted-average interest rate for the year 2.08 % — % 1.69 %

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

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

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

We 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.

In March 2018, we issued $330.0 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes.

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

We 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”).

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.

Aggregate annual maturities of debt at December 31, 2022 are presented in Table 17.

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

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

On April 27, 2022, our shareholders approved an amendment to our Articles of Incorporation to remove an $80.0 million cap on the aggregate liquidation preference associated with the preferred stock.

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

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Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that we are required to file with the SEC at the time of the specific offering.

On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares of Common Stock from 120,000,000 to 175,000,000.

Stock Repurchase

On April 27, 2022, our shareholders approved an increase in the number of authorized shares of our Class A common stock from 175,000,000 to 350,000,000.

Stock Repurchase Program

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

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

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

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

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

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

Effective July 23, 2021, the Company’s Board of Directors approved another amendment to the 2019 Program that increased the amount of the Company’s Class A common stock that may be repurchased from a maximum of $180.0 million to a maximum of $276.5 million and extended the term of the 2019 Program from October 31, 2021, to October 31, 2022.

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

The 2022 Program replaced the 2019 Program.

The 2022 Program will terminate on January 31, 2024 (unless terminated sooner).

During 2022, we 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.

We repurchased 4,562,469 shares at an average price of $29.03 per share under the 2019 Program during 2021.

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

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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 liquidity needs of Simmons First National Corporation (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.

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

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.

Risk-Based Capital

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Tier 1 leverage ratio 9.34 % 9.08 %

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

9.15 % 9.50 %

Tier 1 risk-based capital ratio 11.90 % 13.82 %

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Total risk-based capital ratio 8.00 % 8.00 %

_________________________

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

Tier 1 leverage ratio, excluding average PPP loans is a non-GAAP measurement.

Regulatory Capital Changes

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

The Basel III Capital Rules established risk-weighting

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

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

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.

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

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

All of the Company’s trust preferred securities were redeemed during the third quarter of 2022.

Qualifying subordinated debt of $366.0 million is included as Tier 2 and total capital as of December 31, 2022.

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

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GAAP Reconciliation of Non-GAAP Financial Measures

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

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

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

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

We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance.

These non-GAAP financial measures are also used by management to assess the performance of the Company’s business because management does not consider these non-core items to be relevant to ongoing financial performance.

Management and the Board of Directors utilize “core earnings” (non-GAAP) for the following purposes:

The tables below present computations of adjusted earnings (net income excluding certain items {gain on sale of branches, early retirement program costs, loss from early retirement of TruPS, gain on sale of intellectual property, gain on insurance settlement, donation to Simmons First Foundation, 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 common share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest 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).

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

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• Investor presentations of Company performance

We believe the presentation of “core earnings” on a diluted per share basis, “core diluted earnings per share” (non-GAAP) and core net interest margin (non-GAAP), provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance.

These non-GAAP financial measures are also used by management to assess the performance of the Company’s business, because management does not consider these non-core items to be relevant to ongoing financial performance on a per share basis.

Management and the Board of Directors utilize “core diluted earnings per share” (non-GAAP) for the following purposes:

We believe the presentation of “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

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We have $1.45 billion and $1.25 billion total goodwill and other intangible assets for the periods ended December 31, 2022 and 2021, respectively.

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

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

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

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

Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, including the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance.

Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance.

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

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

To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as 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 non-core items does not represent the amount that effectively accrues directly to stockholders (i.e., non-core items are included in earnings and stockholders’ equity).

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.

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

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

During 2022, adjusted items primarily consisted of $33.8 million of Day 2 provision expense required for loans and unfunded commitments related to the Spirit acquisition, merger-related costs of $22.5 million, primarily related to the Spirit acquisitions, and net branch right sizing costs of $3.6 million, mainly due to branch closures across our footprint during the year.

Additionally, we had a gain on insurance settlement of $4.1 million related to a weather event that caused severe damage to one of our branch locations.

The net after-tax impact of all adjusted items was $42.2 million, or $0.34 per diluted earnings per share.

During 2021, adjusted items consisted of $22.7 million of Day 2 provision expense required for loans related to the Landmark and Triumph acquisitions, $15.9 million of merger-related costs, related to the Landmark and Triumph acquisitions and net branch right sizing gains of $0.9 million, primarily due to branch closures across our footprint during the year.

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

The net after-tax impact of these items was $23.9 million, or $0.22 per diluted earnings per share.

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

We also had non-core net branch right sizing costs of $13.7 million, primarily due to branch closures across our footprint during the year.

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

We also had adjusted net branch right sizing costs of $13.7 million, primarily due to branch closures across our footprint during the year.

Additionally, we had total gains on sale of branches of $8.4 million mostly due to the gains on sale from the Texas Branch Sale and Colorado Branch Sale.

The net after-tax impact of these items was $9.4 million, or $0.09 per diluted earnings per share.

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

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

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

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

Reconciliation of Core Earnings (non-GAAP)

See Table 19 below for the reconciliation of adjusted earnings, which exclude certain items for the periods presented.

Reconciliation of Adjusted Earnings (non-GAAP)

(In thousands, except per share data) 2022 2021 2020

Twelve months ended

Net income available to common stockholders $ 256,412 $ 271,109 $ 254,852

Non-core items:

Certain items:

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

Loss from early retirement of TruPS 365 — —

Gain on sale of intellectual property (750) — —

Gain on insurance settlement (4,074) — —

Donation to Simmons First Foundation 1,738 — —

Merger related costs 22,476 15,911 4,531

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Branch right sizing, net 3,628 (906) 13,727

Day 2 CECL Provision 33,779 22,688 —

Tax effect (1)

(14,939) (8,462) (3,343)

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

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

Certain items, net of tax 42,223 23,915 9,448

Adjusted earnings (non-GAAP) $ 298,635 $ 295,024 $ 264,300

Diluted earnings per share $ 2.06 $ 2.46 $ 2.31

Non-core items:

Certain items:

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

Loss from early retirement of TruPS — — —

Gain on sale of intellectual property (0.01) — —

Gain on insurance settlement (0.03) — —

Donation to Simmons First Foundation 0.01 — —

Merger related costs 0.18 0.15 0.04

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Branch right sizing, net 0.03 (0.01) 0.12

Day 2 CECL Provision 0.28 0.21 —

Tax effect (1)

(0.12) (0.08) (0.03)

Net non-core items 0.07 0.09 0.32

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

Certain items, net of tax 0.34 0.22 0.09

Adjusted diluted earnings per share (non-GAAP) $ 2.40 $ 2.68 $ 2.40

_________________________

(1) Effective tax rate of 26.135%.

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

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

See Table 20 below for the reconciliation of adjusted noninterest income and adjusted noninterest expense for the periods presented.

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

(In thousands) 2022 2021 2020

Other income $ 35,273 $ 39,876 $ 64,684

Noninterest income $ 170,066 $ 191,815 $ 239,769

Certain items:

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

Gain on insurance settlement (4,074) — —

Loss from early retirement of TruPS 365 — —

Gain on sale of intellectual property (750) — —

Branch right sizing 153 (369) (370)

Core other income (non-GAAP) $ 29,588 $ 31,138 $ 64,684

Non-interest expense $ 483,589 $ 484,736 $ 453,960

Non-core items:

Total certain items (4,306) (5,685) (8,738)

Adjusted noninterest income (non-GAAP) $ 165,760 $ 186,130 $ 231,031

Noninterest expense $ 566,748 $ 483,589 $ 484,736

Certain items:

Merger related costs (22,476) (15,911) (4,531)

Donation to Simmons First Foundation (1,738) — —

Early retirement program — — (2,901)

Branch right sizing (3,475) 537 (14,097)

Total non-core items (15,374) (21,529) (42,972)

Core non-interest expense (non-GAAP) $ 468,215 $ 463,207 $ 410,988

Total certain items (27,689) (15,374) (21,529)

Adjusted noninterest expense (non-GAAP) $ 539,059 $ 468,215 $ 463,207

See Table 21 below for the reconciliation of tangible book value per common share.

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(In thousands, except per share data) 2022 2021 2020

Total stockholders’ equity $ 3,248,841 $ 2,976,656 $ 2,988,924

Total equity $ 3,269,362 $ 3,248,841 $ 2,976,656

Preferred stock — — (767)

Total common stockholders’ equity 3,248,841 2,975,889 2,988,157

Total common equity 3,269,362 3,248,841 2,975,889

Intangible assets:

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Total intangibles (1,448,549) (1,252,242) (1,186,415)

Tangible common stockholders’ equity $ 1,996,599 $ 1,789,474 $ 1,805,297

Tangible common equity $ 1,820,813 $ 1,996,599 $ 1,789,474

Shares of common stock outstanding 127,046,654 112,715,444 108,077,662

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(Dollars in thousands) 2022 2021 2020

Total common stockholders’ equity $ 3,248,841 $ 2,975,889 $ 2,988,157

Total common equity $ 3,269,362 $ 3,248,841 $ 2,975,889

Intangible assets:

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Total intangibles (1,448,549) (1,252,242) (1,186,415)

Tangible common stockholders’ equity $ 1,996,599 $ 1,789,474 $ 1,805,297

Tangible common equity $ 1,820,813 $ 1,996,599 $ 1,789,474

Total assets $ 27,461,061 $ 24,724,759 $ 22,359,752

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Tangible assets $ 26,012,512 $ 23,472,517 $ 21,173,337

PPP loans (116,659) (904,673)

Total assets excluding PPP loans $ 24,608,100 $ 21,455,079

Tangible assets excluding PPP loans $ 23,355,858 $ 20,268,664

Ratio of common equity to assets 11.91 % 13.14 % 13.31 %

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7.00 % 8.51 % 8.45 %

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

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

(Dollars in thousands) 2021 2020

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

Adjusted average assets for leverage ratio $ 23,647,901 $ 20,765,127

Average PPP loans (172,130) (937,544)

Adjusted average assets excluding average PPP loans $ 23,475,771 $ 19,827,583

Tier 1 leverage ratio 9.08 % 9.08 %

Tier 1 leverage ratio excluding average PPP loans (non-GAAP) 9.15 % 9.50 %

See Table 24 below for the calculation of core return on average assets.

Calculation of Core Return on Average Assets (non-GAAP)

(Dollars in thousands) 2021 2020 2019

Twelve months ended

Net income available to common stockholders $ 271,109 $ 254,852 $ 237,828

Net non-core items, net of taxes, adjustment 7,157 9,448 31,738

Core earnings $ 278,266 $ 264,300 $ 269,566

Average total assets $ 23,492,308 $ 21,590,745 $ 17,871,748

Return on average assets 1.15 % 1.18 % 1.33 %

Core return on average assets (non-GAAP) 1.18 % 1.22 % 1.51 %

See Table 25 below for the calculation of return on tangible common equity.

Calculation of Core Return on Tangible Common Equity (non-GAAP)

(Dollars in thousands) 2021 2020 2019

Twelve months ended

Net income available to common stockholders

$ 271,109 $ 254,852 $ 237,828

Amortization of intangibles, net of taxes 9,967 9,968 8,720

Total income available to common stockholders

$ 281,076 $ 264,820 $ 246,548

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

Core earnings 278,266 264,300 269,566

Amortization of intangibles, net of taxes 9,967 9,968 8,720

Total core income available to common stockholders

$ 288,233 $ 274,268 $ 278,286

Average common stockholders’ equity $ 3,071,313 $ 2,921,039 $ 2,396,024

Average intangible assets:

Goodwill (1,090,967) (1,065,190) (921,635)

Other intangible assets (105,820) (118,812) (104,000)

Total average intangibles (1,196,787) (1,184,002) (1,025,635)

Average tangible common stockholders’ equity

$ 1,874,526 $ 1,737,037 $ 1,370,389

Return on average common equity 8.83 % 8.72 % 9.93 %

Return on average tangible common equity (non-GAAP)

14.99 % 15.25 % 17.99 %

Core return on average common equity (non-GAAP)

9.06 % 9.05 % 11.25 %

Core return on average tangible common equity (non-GAAP) 15.38 % 15.79 % 20.31 %

See Table 26 below for the calculation of core net interest margin for the periods presented.

Reconciliation of Core Net Interest Margin (non-GAAP)

(Dollars in thousands) 2021 2020 2019

Twelve months ended

Net interest income $ 591,532 $ 639,734 $ 601,753

FTE adjustment 19,231 11,001 7,322

Fully tax equivalent net interest income 610,763 650,735 609,075

Total accretable yield (22,129) (41,507) (41,244)

Core net interest income $ 588,634 $ 609,228 $ 567,831

PPP loan and additional liquidity interest income (36,011) (18,539)

Net interest income adjusted for PPP loans and additional liquidity $ 574,752 $ 632,196

Average earning assets $ 21,097,786 $ 19,272,886 $ 15,824,571

Average PPP loan balance and additional liquidity (595,222) (1,854,016)

Average earnings assets adjusted for PPP loans and additional liquidity $ 20,502,564 $ 17,418,870

Net interest margin 2.89 % 3.38 % 3.85 %

Core net interest margin (non-GAAP) 2.79 % 3.16 % 3.59 %

Net interest margin adjusted for PPP loans and additional liquidity (non-GAAP) 2.80 % 3.63 %

See Table 27 below for the calculation of the efficiency ratio for the periods presented.

Calculation of Efficiency Ratio (non-GAAP)

(Dollars in thousands) 2021 2020 2019

Twelve months ended

Non-interest expense $ 483,589 $ 484,736 $ 453,960

Non-core non-interest expense adjustment (15,374) (21,529) (42,972)

Other real estate and foreclosure expense adjustment

(2,121) (1,706) (3,282)

Amortization of intangibles adjustment (13,494) (13,495) (11,805)

Efficiency ratio numerator $ 452,600 $ 448,006 $ 395,901

Net-interest income $ 591,532 $ 639,734 $ 601,753

Non-interest income 191,815 239,769 197,879

Non-core non-interest income adjustment (5,685) (8,738) —

Fully tax-equivalent adjustment 19,231 11,001 7,322

Gain on sale of securities (15,498) (54,806) (13,314)

Efficiency ratio denominator $ 781,395 $ 826,960 $ 793,640

Efficiency ratio (non-GAAP) 57.92 % 54.18 % 49.88 %

See Table 28 below for the calculation of loan yield excluding PPP loans for the period presented.

Reconciliation of Loan Yield Excluding PPP Loans (non-GAAP)

(Dollars in thousands) 2021 2020

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

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

Loan interest income excluding PPP loans $ 519,738 $ 672,739

Average loan balance $ 11,810,480 $ 14,260,689

Average PPP loan balance (595,222) (637,006)

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

Loan yield - FTE 4.71 % 4.83 %

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis