SIMMONS FIRST NATIONAL CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2022 and 2021 and results of operations for each of the years then ended. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on February 25, 2022 (the “ 2021 Form 10-K ”) for a discussion and analysis of the more significant factors that affected periods prior to 2021, which are incorporated herein by reference. Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with our financial statements, notes thereto and other financial information appearing elsewhere in this report, as well as the cautionary note regarding forward-looking statements and the risks discussed in Item 1A of Part I of this Form 10-K. Critical Accounting Estimates Overview The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the determination of the adequacy of the allowance for credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes. Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected credit losses and risks inherent in the loan portfolio. Our allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with Accounting Standard Codification (“ASC”) Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. For further information see the section Allowance for Credit Losses below. Our evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. The actual amounts of credit losses realized in the near term could differ from the amounts estimated in arriving at the allowance for credit losses reported in the financial statements. On January 1, 2020, the Company adopted the new Current Expected Credit Losses, or “CECL”, methodology. See Note 20, New Accounting Standards, in the accompanying Notes to Consolidated Financial Statements for additional information. Prior to the adoption of the CECL methodology in 2020, the allowance for credit losses was calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for credit losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that affected specific loans and categories of loans. We established general allocations for each major loan category. This category also included allocations to loans which were collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. General reserves were established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances were accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeded the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. 34 Acquisition Accounting, Loans We account for our acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are purchased credit deteriorated (“PCD”) loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. We then record the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other , as amended by ASU 2011-08 – T esting Goodwill for Impairment and ASU 2017-04 - Intangibles – Goodwill and Other . ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur. Our assessment depends on several assumptions which are dependent on market and economic conditions. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses. Stock-Based Compensation Plans We have adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding of restricted stock, restricted stock units or performance stock units granted to directors, officers and other key employees. In accordance with ASC Topic 718, Compensation – Stock Compensation , the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Employee Benefit Plans, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report. Income Taxes We are subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities. 35 2022 Overview 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 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. 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 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. 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. 36 In our discussion and analysis of our financial condition and results of operation in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP. We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. See the GAAP Reconciliation of Non-GAAP Measures section below for additional discussion and reconciliations of non-GAAP measures. Simmons First National Corporation is an Arkansas-based financial holding company that, as of December 31, 2022, has approximately $27.5 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Net Interest Income Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of noninterest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135%. The FRB sets various benchmark interest rates which influence the general market rates of interest, including the deposit and loan rates offered by financial institutions. Between December 2015 and December 2018, the FRB had been gradually raising benchmark interest rates. The FRB target for the federal funds rate, which is the cost to banks of immediately available overnight funds, increased 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% - 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. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, also increased from 3.25% to 5.50% during the years 2015 through 2018. The prime interest rate remained flat until it began to decrease in July 2019 and was eventually reduced to 4.75% in October 2019. Similarly to the reduction in the federal funds rate, the prime rate was cut to 3.25% in mid-March of 2020 in response to the COVID-19 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. In the last several years, on average, approximately 42% of our loan portfolio and approximately 80% of our time deposits have repriced in one year or less. 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, 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. 37 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 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. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate may increase or decrease based on payment histories and loss expectations of the loans. The resulting adjustment to interest income is spread on a level-yield basis over the remaining expected lives of the loans. For the years ended December 31, 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 $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. 38 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. Table 1: Analysis of Net Interest Margin (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, (In thousands) 2022 2021 2020 Interest income $ 861,735 $ 671,061 $ 759,718 FTE adjustment 24,671 19,231 11,001 Interest income - FTE 886,406 690,292 770,719 Interest expense 144,419 79,529 119,984 Net interest income - FTE $ 741,987 $ 610,763 $ 650,735 Yield on earning assets - FTE 3.79 % 3.27 % 4.00 % Cost of interest bearing liabilities 0.84 % 0.52 % 0.84 % Net interest spread - FTE 2.95 % 2.75 % 3.16 % Net interest margin - FTE 3.17 % 2.89 % 3.38 % Table 2: Changes in Fully Taxable Equivalent Net Interest Margin (In thousands) 2022 vs. 2021 2021 vs. 2020 Increase (decrease) due to change in earning assets $ 147,423 $ (40,169) 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 (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) Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for each of the years in the three-year period ended December 31, 2022. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans. 39 Table 3: Average Balance Sheets and Net Interest Income Analysis (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, 2022 2021 2020 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 793,836 $ 5,500 0.69 $ 2,376,421 $ 2,795 0.12 $ 1,970,852 $ 4,383 0.22 Investment securities - taxable 5,462,427 94,437 1.73 4,512,564 58,976 1.31 1,813,640 35,039 1.93 Investment securities - non-taxable 2,703,662 86,596 3.20 2,343,117 71,207 3.04 1,113,851 39,666 3.56 Mortgage loans held for sale 16,609 720 4.33 55,204 1,565 2.83 113,854 3,031 2.66 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 23,404,619 886,406 3.79 21,097,786 690,292 3.27 19,272,886 770,719 4.00 Non-earning assets 3,014,219 2,394,522 2,317,859 Total assets $ 26,418,838 $ 23,492,308 $ 21,590,745 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 12,253,164 $ 63,033 0.51 $ 10,638,665 $ 19,568 0.18 $ 9,128,936 $ 38,462 0.42 Time deposits 3,094,747 36,016 1.16 2,804,851 21,604 0.77 3,006,768 41,398 1.38 Total interest bearing deposits 15,347,911 99,049 0.65 13,443,516 41,172 0.31 12,135,704 79,860 0.66 Federal funds purchased and securities sold under agreements to repurchase 200,744 941 0.47 247,448 579 0.23 362,629 1,715 0.47 Other borrowings 1,155,310 24,934 2.16 1,340,185 19,495 1.45 1,353,738 19,652 1.45 Subordinated debt and debentures 394,870 19,495 4.94 383,182 18,283 4.77 385,294 18,757 4.87 Total interest bearing liabilities 17,098,835 144,419 0.84 15,414,331 79,529 0.52 14,237,365 119,984 0.84 Noninterest bearing liabilities: Noninterest bearing deposits 5,827,160 4,836,839 4,225,618 Other liabilities 233,179 169,140 205,956 Total liabilities 23,159,174 20,420,310 18,668,939 Stockholders’ equity 3,259,664 3,071,998 2,921,806 Total liabilities and stockholders’ equity $ 26,418,838 $ 23,492,308 $ 21,590,745 Net interest spread 2.95 2.75 3.16 Net interest margin $ 741,987 3.17 $ 610,763 2.89 $ 650,735 3.38 40 Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the years 2022 versus 2021 and 2021 versus 2020. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume. Table 4: Volume/Rate Analysis Years Ended December 31, 2022 vs. 2021 2021 vs. 2020 Yield/ Yield/ (In thousands, on a fully taxable equivalent basis) Volume Rate Total Volume Rate Total Increase (decrease) in: Interest income: Interest bearing balances due from banks and federal funds sold $ (2,952) $ 5,657 $ 2,705 $ 773 $ (2,361) $ (1,588) Investment securities - taxable 13,996 21,465 35,461 38,285 (14,348) 23,937 Investment securities - non-taxable 11,395 3,994 15,389 38,110 (6,569) 31,541 Mortgage loans held for sale (1,424) 579 (845) (1,651) 185 (1,466) 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) Interest expense: Interest bearing transaction and savings accounts 3,386 40,079 43,465 5,548 (24,442) (18,894) Time deposits 2,425 11,987 14,412 (2,618) (17,176) (19,794) Federal funds purchased and securities sold under agreements to repurchase (126) 488 362 (439) (697) (1,136) Other borrowings (2,978) 8,417 5,439 (197) 40 (157) Subordinated notes and debentures 567 645 1,212 (103) (371) (474) Total 3,274 61,616 64,890 2,191 (42,646) (40,455) Increase (decrease) in net interest income $ 144,149 $ (12,925) $ 131,224 $ (42,360) $ 2,388 $ (39,972) Provision for Credit Losses The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for credit losses at a level considered appropriate in relation to the estimated lifetime risk inherent in the loan portfolio. The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, assessment of current economic conditions, reasonable and supportable forecasts, past due and non-performing loans and historical net credit loss experience. It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance. Management updates credit loss forecasts using multiple Moody’s economic scenarios, the most recent of which were published in December 2022. The baseline economic forecast was weighted 62%, while the downside scenario of S-2 was weighted 30% and the upside scenario of S-1 was weighted 8%. The weighting of the forecasts is characterized by, among others, continual increase of CRE prices, increasing market rates, and declining national unemployment rates. The baseline economic forecast as of December 2021 was weighted 65%, while the downside scenario of S-2 was weighted 17% and the upside scenario of S-1 was weighted 18%. The weightings reflect management’s sentiment around the published forecasted scenarios by Moody’s at that specific time. 41 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. 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. Also, 2020 included an additional provision related to problem energy credits, ultimately charged-off during the second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing. The remainder of the increase was related to the economic impact of the COVID-19 pandemic that is incorporated in our allowance for credit losses. 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. 42 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. Table 5: Noninterest Income Years Ended December 31, 2022 Change from 2021 Change from (Dollars in thousands) 2022 2021 2020 2021 2020 Service charges on deposit accounts $ 46,527 $ 43,231 $ 43,082 $ 3,296 7.6 % $ 149 0.4 % 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 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 noninterest income $ 170,066 $ 191,815 $ 239,769 $ (21,749) (11.3) % $ (47,954) (20.0) % _________________________ *Not meaningful 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. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements. 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. 43 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 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. Table 6: Noninterest Expense Years Ended December 31, 2022 Change from 2021 Change from (Dollars in thousands) 2022 2021 2020 2021 2020 Salaries and employee benefits $ 286,982 $ 246,335 $ 239,573 $ 40,647 16.5 % $ 6,762 2.8 % Early retirement program — — 2,901 — — (2,901) (100.0) Occupancy expense, net 44,321 38,797 37,556 5,524 14.2 1,241 3.3 Furniture and equipment expense 20,665 19,890 24,038 775 3.9 (4,148) (17.3) Other real estate and foreclosure expense 1,003 2,121 1,752 (1,118) (52.7) 369 21.1 Deposit insurance 11,608 6,973 9,184 4,635 66.5 (2,211) (24.1) Merger related costs 22,476 15,911 4,531 6,565 41.3 11,380 251.2 Other operating expenses: Professional services 19,138 18,921 18,688 217 1.2 233 1.3 Postage 8,955 8,276 7,538 679 8.2 738 9.8 Telephone 6,394 6,234 8,833 160 2.6 (2,599) (29.4) Credit card expenses 12,243 11,112 10,199 1,131 10.2 913 9.0 Marketing 28,870 22,234 19,396 6,636 29.9 2,838 14.6 Software and technology 40,906 40,608 39,724 298 0.7 884 2.2 Operating supplies 2,556 2,766 3,322 (210) (7.6) (556) (16.7) Amortization of intangibles 15,915 13,494 13,495 2,421 17.9 (1) — Branch right sizing expense 3,475 (537) 14,097 4,012 * (14,634) (103.8) Other expense 41,241 30,454 29,909 10,787 35.4 545 1.8 Total noninterest expense $ 566,748 $ 483,589 $ 484,736 $ 83,159 17.2 % $ (1,147) (0.2) % _________________________ *Not meaningful Income Taxes The provision for income taxes for 2022 was $50.1 million, compared to $61.3 million in 2021 and $64.9 million in 2020. 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. 44 Loan Portfolio Our loan portfolio averaged $14.42 billion during 2022 and $11.81 billion during 2021. 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). We seek to manage our credit risk by diversifying our loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an appropriate allowance for credit losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose, industry and geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for credit losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits. Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $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 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 $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 $2.84 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. 45 The balances of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan. Table 7: Loan Portfolio Years Ended December 31, (In thousands) 2022 2021 2020 2019 2018 Consumer: Credit cards $ 196,928 $ 187,052 $ 188,845 $ 204,802 $ 204,173 Other consumer 152,882 168,318 202,379 249,694 215,763 Total consumer 349,810 355,370 391,224 454,496 419,936 Real Estate: Construction and development 2,566,649 1,326,371 1,596,255 2,236,861 1,736,817 Single family residential 2,546,115 2,101,975 1,880,673 2,442,064 1,994,716 Other commercial 7,468,498 5,738,904 5,746,863 6,205,599 5,073,994 Total real estate 12,581,262 9,167,250 9,223,791 10,884,524 8,805,527 Commercial: Commercial 2,632,290 1,992,043 2,574,386 2,495,516 2,192,497 Agricultural 205,623 168,717 175,905 315,454 166,225 Total commercial 2,837,913 2,160,760 2,750,291 2,810,970 2,358,722 Other 373,139 329,123 535,591 275,714 139,081 Total loans before allowance for credit losses $ 16,142,124 $ 12,012,503 $ 12,900,897 $ 14,425,704 $ 11,723,266 Table 8 reflects the remaining maturities and interest rate sensitivity of loans at December 31, 2022. Table 8: Maturity and Interest Rate Sensitivity of Loans 1 year Over 1 year through Over 5 years through Over (In thousands) or less 5 years 15 years 15 years Total Consumer $ 192,356 $ 156,660 $ 151 $ 643 $ 349,810 Real estate 3,537,918 7,429,863 1,549,870 63,611 12,581,262 Commercial 1,594,462 1,197,448 27,678 18,325 2,837,913 Other 131,990 105,167 115,110 20,872 373,139 Total $ 5,456,726 $ 8,889,138 $ 1,692,809 $ 103,451 $ 16,142,124 Predetermined rate Consumer $ 98,033 $ 43,026 $ 46 $ 467 $ 141,572 Real estate 1,663,605 4,856,742 903,434 41,569 7,465,350 Commercial 622,572 729,417 21,275 18,317 1,391,581 Other 36,381 103,107 112,544 20,492 272,524 Total $ 2,420,591 $ 5,732,292 $ 1,037,299 $ 80,845 $ 9,271,027 Floating rate Consumer $ 94,323 $ 113,634 $ 105 $ 176 $ 208,238 Real estate 1,874,313 2,573,121 646,436 22,042 5,115,912 Commercial 971,890 468,031 6,403 8 1,446,332 Other 95,609 2,060 2,566 380 100,615 Total $ 3,036,135 $ 3,156,846 $ 655,510 $ 22,606 $ 6,871,097 46 Asset Quality Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. Simmons Bank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectibility of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses. When credit card loans reach 90 days past due and there are attachable assets, the accounts are considered for litigation. Credit card loans are generally charged off when payment of interest or principal exceeds 150 days past due. The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible. Total non-performing assets decreased $13.8 million from December 31, 2021 to December 31, 2022. 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. Total non-performing assets increased by $28.6 million from December 31, 2019 to December 31, 2020. Nonaccrual loans increased by $29.5 million during 2020, partially offset by a decrease in foreclosed assets held for sale of $728,000. The increase in nonaccrual loans during 2020 is primarily related to one energy loan totaling $22.0 million which moved to nonaccrual during the fourth quarter of 2020. The remaining increase was related to various other CRE loans and commercial loan relationships. Total non-performing assets increased by $33.1 million from December 31, 2018 to December 31, 2019. Nonaccrual loans increased by $37.5 million during 2019, primarily commercial loans, partially offset by a decrease in foreclosed assets held for sale 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 we classify the loan as a TDR. 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 $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. We assess the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determine if a specific allowance for credit losses is needed. 47 We return TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months. We continue to maintain good asset quality, compared to the industry, and strong asset quality remains a primary focus of our 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 0.23% of total assets, an 8 basis point decrease from December 31, 2021. The allowance for credit losses was 334% of non-performing loans. Our annualized net charge-offs to total loans for 2022 was 0.09%. 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 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. Table 9 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for sale. Table 9: Non-performing Assets Years Ended December 31, (Dollars in thousands) 2022 2021 2020 2019 2018 Nonaccrual loans (1) $ 58,434 $ 68,204 $ 122,879 $ 93,330 $ 55,841 Loans past due 90 days or more (principal or interest payments) 507 349 578 856 226 Total non-performing loans 58,941 68,553 123,457 94,186 56,067 Other non-performing assets: Foreclosed assets held for sale and other real estate owned 2,887 6,032 18,393 19,121 25,565 Other non-performing assets 644 1,667 2,016 1,964 553 Total other non-performing assets 3,531 7,699 20,409 21,085 26,118 Total non-performing assets $ 62,472 $ 76,252 $ 143,866 $ 115,271 $ 82,185 Performing TDRs $1,849 $4,289 $3,138 $5,887 $7,436 Allowance for credit losses to non-performing loans 334 % 300 % 193 % 72 % 101 % Non-performing loans to total loans 0.37 % 0.57 % 0.96 % 0.65 % 0.48 % Non-performing assets (including performing TDRs) to total assets 0.23 % 0.33 % 0.66 % 0.57 % 0.54 % Non-performing assets to total assets 0.23 % 0.31 % 0.64 % 0.54 % 0.50 % _________________________ (1) Includes nonaccrual TDRs of approximately $1.6 million, $2.7 million, $4.4 million, $1.6 million and $6.3 million at December 31, 2022, 2021, 2020, 2019 and 2018, respectively. There was no interest income on nonaccrual loans recorded for the years ended December 31, 2022, 2021 and 2020. Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical correlation with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. 48 We also include qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor. • Changes in the nature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors. • Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics. • Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management. • Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors. • Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors. • Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within our reasonable and supportable forecast. • Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or that are classified as a TDR. The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows. Additional information related to net charge-offs is shown in Table 10. Table 10: Ratio of Net Charge-offs to Average Loans (Dollars in thousands) Net Charge-offs Average Loans Ratio of Net Charge-offs to Average Loans 2022 Credit cards $ (2,838) $ 190,119 (1.49) % Other consumer (679) 177,420 (0.38) % Real estate 2,794 11,157,499 0.03 % Commercial (11,897) 2,557,060 (0.47) % Other — 337,665 — % Total $ (12,620) $ 14,419,763 (0.09) % 2021 Credit cards $ (2,577) $ 180,975 (1.42) % Other consumer (649) 181,573 (0.36) % Real estate (5,781) 8,678,137 (0.07) % Commercial (5,953) 2,363,701 (0.25) % Other — 406,094 — % Total $ (14,960) $ 11,810,480 (0.13) % 49 Allowance for Credit Losses Allocation 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. 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. The table also reflects the percentage of loans in each category to the total loan portfolio for each of the periods indicated. The allowance for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories. Table 11: Allocation of Allowance for Credit Losses December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Credit cards $ 5,140 1.2% $ 3,987 1.6% $ 7,472 1.4% $ 4,051 1.4% $ 3,923 1.7% Other consumer 2,187 0.9% 2,676 1.4% 4,100 1.6% 1,998 1.7% 2,380 1.9% Real estate 150,795 78.0% 179,270 76.3% 182,868 71.5% 39,161 75.5% 29,838 75.1% Commercial 34,406 17.6% 17,458 18.0% 42,093 21.3% 22,863 19.5% 20,514 20.1% Other 4,427 2.3% 1,941 2.7% 1,517 4.2% 171 1.9% 39 1.2% Total $ 196,955 100.0% $ 205,332 100.0% $ 238,050 100.0% $ 68,244 100.0% $ 56,694 100.0% Allowance for credit losses to period-end loans 1.22 % 1.71 % 1.85 % 0.47 % 0.48 % _________________________ (1) Percentage of loans in each category to total loans. Investments and Securities Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either held-to-maturity (“HTM”) 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. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. AFS securities, which include any security for which 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 50 method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized mortgage-backed securities for which collection of principal and interest is not subordinated to significant superior rights held by others. HTM and AFS investment securities were $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 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. 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. There are no securities of any one state or political subdivision issuer exceeding ten percent of our stockholders’ equity at December 31, 2022. We had approximately $3.73 billion, or 49.0%, of our total portfolio invested in mortgaged-backed securities at December 31, 2022. These mortgage-backed securities were issued by agencies of the U.S. government. 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. 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. 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, 2022 and 2021. 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. government agencies was not recorded as of December 31, 2022 due to those securities being explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. See Note 3, Investment Securities , in the accompanying Notes to Consolidated Financial Statements for additional information related to our allowance for credit losses on investment securities held. We had $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. 51 We have the ability and intent to hold the securities classified as HTM until they mature, at which time we expect to receive full value for the securities. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Furthermore, as of December 31, 2022, we also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. We do not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2022, we believe the declines in fair value detailed in the table below are temporary. Table 12 presents the amortized cost, fair value and allowance for credit losses on investment securities for each of the years indicated. Table 12: Investment Securities (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Held-to-maturity December 31, 2022 U.S. Government agencies $ 448,012 $ — $ 448,012 $ — $ (102,558) $ 345,454 Mortgage-backed securities 1,190,781 — 1,190,781 227 (118,960) 1,072,048 State and political subdivisions 1,861,102 (110) 1,860,992 56 (446,198) 1,414,850 Other securities 261,199 (1,278) 259,921 — (29,040) 230,881 Total HTM $ 3,761,094 $ (1,388) $ 3,759,706 $ 283 $ (696,756) $ 3,063,233 December 31, 2021 U.S. Government agencies $ 232,609 $ — $ 232,609 $ — $ (7,914) $ 224,695 Mortgage-backed securities 70,342 — 70,342 232 (1,425) 69,149 State and political subdivisions 1,210,248 (1,197) 1,209,051 6,166 (8,462) 1,206,755 Other securities 17,301 (82) 17,219 — (440) 16,779 Total HTM $ 1,530,500 $ (1,279) $ 1,529,221 $ 6,398 $ (18,241) $ 1,517,378 (In thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Available-for-sale December 31, 2022 U.S. Treasury $ 2,257 $ — $ — $ (60) $ 2,197 U.S. Government agencies 191,498 — 103 (7,322) 184,279 Mortgage-backed securities 2,809,319 — 20 (266,437) 2,542,902 State and political subdivisions 1,056,124 — 250 (185,300) 871,074 Other securities 272,215 — — (19,813) 252,402 Total AFS $ 4,331,413 $ — $ 373 $ (478,932) $ 3,852,854 December 31, 2021 U.S. Treasury $ 300 $ — $ — $ — $ 300 U.S. Government agencies 374,754 — 495 (10,608) 364,641 Mortgage-backed securities 4,485,548 — 6,307 (43,239) 4,448,616 State and political subdivisions 1,791,097 — 30,556 (1,995) 1,819,658 Other securities 479,162 — 6,647 (5,479) 480,330 Total AFS $ 7,130,861 $ — $ 44,005 $ (61,321) $ 7,113,545 52 Table 13 reflects the amortized cost and estimated fair value of securities at December 31, 2022, by contractual maturity and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a 26.135% tax rate) of such securities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. Table 13: Maturity Distribution of Investment Securities December 31, 2022 Over Over 1 year 5 years Total 1 year through through Over No fixed Amortized Par Fair (In thousands) or less 5 years 10 years 10 years maturity Cost Value Value Held-to-Maturity U.S. Government agencies $ — $ — $ 79,181 $ 368,831 $ — $ 448,012 $ 480,246 $ 345,454 Mortgage-backed securities — — — — 1,190,781 1,190,781 1,254,601 1,072,048 State and political subdivisions 2,639 5,700 16,711 1,836,052 — 1,861,102 1,873,508 1,414,850 Other securities — 2,122 256,558 2,519 — 261,199 274,878 230,881 Total $ 2,639 $ 7,822 $ 352,450 $ 2,207,402 $ 1,190,781 $ 3,761,094 $ 3,883,233 $ 3,063,233 Percentage of total 0.1 % 0.2 % 9.4 % 58.6 % 31.7 % 100.0 % Weighted average yield 3.2 % 3.7 % 3.4 % 2.5 % 3.0 % 2.7 % Available-for-Sale U.S. Treasury $ — $ 2,257 $ — $ — $ — $ 2,257 $ 2,300 $ 2,197 U.S. Government agencies 9,622 94,168 40,597 47,111 — 191,498 189,650 184,279 Mortgage-backed securities — — — — 2,809,319 2,809,319 2,753,345 2,542,902 State and political subdivisions 2,746 14,496 19,702 1,019,180 — 1,056,124 1,107,594 871,074 Other securities — 73,603 198,152 — 460 272,215 271,827 252,402 Total $ 12,368 $ 184,524 $ 258,451 $ 1,066,291 $ 2,809,779 $ 4,331,413 $ 4,324,716 $ 3,852,854 Percentage of total 0.3 % 4.3 % 6.0 % 24.5 % 64.9 % 100.0 % Weighted average yield 2.5 % 2.7 % 3.9 % 2.3 % 2.3 % 2.5 % Deposits Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 230 financial centers. We offer a variety of products designed to attract and retain customers with a continuing focus on developing core deposits. Our core deposits consist of all deposits excluding time deposits of more than $250,000 and brokered deposits. As of December 31, 2022, core deposits comprised 83.0% of our total deposits. We continually monitor the funding requirements along with competitive interest rates in the markets we serve. Because of our community banking philosophy, our executives in the local markets, with oversight by the Chief Deposit Officer, Asset Liability Committee and the Bank’s Treasury Department, establish the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe we are paying a competitive rate when compared with pricing in those markets. 53 We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment. Our total deposits as of December 31, 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. 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. Table 14: Average Deposit Balances and Rates December 31, 2022 2021 2020 (In thousands) Average Amount Average Rate Paid Average Amount Average Rate Paid Average Amount Average Rate Paid Noninterest bearing transaction accounts $ 5,827,160 — % $ 4,836,839 — % $ 4,225,618 — % Interest bearing transaction and savings deposits 12,253,164 0.51 % 10,638,665 0.18 % 9,128,936 0.42 % Time deposits 3,094,747 1.16 % 2,804,851 0.77 % 3,006,768 1.38 % Total $ 21,175,071 0.47 % $ 18,280,355 0.23 % $ 16,361,322 0.49 % Our maturities of time deposits not covered by deposit insurance at December 31, 2022 are presented in Table 15. Table 15: Maturities of Time Deposits Not Covered by Deposit Insurance December 31, 2022 (In thousands) Balance Percent Maturing Three months or less $ 341,081 48.0 % Over 3 months to 6 months 139,565 19.6 % Over 6 months to 12 months 167,670 23.6 % Over 12 months 62,633 8.8 % Total $ 710,949 100.0 % 54 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Federal funds purchased and securities sold under agreements to repurchase were $160.4 million at December 31, 2022, as compared to $185.4 million at December 31, 2021. We have historically funded our growth in earning assets through the use of core deposits, large certificates of deposits from local markets, reciprocal brokered deposits, FHLB borrowings and Federal funds purchased. Management anticipates that these sources will provide necessary funding in the foreseeable future. Other Borrowings and Subordinated Debentures Our total debt was $1.23 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. 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, 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. Table 16: Short-Term Borrowings December 31, (Dollars in thousands) 2022 2021 2020 Amount outstanding at year-end $ 835,000 $ — $ — Weighted-average interest rate at year-end 4.20 % — % — % Maximum amount outstanding at any month-end during the year $ 1,300,000 $ — $1,350,000 Average amount outstanding during the year $ 1,124,314 $ — $1,094,808 Weighted-average interest rate for the year 2.08 % — % 1.69 % 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. We incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and will be subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries. 55 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. Table 17: Maturities of Debt Annual Maturities Year (In thousands) 2023 $ 1,768 2024 1,822 2025 1,822 2026 1,824 2027 1,920 Thereafter 381,129 Total $ 390,285 Capital Overview At December 31, 2022, total capital was $3.27 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At December 31, 2022, our common equity to asset ratio was 11.91% compared to 13.14% at year-end 2021. Capital Stock On February 27, 2009, at a special meeting, our shareholders approved an amendment to the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. 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. The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share, out of our authorized preferred stock. On November 30, 2021, we redeemed all of the Series D Preferred Stock, including accrued and unpaid dividends. On March 31, 2021, we filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that we are required to file with the SEC at the time of the specific offering. On April 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. 56 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, 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. The timing, pricing, and amount of any repurchases under the 2022 Program will be determined by management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and legal requirements. The 2022 Program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. We anticipate funding for the 2022 Program to come from available sources of liquidity, including cash on hand and future cash flow. Cash Dividends We declared cash dividends on our common stock of $0.76 per share for the twelve months ended December 31, 2022, compared to $0.72 per share for the twelve months ended December 31, 2021, an increase of $0.04, or 6%. The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all. Parent Company Liquidity The primary liquidity needs of 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. Payment of dividends by Simmons Bank is subject to various regulatory limitations. The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising in the market via stock or debt offerings. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, for additional information regarding the parent company’s liquidity, which is incorporated herein by reference. 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 The Company and Simmons Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 57 Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 2022, we met all capital adequacy requirements to which we are subject. As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and Simmons Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the bank’s categories. Our risk-based capital ratios at December 31, 2022 and 2021 are presented in Table 18 below: Table 18: Risk-Based Capital December 31, (Dollars in thousands) 2022 2021 Tier 1 capital: Stockholders’ equity $ 3,269,362 $ 3,248,841 CECL transition provision 92,619 114,458 Goodwill and other intangible assets (1,412,667) (1,226,686) Unrealized gain on available-for-sale securities, net of income taxes 517,560 10,545 Total Tier 1 capital 2,466,874 2,147,158 Tier 2 capital: Trust preferred securities and subordinated debt 365,989 384,131 Qualifying allowance for credit losses and reserve for unfunded commitments 115,627 71,853 Total Tier 2 capital 481,616 455,984 Total risk-based capital $ 2,948,490 $ 2,603,142 Risk weighted assets $20,738,727 $15,538,967 Assets for leverage ratio $26,407,061 $23,647,901 Ratios at end of year: Common equity Tier 1 ratio (CET1) 11.90 % 13.82 % Tier 1 leverage ratio 9.34 % 9.08 % Tier 1 risk-based capital ratio 11.90 % 13.82 % Total risk-based capital ratio 14.22 % 16.75 % Minimum guidelines: Common equity Tier 1 ratio (CET1) 4.50 % 4.50 % Tier 1 leverage ratio 4.00 % 4.00 % Tier 1 risk-based capital ratio 6.00 % 6.00 % Total risk-based capital ratio 8.00 % 8.00 % Regulatory Capital Changes In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact of the adoption on earnings and Tier 1 capital (the “CECL Transition Provision”). 58 In March 2020, in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios with a more risk-sensitive approach. The Basel III Capital Rules established risk-weighting categories depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures. The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets to 6.0% and require a minimum leverage ratio of 4.0%. Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital. 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. Liquidity In the normal course of business we have entered into a number of contractual obligations and have made commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2022. Examples of these commitments include but are not limited to long-term debt financing (Note 12, Other Borrowings and Subordinated Debentures), operating lease obligations (Note, 6, Right-of-Use Lease Assets and Lease Liabilities), time deposits with stated maturity dates (Note 9, Time Deposits), and unfunded loan commitments and letters of credit (Note 19, Commitments and Credit Risk). GAAP Reconciliation of Non-GAAP Financial Measures The tables below present computations of 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 • Monthly financial performance reporting • Monthly “flash” reporting of consolidated results (management only) • Investor presentations of Company performance 59 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 • Calculation of long-term performance-based incentives for certain executives • Investor presentations of Company performance 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) and tangible common equity to tangible assets (non-GAAP). We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that is applied by management and the Board of Directors. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as adjusted to ensure that the Company’s “adjusted” results are properly reflected for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes certain items does not represent the amount that effectively accrues directly to stockholders (i.e., certain items are included in earnings and stockholders’ equity). Additionally, similarly titled non-GAAP financial measures used by other companies may not be computed in the same or similar fashion. 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, 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. 60 See Table 19 below for the reconciliation of adjusted earnings, which exclude certain items for the periods presented. Table 19: Reconciliation of Adjusted Earnings (non-GAAP) (In thousands, except per share data) 2022 2021 2020 Net income available to common stockholders $ 256,412 $ 271,109 $ 254,852 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 Early retirement program — — 2,901 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) 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 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 Early retirement program — — 0.03 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) 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%. 61 See Table 20 below for the reconciliation of adjusted noninterest income and adjusted noninterest expense for the periods presented. Table 20: Reconciliation of Adjusted Noninterest Income and Adjusted Noninterest Expense (non-GAAP) (In thousands) 2022 2021 2020 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) 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 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. Table 21: Reconciliation of Tangible Book Value per Common Share (non-GAAP) (In thousands, except per share data) 2022 2021 2020 Total equity $ 3,269,362 $ 3,248,841 $ 2,976,656 Preferred stock — — (767) Total common equity 3,269,362 3,248,841 2,975,889 Intangible assets: Goodwill (1,319,598) (1,146,007) (1,075,305) Other intangible assets (128,951) (106,235) (111,110) Total intangibles (1,448,549) (1,252,242) (1,186,415) 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 Book value per common share $ 25.73 $ 28.82 $ 27.53 Tangible book value per common share (non-GAAP) $ 14.33 $ 17.71 $ 16.56 62 See Table 22 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets. Table 22: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) (Dollars in thousands) 2022 2021 2020 Total common equity $ 3,269,362 $ 3,248,841 $ 2,975,889 Intangible assets: Goodwill (1,319,598) (1,146,007) (1,075,305) Other intangible assets (128,951) (106,235) (111,110) Total intangibles (1,448,549) (1,252,242) (1,186,415) Tangible common equity $ 1,820,813 $ 1,996,599 $ 1,789,474 Total assets $ 27,461,061 $ 24,724,759 $ 22,359,752 Intangible assets: Goodwill (1,319,598) (1,146,007) (1,075,305) Other intangible assets (128,951) (106,235) (111,110) Total intangibles (1,448,549) (1,252,242) (1,186,415) Tangible assets $ 26,012,512 $ 23,472,517 $ 21,173,337 Ratio of common equity to assets 11.91 % 13.14 % 13.31 % Ratio of tangible common equity to tangible assets (non-GAAP) 7.00 % 8.51 % 8.45 % 63