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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-05 · 235 added, 164 removed, 559 unchanged (42% of the section changed)

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As permitted by SEC rules, management presents a sequential quarterly analysis of the Company’s performance as we believe that comparing current quarter results to those of the immediately preceding fiscal quarter is more useful in identifying current business trends and provides a more relevant analysis of our business results.

Accordingly, we have compared our results of operations for the three months ended March 31, 2023 to our results of operations for the three months ended December 31, 2022 and March 31, 2022, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

During the first quarter of 2023, significant turmoil within the financial services industry, was fueled by the failure of certain regional banks that utilized specialized business models, and continued inflationary pressures and recessionary fears, resulted in industry concerns around the level of uninsured deposits, liquidity, capital and operations.

Despite these challenges, our focus remained on the fundamentals that have served us well during our 120-year history.

Accordingly, we have compared our results of operations for the three months ended June 30, 2023 to our results of operations for the three months ended March 31, 2023, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

For additional information regarding the Company’s results for the three months ended March 31, 2023, please refer to our first quarter Form 10-Q filed with the SEC on May 5, 2023.

During the first half of 2023, significant turmoil within the financial services industry, which was fueled by the failure of certain regional banks that utilized specialized business models, and continued inflationary pressures and recessionary fears, resulted in industry concerns around the level of uninsured deposits, liquidity, capital and operations.

Despite these challenges, which have seemed to abate slightly late in the second quarter of 2023, our focus remained on the fundamentals that have served us well during our 120-year history.

We believe that our liquidity is solid and that our capital is strong:

• Deposits were relatively stable during the quarter, which highlights the granularity of our deposit base, as well as the long-term relationships we have with many of our customers.

Total deposits as of March 31, 2023 were $22.45 billion compared to $22.55 billion as of December 31, 2022.

Uninsured deposits as of March 31, 2023 were $5.27 billion or 23% of total deposits.

• Capital levels were steady during the quarter with all regulatory capital ratios remaining significantly above “well-capitalized” guidelines as of March 31, 2023 (see Table 12 in the Capital section below).

As of March 31, 2023, our ratio of common equity to total assets was 12.11%, the ratio of tangible common equity to tangible assets was 7.25% and our Tier 1 leverage ratio was 9.24%.

• Key credit quality metrics as of March 31, 2023 also remained solid with our nonperforming loan coverage ratio at 324% and our allowance for credit losses as a percent of total loans ratio was 1.25%.

• Significant liquidity position with a loan to deposit ratio of 74% as of March 31, 2023, compared to 72% as of December 31, 2022.

Additional liquidity sources available to us as of March 31, 2023 totaled $10.78 billion.

Our net income for the three months ended March 31, 2023 was $45.6 million, or $0.36 diluted earnings per share, compared to net income of $83.3 million, or $0.65 diluted earnings per share and $65.1 million, or $0.58 diluted earnings per share for the three months ended December 31, 2022 and March 31, 2022, respectively.

Included in each comparative period end results were certain items related to our acquisitions and branch right sizing initiatives, while the results for the three months ended December 31, 2022 also include adjustments for the gain on insurance settlement related to a weather event.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended March 31, 2023 were $47.3 million, or $0.37 adjusted diluted earnings per share, compared to $81.1 million, or $0.64 adjusted diluted earnings per share and $67.2 million, or $0.59 adjusted diluted earnings per share for the three months ended December 31, 2022 and March 31, 2022, respectively.

Total deposits as of June 30, 2023 were $22.49 billion, compared to $22.55 billion as of December 31, 2022.

Uninsured deposits (excluding collateralized deposits and intercompany deposits) as of June 30, 2023 were approximately $4.82 billion, or 21% of total deposits.

• Capital levels were steady during the quarter, with all regulatory capital ratios remaining significantly above “well-capitalized” guidelines as of June 30, 2023 (see Table 11 in the Risk Based Capital section below).

As of June 30, 2023, our ratio of common equity to total assets was 12.00%, the ratio of tangible common equity to tangible assets was 7.22% and our Tier 1 leverage ratio was 9.23%.

• Key credit quality metrics as of June 30, 2023 also remained solid, with our nonperforming loan coverage ratio at 292% and our allowance for credit losses as a percent of total loans ratio was 1.25%.

• Significant liquidity position with a loan to deposit ratio of 75% as of June 30, 2023, compared to 72% as of December 31, 2022.

Additional liquidity sources available to us as of June 30, 2023 totaled $11.10 billion and our uninsured deposit coverage ratio was 2.3x.

Our net income for the three months ended June 30, 2023 was $58.3 million, or $0.46 diluted earnings per share, compared to net income of $45.6 million, or $0.36 diluted earnings per share, for the three months ended March 31, 2023.

Included in each comparative period end results were certain items related to our acquisitions and branch right sizing initiatives, while the results for the three months ended June 30, 2023 also included adjustments for early retirement program costs.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended June 30, 2023 were $61.1 million, or $0.48 adjusted diluted earnings per share, compared to $47.3 million, or $0.37 adjusted diluted earnings per share, for the three months ended March 31, 2023.

Net income for the six months ended June 30, 2023 was $103.9 million, or $0.82 diluted earnings per share, compared to net income of $92.5 million, or $0.77 diluted earnings per share for the six months ended June 30, 2022.

Included in each comparative period end results were certain items related to our acquisitions and branch right sizing initiatives, while the results for the six months ended June 30, 2023 also include adjustments for early retirement program costs and the results for the six months ended June 30, 2022 also include the Day 2 CECL provision required for loans and unfunded commitments acquired in connection with the Spirit acquisition and a donation to Simmons First Foundation.

Excluding these certain items and the tax effect, adjusted earnings for the six months ended June 30, 2023 were $108.4 million, or $0.85 adjusted diluted earnings per share, compared to $135.3 million, or $1.12 adjusted diluted earnings per share for the six months ended June 30, 2022.

Simmons Bank was named to Forbes magazine’s 2023 list of “World’s Best Banks” for the fourth consecutive year and recognized by Forbes’ as one of “America’s Best Midsize Employers” for 2023.

We continue to work to expand our suite of digital solutions to provide an enhanced customer experience to “bank when you want, where you want.”

Through our Better Bank Initiative, we have identified an estimated $15 million in annual noninterest expense cost savings that we expect to be fully incorporated by the end of 2023.

The programs under this initiative are designed to optimize operational processes, further improve the customer experience and increase our capacity to capitalize on organic growth opportunities, while at the same time improving our long-term growth profile.

Our Better Bank Initiative, which is focused on programs designed to optimize operational processes and increase capacity to capitalize on organic growth opportunities, achieved continued success across multiple fronts.

During the second quarter of 2023, we substantially completed our early retirement program, which is expected to result in approximately $5.1 million in annual cost savings.

Extensive progress was also completed on other identified opportunities related to process improvements and streamlining or upgrading systems.

As a result, we are on track to meet or exceed the estimated $15 million in annual cost savings we have identified to date by the end of 2023.

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.

Total nonperforming loans as of March 31, 2023, December 31, 2022, and March 31, 2022 were $63.7 million, $58.9 million, and $64.3 million, respectively.

Non-performing assets as a percent of total assets were 0.26% at March 31, 2023, compared to 0.23% at December 31, 2022 and 0.29% at March 31, 2022.

Stockholders’ equity as of March 31, 2023 was $3.34 billion, book value per share was $26.24 and tangible book value per share was $14.88.

Total loans were $16.56 billion at March 31, 2023, compared to $16.14 billion at December 31, 2022.

The increase in total loans during the period was supported by diverse growth in terms of type and by geographic market.

Our unfunded commitments were $5.01 billion and $5.64 billion as of March 31, 2023 and December 31, 2022, respectively.

While unfunded commitments are considered a key indicator of future loan growth, higher interest rates, softening economic conditions and forecasts of a potential recession in the U.S.

have resulted in lower activity in our commercial loan pipeline which was $1.05 billion as of March 31, 2023, compared to $1.12 billion at December 31, 2022.

Total nonperforming loans as of June 30, 2023, December 31, 2022, and June 30, 2022 were $72.0 million, $58.9 million, and $63.6 million, respectively.

Non-performing assets as a percent of total assets were 0.28% at June 30, 2023, compared to 0.23% at December 31, 2022 and 0.26% at June 30, 2022.

Stockholders’ equity as of June 30, 2023 was $3.36 billion, book value per share was $26.59 and tangible book value per share was $15.17.

We repurchased 1,128,087 shares of our common stock under the 2022 Program during the second quarter of 2023.

Total loans were $16.83 billion at June 30, 2023, compared to $16.14 billion at December 31, 2022.

The increase in total loans during the period was supported by diverse growth in terms of type and geographic market.

Our unfunded commitments were $4.71 billion and $5.64 billion as of June 30, 2023 and December 31, 2022, respectively.

While unfunded commitments are considered a key indicator of future loan growth, the rapid increase in interest rates, coupled with softer economic conditions, have resulted in lower activity in our commercial loan pipeline, which was $689.1 million as of June 30, 2023, compared to $1.12 billion at December 31, 2022.

In our discussion and analysis of our financial condition and results of operation in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP.

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

Simmons First National Corporation is a Mid-South based financial holding company that, as of March 31, 2023, has approximately $27.6 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Simmons First National Corporation is a Mid-South based financial holding company that, as of June 30, 2023, has approximately $28.0 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

CRITICAL ACCOUNTING ESTIMATES

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We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other , as amended by ASU 2011-08 – Testing Goodwill for Impairment and ASU 2017-04 - Intangibles – Goodwill and Other.

ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur.

Our assessment depends on several assumptions which are dependent on market and economic conditions.

To quantitatively test goodwill for impairment, a present value of discounted cash flows calculation is completed and relies on several assumptions that have a level of subjectivity and judgement.

These assumptions are dependent on market and economic conditions.

Key inputs to estimate terminal fair value of the Company include projected forecasts, noninterest expense savings and a pricing multiple based on a group of peer banks with similar characteristics.

These inputs are discounted by the cost of equity, which includes assumptions involving our beta;

equity risk, size and company premiums;

and the 20-year treasury rate.

Assumptions used in calculating the cost of equity are obtained from market and third-party data.

Results are compared to book value and no impairment was indicated as of June 30, 2023.

Judgement is inherent in assessing goodwill for impairment.

The various assumptions used in assessing goodwill for impairment involve uncertainties that are beyond our control and could cause actual results to differ materially from those projected.

Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.

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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.

The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units and stock awards.

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, performance stock units or stock awards 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.

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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.

As of March 31, 2023, our interest rate sensitivity shows that approximately 39% of our loans and 91% of our time deposits will reprice in the next year.

As of June 30, 2023, our interest rate sensitivity shows that approximately 39% of our loans and 93% of our time deposits will reprice in the next year.

Net Interest Income - Sequential Quarter Analysis

For the three month period ended March 31, 2023, net interest income on a fully taxable equivalent basis was $184.1 million, a decrease of $15.7 million, or 7.8%, compared to the three months ended December 31, 2022.

For the three month period ended June 30, 2023, net interest income on a fully taxable equivalent basis was $169.3 million, a decrease of $14.8 million, or 8.0%, compared to the three months ended March 31, 2023.

The decrease in net interest income was primarily the result of a $17.9 million increase in fully tax equivalent interest income, more than offset by a $32.7 million increase in interest expense.

The increase in interest income primarily resulted from an $11.5 million increase in interest income on loans, coupled with an increase of $2.6 million in interest income on investment securities.

Regarding the increase in interest income on loans during the first quarter of 2023, the increase in loan volume resulted in an increase of $5.5 million, in addition to an increase of $6.0 million of interest income from a 27 basis point increase in loan yield.

The loan yield for the first quarter of 2023 was 5.67% compared to 5.40% from the preceding sequential quarter.

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

The increase in interest income on investment securities was primarily due to a 39 basis point increase in our taxable security portfolio.

The increase in both loan and investment yield was due to the continued rising rate environment.

The increase in interest income primarily resulted from a $16.9 million increase in interest income on loans, due to both volume and yield increases.

The increase in loan volume resulted in an increase of $5.3 million in interest income, while a 22 basis point increase in loan yield resulted in an incremental $11.6 million of interest income.

The loan yield for the second quarter of 2023 was 5.89% compared to 5.67% from the preceding sequential quarter and was due to the continued rising rate environment.

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

The $32.7 million increase in interest expense is mostly due to the increase in deposit account rates and change in deposit mix as consumers migrate toward higher rate deposits, principally certificates of deposits, in the current higher rate environment.

Interest expense increased $25.1 million due to the increase in rate of 69 basis points on interest-bearing deposit accounts and increased $5.4 million due to the increase in deposit volume over the period.

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

Interest expense increased $17.6 million due to the increase in rate of 47 basis points on interest-bearing deposit accounts as pricing measures were implemented to defend the core deposit base.

Interest expense increased $3.2 million due to the increase in deposit volume over the period.

During the second quarter of 2023, we made a strategic decision to utilize short-term borrowings to elevate our liquidity position given the macroeconomic environment and the debt ceiling debate, which led to a $9.8 million increase in interest expense.

On April 1, 2023, approximately $330.0 million of our outstanding subordinated debt converted from fixed rate to floating rate, further contributing to a $2.1 million increase in interest expense during the quarter.

Net Interest Income - Year-over-Year Analysis

Net interest income on a fully taxable equivalent basis for the three month period ended March 31, 2023 increased $32.9 million, or 21.8%, over the same period in 2022.

The increase in net interest income was the result of a $118.1 million increase in fully tax equivalent interest income, partially offset by an $85.2 million increase in interest expense.

The increase in interest income during the three month period ended March 31, 2023 resulted from increases in interest income on loans and investments.

Net interest income on a fully taxable equivalent basis for the six month period ended June 30, 2023 increased $11.1 million, or 3.2%, over the same period in 2022.

The increase in net interest income was the result of a $210.5 million increase in fully tax equivalent interest income, partially offset by a $199.5 million increase in interest expense.

The increase in interest income during the six month period ended June 30, 2023 resulted from increases in interest income on loans and investments as a result of rising market interest rates.

The increase in interest income on loans of $182.0 million reflects an increase in loan volume of $83.4 million coupled with a 133 basis point rise in loan yield that resulted in a $98.6 million increase.

The increase in our loan volume during the first three months of 2023 was primarily due to the Spirit acquisition in the second quarter of 2022, combined with solid organic loan growth over the comparative period.

The increase in our loan volume during the first six months of 2023 was due to the Spirit acquisition in the second quarter of 2022, combined with solid organic loan growth over the comparative period.

The increase of $25.7 million in interest income on investment securities reflects an increase of $34.6 million in interest income on investment securities due to yield increases over the period of 129 basis points and 19 basis points for our taxable and non-taxable investment security portfolios, respectively.

The increase in interest income on investment securities due to yield increases was mitigated by a $4.4 million decrease due to the decline in our investment portfolio average balances which decreased by $977.5 million or 11.5%, as our portfolio experienced pay downs and maturities over the period, which was reinvested into our loan portfolio.

The increase in interest income on investment securities due to yield increases was mitigated by an $8.9 million decrease due to the decline in our investment portfolio average balances which decreased by $964.5 million or 11.4%, as our portfolio experienced pay downs and maturities over the period, which was reinvested into our loan portfolio.

The $199.5 million increase in interest expense is mainly due to the increase in our deposit account rates over the period, combined with the additional deposit base from the Spirit acquisition and change in deposit mix as the market experiences a shift in consumer sentiment given the attractiveness of higher yielding time deposits in the current higher interest rate environment.

Interest expense increased $165.9 million due to the increase in rate of 212 basis points on interest-bearing deposit accounts and increased $13.4 million due to the increase in deposit volume over the period.

Further, an increase of $4.1 million to interest expense was related to other borrowings.

Further, an increase of $17.8 million to interest expense was related to an increase in other borrowings during the same period.

The rate increase of 343 basis points in other borrowings resulted in an increase of $19.3 million, that was partially offset by a $1.4 million decrease in volume over the period.

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Net Interest Margin

Our net interest margin on a fully tax equivalent basis was 3.09% for the three month period ended March 31, 2023, as compared to 3.31% and 2.76% for the three months ended December 31, 2022 and March 31, 2022, respectively.

The decrease of 22 basis points in the net interest margin during the three months ended March 31, 2023 compared to the three months ended December 31, 2022 was primarily due to the rising deposit rate pressure from increased market competition and consumer migration toward higher rate deposits.

The increase of 33 basis points in the net interest margin during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was due to the overall increase in our earning assets average balances over the comparative periods which has improved interest income, as we continued to manage rates effectively in the rapidly increasing rate environment experienced over the past year.

Our net interest margin on a fully tax equivalent basis was 2.76% and 2.92% for the three and six month periods ended June 30, 2023, as compared to 3.09% and 3.01% for the three months ended March 31, 2023 and the six months ended June 30, 2022, respectively.

The decrease of 33 basis points in the net interest margin during the three months ended June 30, 2023 compared to the three months ended March 31, 2023 was primarily due to the rising deposit rate pressure from increased market competition and consumer migration toward higher rate deposits.

The decrease of 9 basis points in the net interest margin during the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was due to the rising deposit rate pressure and change in deposit mix previously discussed, mitigated by the overall increase in our earning assets average balances over the comparative periods which has improved interest income in the rising rate environment.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively.

Analysis of Net Interest Margin

(FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%)

Three Months Ended

March 31, December 31, March 31,

Three Months Ended Six Months Ended

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

(In thousands) 2023 2023 2023 2022

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Changes in Fully Taxable Equivalent Net Interest Margin

Three Months Ended

(In thousands) March 31, 2023 compared to December 31, 2022 March 31, 2023 compared to March 31, 2022

Three Months Ended Six Months Ended

(In thousands) June 30, 2023 compared to March 31, 2023 June 30, 2023 compared to June 30, 2022

Increase due to change in earning assets $ 5,497 $ 71,778

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(Decrease) increase in net interest income $ (14,810) $ 11,079

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively.

The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods.

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Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/

(In thousands) Balance Expense Rate (%) Balance Expense Rate (%) Balance Expense Rate (%)

June 30, 2023 March 31, 2023

Average Income/ Yield/ Average Income/ Yield/

(In thousands) Balance Expense Rate (%) Balance Expense Rate (%)

Earning assets:

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Mortgage loans held for sale 9,560 154 6.46 5,470 82 6.08

Loans - including fees 16,702,403 245,151 5.89 16,329,761 228,257 5.67

Total interest earning assets 24,565,025 303,326 4.95 24,206,125 285,448 4.78

Non-earning assets 3,201,114 3,282,607

Total assets $ 27,766,139 $ 27,488,732

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest bearing liabilities:

Interest bearing transaction and savings deposits $ 11,011,746 $ 54,485 1.98 $ 11,722,591 $ 47,990 1.66

Time deposits 5,911,139 53,879 3.66 5,155,055 39,538 3.11

Total interest bearing deposits 16,922,885 108,364 2.57 16,877,646 87,528 2.10

Federal funds purchased and securities sold under agreements to repurchase 119,985 318 1.06 148,673 323 0.88

Other borrowings 1,449,403 18,612 5.15 787,783 8,848 4.56

Subordinated debt and debentures 366,047 6,696 7.34 366,009 4,603 5.10

Total interest bearing liabilities 18,858,320 133,990 2.85 18,180,111 101,302 2.26

Noninterest bearing liabilities:

Noninterest bearing deposits 5,276,267 5,642,779

Other liabilities 272,628 295,191

Total liabilities 24,407,215 24,118,081

Stockholders’ equity 3,358,924 3,370,651

Total liabilities and stockholders’ equity $ 27,766,139 $ 27,488,732

Net interest spread – FTE 2.10 2.52

Net interest margin – FTE $ 169,336 2.76 $ 184,146 3.09

Six Months Ended

June 30, 2023 June 30, 2022

Average Income/ Yield/ Average Income/ Yield/

(In thousands) Balance Expense Rate (%) Balance Expense Rate (%)

Earning assets:

Interest bearing balances due from banks and federal funds sold $ 360,221 $ 6,806 3.81 $ 1,250,266 $ 1,766 0.28

Investment securities - taxable 4,875,784 65,549 2.71 5,681,352 39,943 1.42

Investment securities - non-taxable 2,625,923 42,775 3.28 2,784,863 42,669 3.09

Mortgage loans held for sale 7,526 236 6.32 22,375 390 3.51

Other loans held for sale — — — 11,118 2,063 37.42

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Net interest margin – FTE $ 353,482 2.92 $ 342,403 3.01

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended March 31, 2023 as compared to the three months ended December 31, 2022 and March 31, 2022, respectively.

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended June 30, 2023 as compared to the three months ended March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively.

The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Volume/Rate Analysis

Three Months Ended

March 31, 2023 compared to December 31, 2022 March 31, 2023 compared to March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 compared to March 31, 2023 June 30, 2023 compared to June 30, 2022

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

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Total 11,502 21,186 32,688 10,998 188,466 199,464

Increase (decrease) in net interest income $ 660 $ (16,310) $ (15,650) $ 46,188 $ (13,250) $ 32,938

(Decrease) increase in net interest income $ (6,005) $ (8,805) $ (14,810) $ 60,780 $ (49,701) $ 11,079

PROVISION FOR CREDIT LOSSES

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

For the three months ended March 31, 2023, our provision for credit losses was $24.2 million as compared to a recapture of $19.9 million for the same period ended March 31, 2022.

The provision expense during the first three months of 2023 consisted of $10.9 million expense related to loans and reflected loan growth in the quarter, as well as the impact of updated economic assumptions, combined with a $13.3 million expense related to securities and was due to decreases in the value of corporate bonds in the investment securities portfolio.

The recapture during the first three months of 2022 was driven by improved credit quality metrics and improved macroeconomic factors, coupled with the planned exit of several large oil and gas relationships during the quarter.

The provision for credit losses for the three months ended June 30, 2023 was $61,000 as compared to $24.2 million for the three months ended March 31, 2023.

The change for the three month period ended June 30, 2023 as compared to the preceding quarter is primarily due to a $10.9 million expense related to loans and reflected loan growth, as well as the impact of updated economic assumptions, combined with a $13.3 million expense related to securities and was due to decreases in the value of select corporate bonds in the investment securities portfolio, all during the three months ended March 31, 2023 and that did not meaningfully impact the three months ended June 30, 2023.

For the six months ended June 30, 2023, our provision for credit losses was $24.3 million as compared to $13.9 million for the same period ended June 30, 2022.

The change for the six months ended June 30, 2023 as compared to the same period ended June 30, 2022 is primarily due to the impacts described above, compared to the Spirit acquisition and the related Day 2 CECL provision expense for the acquired loans in the six months ended June 30, 2022 and additional unfunded commitments added to our portfolio during the same period, partially offset by a recapture of credit losses during the six months ended June 30, 2022 driven by improved credit quality metrics and improved macroeconomic factors.

NONINTEREST INCOME

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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.

For the three month period ended March 31, 2023, total noninterest income was $45.8 million, an increase of approximately $1.2 million or 2.7%, compared to the three month period ended December 31, 2022 and was primarily driven by the incremental increases in service charges on deposit accounts due to increased consumer activity and a slight rebound in mortgage lending income as compared to the prior quarter.

Noninterest income for the three months ended March 31, 2023 increased by approximately $3.6 million or 8.6% as compared to the three months ended March 31, 2022 and was primarily due to the Spirit acquisition and attributable increased consumer base.

For the three month period ended June 30, 2023, total noninterest income was $45.0 million, a decrease of approximately $855,000 or 1.9%, compared to the three month period ended March 31, 2023.

The sequential decrease was primarily driven by the recapture of a $4.0 million legal reserve during the period ended March 31, 2023, related to legal matters previously disclosed, and was partially offset by fair value adjustments related to Small Business Investment Company (“SBIC”) investments and death benefits from bank owned life insurance totaling $3.5 million recognized during the three month period ended June 30, 2023.

Noninterest income for the six months ended June 30, 2023 increased by approximately $8.4 million or 10.2% as compared to the six months ended June 30, 2022.

The increase as compared to the same period in 2022 was primarily due to the Spirit acquisition and attributable increased consumer base, coupled with the legal reserve recapture of $4.0 million and the fair value adjustments related to SBIC investments and death benefits from bank owned life insurance totaling $3.5 million discussed above.

The increase was partially offset by a $2.8 million decrease in mortgage lending income due to the rising interest rate environment and softening market conditions over the period, which slowed the demand for mortgage loans compared to the demand associated with the previous lower interest rate environment.

Other income for the three month period ended March 31, 2023 increased by $4.7 million as compared to the preceding sequential quarter, and increased by $4.0 million when compared to the same period in the prior year.

The increases were primarily due to the recapture of a $4.0 million legal reserve during the first three months of 2023, related to legal matters previously disclosed.

Table 5 shows noninterest income for the three month periods ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively, as well as changes between periods.

Table 5 shows noninterest income for the three month periods ended June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively, as well as changes between periods.

Noninterest Income

Three Months Ended

March 31, December 31, March 31, Change from Quarter - Sequential Change from Quarter - Year-over-Year

Three Months Ended Six Months Ended

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

(Dollars in thousands) 2023 2023 $ % 2023 2022 $ %

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Other service charges and fees 2,262 2,282 (20) (0.9) 4,544 3,508 1,036 29.5

Gain (loss) on sale of securities, net — (52) (54) 52 (100.0) 54 (100.0)

Gain on insurance settlement — 4,074 — (4,074) (100.0) — —

(Loss) gain on sale of securities, net (391) — (391) * (391) (204) (187) 91.7

Loss on sale of branches — — — — — (88) 88 (100.0)

Other income 9,843 11,256 (1,413) (12.6) 21,099 14,191 6,908 48.7

Total noninterest income $ 44,980 $ 45,835 $ (855) (1.9)% $ 90,815 $ 82,396 $ 8,419 10.2%

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) was $30.0 million, $29.9 million and $27.8 million for the three month periods ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Recurring fee income was relatively flat as compared to the three month period ended December 31, 2022 and increased $2.3 million as compared to the three month period ended March 31, 2022 primarily due to the increased consumer base provided by the Spirit acquisition.

* Not meaningful

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for the three month period ended June 30, 2023 was $30.6 million, an increase of $534,000 as compared to the three month period ended March 31, 2023.

Recurring fee income for the six month period ended June 30, 2023 was $60.6 million, an increase of $4.2 million from the six month period ended June 30, 2022.

While recurring fee income was relatively flat as compared to the three month period ended March 31, 2023, the increase as compared to the six month period ended June 30, 2022 was primarily due to the increased consumer base provided by the Spirit acquisition.

We expect service charges to moderate during the last half of 2023 due to the elimination of returned item fees for consumer deposit accounts with insufficient funds beginning in the third quarter of 2023.

NONINTEREST EXPENSE

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

Noninterest expense was $143.2 million for the three month period ended March 31, 2023, and was relatively flat as compared to noninterest expense of $142.6 million for the three month period ended December 31, 2022, representing an increase of $653,000, or 0.5%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing and merger related costs, for the three months ended March 31, 2023, decreased $583,000, or 0.4%, as compared to the three months ended December 31, 2022.

Noninterest expense for the three months ended March 31, 2023 increased by approximately $14.8 million or 11.5% as compared to the three months ended March 31, 2022.

Adjusted noninterest expense, which excludes branch right sizing and merger related costs, for the three months ended March 31, 2023, increased $15.2 million, or 12.1%, as compared to the three months ended March 31, 2022.

Salaries and employee benefits expense increased $4.0 million during the three month period ended March 31, 2023 as compared to the preceding sequential quarter and increased $9.1 million when compared to the same period in the prior year.

The increase as compared to the preceding sequential quarter reflected seasonal payroll taxes incurred during the quarter, 401(k) profit sharing contribution and equity awards compensation, while the increase from the same period in the prior year is primarily due to the impact from the Spirit acquisition.

Deposit insurance expense for the three months ended March 31, 2023 increased by $1.2 million and $3.1 million compared to the three month periods ended December 31, 2022 and March 31, 2022, respectively.

Both comparative increases were largely due to an increased base rate related to changes in the mix of deposits, while the increase as compared to the same period in the prior year is also due to the increase in deposits from the Spirit acquisition.

Other operating expenses decreased by $3.5 million during the three months ended March 31, 2023 as compared to the three months ended December 31, 2022 and increased by $757,000 as compared to the three months ended March 31, 2022.

Sequentially, the decrease was primarily due to a focus on expense management of controllable expenses during the quarter, coupled with the impact of $1.2 million of accelerated amortization of certain tax credits recognized during the three month period ended December 31, 2022, the offset of which is recorded in provision for income taxes.

The increase when compared to the three months ended March 31, 2022 is primarily related to the Spirit acquisition and inflationary pressures over the period.

Table 6 below shows noninterest expense for the three month periods ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively, as well as changes between periods.

Noninterest expense was $139.7 million for the three month period ended June 30, 2023, as compared to noninterest expense of $143.2 million for the three month period ended March 31, 2023, representing a decrease of $3.5 million, or 2.5%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing and merger related costs for all periods, in addition to early retirement program costs for the three months ended June 30, 2023, decreased $4.9 million, or 3.5%, as compared to the three months ended March 31, 2023.

Noninterest expense for the six months ended June 30, 2023 decreased by approximately $2.3 million or 0.8% as compared to the six months ended June 30, 2022.

Adjusted noninterest expense, which excludes branch right sizing, merger related costs, donation to Simmons First Foundation, and early retirement program costs, for the six months ended June 30, 2023, increased $15.6 million, or 6.0%, as compared to the six months ended June 30, 2022.

The $2.3 million decrease in salaries and employee benefits expense during the three month period ended June 30, 2023 as compared to the preceding sequential quarter is primarily due to a $3.0 million incentive accrual adjustment during the current period, coupled with seasonal payroll expenses, such as payroll taxes, 401(k) profit sharing contribution and equity awards compensation experienced during the preceding sequential quarter.

The decrease in salaries and employee benefits expense was offset by a $3.6 million expense related to early retirement program costs during the three month period ended June 30, 2023, which is related to our ongoing Better Bank Initiative.

Adjusted salaries and employee benefits expense, which excludes early retirement program costs, for the three months ended June 30, 2023, decreased $5.9 million, or 7.7%, as compared to the three months ended March 31, 2023.

Salaries and employee benefits expense increased $9.7 million during the six month period ended June 30, 2023 when compared to the same period in the prior year, primarily due to the impact from the Spirit acquisition.

Deposit insurance expense for the three and six months ended June 30, 2023 as compared to the three months ended March 31, 2023 and six months ended June 30, 2022 increased by $308,000 and $5.4 million, respectively.

The year-over-year increase was largely due to an increased base rate related to changes in the mix of deposits, coupled with the increase in deposits from the Spirit acquisition.

Table 6 below shows noninterest expense for the three month periods ended June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively, as well as changes between periods.

Noninterest Expense

Three Months Ended

March 31, December 31, March 31, Change from Quarter - Sequential Change from Quarter - Year-over-Year

Three Months Ended Six Months Ended

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

(Dollars in thousands) 2023 2023 $ % 2023 2022 $ %

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

HTM and AFS investment securities were $3.77 billion and $3.76 billion, respectively, at March 31, 2023, compared to the HTM amount of $3.76 billion and AFS amount of $3.85 billion at December 31, 2022.

HTM and AFS investment securities were $3.76 billion and $3.58 billion, respectively, at June 30, 2023, compared to the HTM amount of $3.76 billion and AFS amount of $3.85 billion at December 31, 2022.

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

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 AFS portfolio to the HTM portfolio.

The related remaining combined net unrealized losses of $141.0 million in accumulated other comprehensive income (loss) as of March 31, 2023 will be amortized over the remaining life of the securities.

The related remaining combined net unrealized losses of $136.0 million in accumulated other comprehensive income (loss) as of June 30, 2023 will be amortized over the remaining life of the securities.

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

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We expect the cash flows from principal maturities of securities to provide flexibility to fund future loan growth or reduce wholesale funding.

Furthermore, as of March 31, 2023, 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.

Furthermore, as of June 30, 2023, 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.

During the first quarter of 2023, management recorded a $12.8 million provision for credit loss related to isolated corporate bonds within the AFS investment securities portfolio.

As of March 31, 2023, two nonperforming corporate bonds remained in the portfolio, and with the exception of these two bonds, management does not believe any of the securities are impaired due to reasons of credit quality.

During the second quarter of 2023, management reduced the allowance for credit loss related to isolated corporate bonds within the AFS investment securities portfolio by $1.3 million due to price recovery on the impaired bonds.

As of June 30, 2023, two nonperforming corporate bonds remained in the portfolio, and with the exception of these two bonds, management does not believe any of the securities are impaired due to reasons of credit quality.

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.

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LOAN PORTFOLIO

Our loan portfolio averaged $16.33 billion and $11.90 billion during the first three months of 2023 and 2022, respectively.

As of March 31, 2023, total loans were $16.56 billion, an increase of $413.0 million from December 31, 2022.

The increase in the average loan balance during the first three months of 2023 when compared to the same period in 2022 is primarily due to the acquisition of Spirit which provided $2.29 billion in total loans after purchase accounting discounts, coupled with continued widespread organic loan growth throughout our geographic markets over the comparative period.

Our loan portfolio averaged $16.52 billion and $13.19 billion during the first six months of 2023 and 2022, respectively.

As of June 30, 2023, total loans were $16.83 billion, an increase of $691.5 million from December 31, 2022.

The increase in the average loan balance during the first six months of 2023 when compared to the same period in 2022 is primarily due to the acquisition of Spirit which provided $2.29 billion in total loans after purchase accounting discounts, coupled with continued widespread organic loan growth throughout our geographic markets over the comparative period.

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

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Loan Portfolio

March 31, December 31,

June 30, December 31,

(In thousands) 2023 2022

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Consumer loans consist of credit card loans and other consumer loans.

Consumer loans were $331.4 million at March 31, 2023, or 2.0% of total loans, compared to $349.8 million, or 2.2% of total loans at December 31, 2022.

The decrease in consumer loans from December 31, 2022, to March 31, 2023, was primarily due to the expected seasonal decline in our credit card portfolio and loan payoffs and pay downs in direct consumer loans.

Consumer loans were $357.8 million at June 30, 2023, or 2.1% of total loans, compared to $349.8 million, or 2.2% of total loans at December 31, 2022.

The increase in consumer loans from December 31, 2022, to June 30, 2023, was primarily due to an increase in consumer reliance on credit card loans during the period.

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

Real estate loans were $12.89 billion at March 31, 2023, or 77.8% of total loans, compared to $12.58 billion, or 77.9%, of total loans at December 31, 2022, an increase of $306.7 million, or 2.4%.

Real estate loans were $13.11 billion at June 30, 2023, or 77.9% of total loans, compared to $12.58 billion, or 77.9%, of total loans at December 31, 2022, an increase of $528.8 million, or 4.2%.

Our C&D loans increased by $363.9 million, or 14.2%, single family residential loans increased by $87.3 million, or 3.4%, and CRE loans increased by $77.6 million, or 1.0%.

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

Total commercial loans were $2.89 billion at March 31, 2023, or 17.5% of total loans, compared to $2.84 billion, or 17.6% of total loans at December 31, 2022, an increase of $52.5 million, or 1.8%, which was due to organic loan growth.

Agricultural loans increased $15.0 million, or 7.3%.

Total commercial loans were $2.85 billion at June 30, 2023, or 16.9% of total loans, compared to $2.84 billion, or 17.6% of total loans at December 31, 2022, an increase of $12.0 million, or 0.4%.

The incremental decrease in non-real estate loans related to business of $63.0 million, or 2.4%, was more than offset by the increase in agricultural loans of $74.9 million, or 36.4%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter.

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

Mortgage volume experienced a slight increase in demand during the first three months of 2023 as compared to December 31, 2022, and was coupled with continued organic growth in our municipal loans during the quarter, leading to an increase of $72.3 million in other loans.

Mortgage volume experienced an increase in demand during the first six months of 2023 as compared to December 31, 2022, and was coupled with continued organic growth in our municipal loans during the quarter, leading to an increase of $142.8 million in other loans.

Loan growth was widespread throughout our geographic markets and was generally broad-based by loan type.

We are seeing loan growth in our metro, community and corporate banking groups.

Our commercial loan pipeline consisting of all commercial loan opportunities was $1.05 billion at March 31, 2023 compared to $1.12 billion at December 31, 2022.

Our commercial loan pipeline consisting of all commercial loan opportunities was $689.1 million at June 30, 2023 compared to $1.12 billion at December 31, 2022.

Loans approved and ready to close at the end of the quarter totaled $274.2 million.

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

Total non-performing assets increased $8.9 million from December 31, 2022 to March 31, 2023.

Nonaccrual loans increased by $4.8 million during the period and foreclosed assets held for sale and other real estate owned were relatively flat with a decrease of $166,000 as compared to December 31, 2022.

The increase in nonaccrual assets was in part due to two isolated nonperforming corporate bonds in the investment securities portfolio totaling approximately $4.0 million.

Non-performing assets, including modifications to borrowers experiencing financial difficulty (“FDMs”, formerly known as troubled debt restructurings, or TDRs) and acquired foreclosed assets, as a percent of total assets were 0.27% at March 31, 2023, compared to 0.23% at December 31, 2022.

Total non-performing assets increased $14.5 million from December 31, 2022 to June 30, 2023.

Nonaccrual loans increased by $12.8 million during the period and foreclosed assets held for sale and other real estate owned increased $1.0 million as compared to December 31, 2022.

The increase in nonaccrual assets during the period was primarily due to a single, commercial relationship totaling $9.6 million.

Shortly after the end of the second quarter, a $2.9 million payment was received on this commercial relationship.

Non-performing assets, including modifications to borrowers experiencing financial difficulty (“FDMs”, formerly known as troubled debt restructurings, or TDRs) and acquired foreclosed assets, as a percent of total assets were 0.29% at June 30, 2023, compared to 0.23% at December 31, 2022.

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

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We primarily use interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

There were no loans modified for borrowers experiencing financial difficulties during the three month period ending March 31, 2023.

There was one commercial loan modified for a borrower experiencing financial difficulties, with a period-ending balance of $655,000, during the three and six month periods ending June 30, 2023.

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

The allowance for credit losses as a percent of total loans was 1.25% as of March 31, 2023.

The allowance for credit losses as a percent of total loans was 1.25% as of June 30, 2023.

Non-performing loans equaled 0.43% of total loans.

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The allowance for credit losses was 292% of non-performing loans.

Our annualized net charge-offs to average total loans for the first three months of 2023 was 0.03%.

Annualized net credit card charge-offs to average total credit card loans were 1.69% for the first three months of 2023, compared to 1.49% during the full year 2022, and 75 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Our annualized net charge-offs to average total loans ratio for the first six months of 2023 was 0.04%.

Annualized net credit card charge-offs to average total credit card loans were 1.97% for the first six months of 2023, compared to 1.49% during the full year 2022, and 105 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Table 8 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for sale.

Non-performing Assets

March 31, December 31, March 31,

June 30, December 31, June 30,

(Dollars in thousands) 2023 2022 2022

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_______________________________________

(1) Includes nonaccrual FDMs (formerly known as TDRs) of approximately $481,000 at March 31, 2023 and $1,622,000 at December 31, 2022.

(1) Includes nonaccrual FDMs (formerly known as TDRs) of approximately $273,000 at June 30, 2023 and $1,622,000 at December 31, 2022.

For additional information about our implementation of accounting for FDMs, which replaced the accounting for TDRs, see Note 5, Loans and Allowance for Credit Losses.

The interest income on nonaccrual loans is not considered material for the three month periods ended March 31, 2023 and 2022.

The interest income on nonaccrual loans is not considered material for the three and six month periods ended June 30, 2023 and 2022.

ALLOWANCE FOR CREDIT LOSSES

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Provision for credit losses 15,977 10,492

Balance, March 31, $ 206,557 $ 178,924

Acquisition adjustment for PCD loans — 4,043

Balance, June 30, $ 209,966 $ 212,611

Loans charged off:

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Provision for Credit Losses

The amount of provision added to or released from the allowance during the three months ended March 31, 2023 and 2022, and for the year ended December 31, 2022, was based on management’s judgment, with consideration given to the composition and asset quality of the portfolio, historical loan loss experience, and assessment of current and expected economic forecasts and conditions.

The amount of provision added to or released from the allowance during the three and six months ended June 30, 2023 and 2022, and for the year ended December 31, 2022, was based on management’s judgment, with consideration given to the composition and asset quality of the portfolio, historical loan loss experience, and assessment of current and expected economic forecasts and conditions.

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

Allowance for Credit Losses Allocation

As of March 31, 2023, the allowance for credit losses reflected an increase of approximately $9.6 million from December 31, 2022 while total loans increased by $413.0 million over the same three month period.

As of June 30, 2023, the allowance for credit losses reflected an increase of approximately $13.0 million from December 31, 2022 while total loans increased by $691.5 million over the same six month period.

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

The increase in the allowance for credit losses during the first three months of 2023 was primarily due to the loan growth experienced during the quarter, as well as refreshed economic forecasts.

Our allowance for credit losses at March 31, 2023 was considered appropriate given the current economic environment and other related factors.

The increase in the allowance for credit losses during the first six months of 2023 was primarily due to the loan growth experienced during the first half of the year, as well as refreshed economic forecasts.

Our allowance for credit losses at June 30, 2023 was considered appropriate given the current economic environment and other related factors.

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

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Allocation of Allowance for Credit Losses

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(Dollars in thousands) Allowance

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

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 231 financial centers as of March 31, 2023.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 231 financial centers as of June 30, 2023.

We offer a variety of products designed to attract and retain customers with a continuing focus on developing core deposits.

Our core deposits consist of all deposits excluding time deposits of $250,000 or more and brokered deposits.

As of March 31, 2023, core deposits comprised 80.3% of our total deposits.

As of June 30, 2023, core deposits comprised 78.5% of our total deposits.

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

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

Our total deposits as of March 31, 2023, were $22.45 billion, compared to $22.55 billion as of December 31, 2022.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $16.77 billion at March 31, 2023, compared to $17.78 billion at December 31, 2022, a decrease of $1.01 billion.

Total time deposits increased $910.2 million to $5.68 billion at March 31, 2023, from $4.77 billion at December 31, 2022.

We had $2.95 billion and $2.75 billion of brokered deposits at March 31, 2023, and December 31, 2022, respectively.

The change in the mix of deposits at March 31, 2023 as compared to December 31, 2022 reflects increased market competition and consumer migration toward higher rate deposits, principally certificates of deposits, given the rapid increase in interest rates that has occurred over the past year.

Our total deposits as of June 30, 2023, were $22.49 billion, compared to $22.55 billion as of December 31, 2022.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $16.13 billion at June 30, 2023, compared to $17.78 billion at December 31, 2022, a decrease of $1.65 billion.

Total time deposits increased $1.59 billion to $6.36 billion at June 30, 2023, from $4.77 billion at December 31, 2022.

We had $3.24 billion and $2.75 billion of brokered deposits at June 30, 2023, and December 31, 2022, respectively.

The change in the mix of deposits at June 30, 2023 as compared to December 31, 2022 reflects increased market competition and consumer migration toward higher rate deposits, principally certificates of deposits, given the rapid increase in interest rates that has occurred over the past year.

We made the strategic decision during the fourth quarter of 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.

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OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.39 billion and $1.23 billion at March 31, 2023 and December 31, 2022, respectively.

The outstanding balance for March 31, 2023 includes $1.00 billion in FHLB short-term advances;

Our total debt was $1.74 billion and $1.23 billion at June 30, 2023 and December 31, 2022, respectively.

The outstanding balance for June 30, 2023 includes $1.35 billion in FHLB advances;

$366.1 million in subordinated notes and unamortized debt issuance costs;

and $20.0 million of other long-term debt.

All of the FHLB short-term advances outstanding at the end of the first quarter 2023 are fixed rate, fixed term advances, which are due less than one year from origination and therefore are classified as short-term advances.

FHLB advances outstanding at June 30, 2023, which increased as compared to December 31, 2022 due to a strategic decision to utilize short-term borrowings to elevate our liquidity position given the macroeconomic environment and the debt ceiling debate during the period, are primarily fixed rate, fixed term advances, which are due less than one year from origination and therefore are classified as short-term advances.

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

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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.

At March 31, 2023, total capital was $3.34 billion.

At June 30, 2023, total capital was $3.36 billion.

Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities.

At March 31, 2023, our common equity to asset ratio was 12.11% compared to 11.91% at year-end 2022.

At June 30, 2023, our common equity to asset ratio was 12.00% compared to 11.91% at year-end 2022.

Capital Stock

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On April 27, 2022, our shareholders approved an amendment to our Articles of Incorporation to remove the classification and designation for the Series D Preferred Stock.

As of March 31, 2023, there were no shares of preferred stock issued or outstanding.

As of June 30, 2023, there were no shares of preferred stock issued or outstanding.

Stock Repurchase Program

2 unchanged sentences

The 2022 Program replaced the 2019 Program and will terminate on January 31, 2024 (unless terminated sooner).

No shares were repurchased during the three month period ended March 31, 2023.

During the three month period ended March 31, 2022, we repurchased 513,725 shares at an average pri ce of $31.25 per share under the 2019 Program.

During the three and six month periods ended June 30, 2023, we repurchased 1,128,087 shares at an average price per share of $17.75 under the 2022 Program.

During the six month period ended June 30, 2022, we repurchased 513,725 shares at an average price per share of $31.25 under the 2019 Program and 2,035,324 shares at an average price per share of $24.59 under the 2022 Program.

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

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Cash Dividends

We declared cash dividends on our common stock of $0.20 per share for the first three months of 2023 compared to $0.19 per share for the first three months of 2022, an increase of $0.01, or 5%.

We declared cash dividends on our common stock of $0.40 per share for the first six months of 2023 compared to $0.38 per share for the first six months of 2022, an increase of $0.02, or 5%.

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

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Payment of dividends by Simmons Bank is subject to various regulatory limitations.

See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10Q for additional information regarding the parent company’s liquidity.

For additional information regarding the parent company’s liquidity, see “ Liquidity ” and “ Market Risk Management ” in Item 3 – Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10Q.

We continually assess our capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising in the market via stock or debt offerings.

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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 March 31, 2023, we meet all capital adequacy requirements to which we are subject.

Management believes that, as of June 30, 2023, we meet all capital adequacy requirements to which we are subject.

As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action.

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

Our risk-based capital ratios at March 31, 2023 and December 31, 2022 are presented in Table 11 below:

Our risk-based capital ratios at June 30, 2023 and December 31, 2022 are presented in Table 11 below:

Risk-Based Capital

March 31, December 31,

June 30, December 31,

(Dollars in thousands) 2023 2022

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Subordinated notes and debentures 366,065 365,989

Subordinated debt phase out (66,000) —

Qualifying allowance for credit losses and reserve for unfunded commitments 169,409 115,627

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

Qualifying subordinated debt of $366.0 million is included as Tier 2 and total capital as of March 31, 2023.

Qualifying subordinated debt of $300.1 million is included as Tier 2 and total capital as of June 30, 2023.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

These forward-looking statements include, without limitation, those relating to the Company’s future growth, completed acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, dividends, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies and estimates, net interest margin, noninterest revenue, noninterest expense, market conditions related to and the impact of the Company’s stock repurchase program, consumer behavior and liquidity, the adequacy of the allowance for credit losses, the impacts of the COVID-19 pandemic and the ability of the Company to manage the impacts of the COVID-19 pandemic, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, repricing of loans and time deposits, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FOTO advances, capital resources, market risk, plans for investments in securities, effect of pending and future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, staffing initiatives, estimated cost savings associated with the Company’s Better Bank Initiative, acquisition strategy and activity, legal and regulatory limitations and compliance and competition.

These forward-looking statements include, without limitation, those relating to the Company’s future growth, completed acquisitions, revenue, expenses, assets, asset quality, profitability, earnings, accretion, dividends, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies and estimates, net interest margin, noninterest revenue, noninterest expense, market conditions related to and the impact of the Company’s stock repurchase program, consumer behavior and liquidity, the adequacy of the allowance for credit losses, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, repricing of loans and time deposits, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FHLB Owns the Option advances, capital resources, market risk, plans for investments in securities, effect of pending and future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, staffing initiatives, estimated cost savings associated with the Company’s early retirement program and Better Bank Initiative, acquisition strategy and activity, legal and regulatory limitations and compliance and competition.

These forward-looking statements are based on various assumptions and involve inherent risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation:

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changes in the level and composition of deposits, loan demand, deposit flows, credit quality and the values of loan collateral, securities and interest sensitive assets and liabilities;

changes in the securities markets generally or the price of the Company’s common stock specifically;

changes in the securities markets generally or the price of the Company’s common stock;

developments in information technology affecting the financial industry;

changes in customer behaviors, including consumer spending, borrowing and saving habits;

residual effects of the COVID-19 pandemic;

cyber threats, attacks or events;

cyber threats, attacks or events, including at third-parties with which we rely on for key services;

reliance on third parties for the provision of key services;

further changes in accounting principles relating to loan loss recognition;

uncertainty and disruption associated with the discontinued use of the London Inter-Bank Offered Rate;

uncertainty and disruption following the sunsetting of the London Inter-Bank Offered Rate in June 2023;

the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions;

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market disruptions, including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, war and other military conflicts (including the ongoing military conflict between Russia and Ukraine) or other major events, or the prospect of these events;

soundness of other financial institutions and indirect exposure related to the closings of Silicon Valley Bank (SVB), Signature Bank, First Republic Bank and Silvergate Bank and their impact on the broader market through other customers, suppliers and partners (or that the conditions which resulted in the liquidity concerns with SVB, First Republic Bank, Signature Bank and Silvergate Bank may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships);

soundness of other financial institutions and indirect exposure related to the closings of Silicon Valley Bank (SVB), Signature Bank, First Republic Bank and Silvergate Bank in the first quarter of 2023 and their impact on the broader market through other customers, suppliers and partners (or that the conditions which resulted in the liquidity concerns with SVB, First Republic Bank, Signature Bank and Silvergate Bank may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships);

the loss of key employees;

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labor shortages;

claims, damages;

changes in accounting principles relating to loan loss recognition (current expected credit losses);

the Company’s ability to manage and successfully integrate its mergers and acquisitions and to fully realize cost savings and other benefits associated with those transactions;

government legislation;

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans, other real estate owned, and other cautionary statements set forth elsewhere in this report.

Additional information on factors that might affect the Company’s financial results is included in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report and the Company’s annual report on Form 10-K for the year ended December 31, 2022, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov.

the effects of government legislation;

the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans, OREO, and other cautionary statements set forth elsewhere in this report.

Additional information on factors that might affect the Company’s financial results is included in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report, the Company’s annual report on Form 10-K for the year ended December 31, 2022, and the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2023, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov.

Many of these factors are beyond our ability to predict or control, and actual results could differ materially from those in the forward-looking statements due to these factors and others.

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GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The tables below present computations of adjusted earnings (net income excluding certain items {gain on insurance settlement, merger related costs, and net branch right sizing costs}) (non-GAAP), and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest income (non-GAAP) and adjusted noninterest expense (non-GAAP).

The tables below present computations of adjusted earnings (net income excluding certain items {net branch right sizing costs, merger related costs, donation to Simmons First Foundation, and early retirement program costs}) (non-GAAP), and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest income (non-GAAP), adjusted noninterest expense (non-GAAP) and adjusted salaries and employee benefits expense (non-GAAP).

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

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• Investor presentations of Company performance

We have $1.446 billion and $1.449 billion total goodwill and other intangible assets for the periods ended March 31, 2023 and December 31, 2022, respectively.

We have $1.442 billion and $1.449 billion total goodwill and other intangible assets for the periods ended June 30, 2023 and December 31, 2022, respectively.

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

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Three Months Ended

March 31, December 31, March 31,

June 30, Six Months Ended

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

(In thousands, except per share data) 2023 2023 2023 2022

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Certain items:

Gain on insurance settlement — (4,074) —

Donation to Simmons First Foundation — — — 1,738

Merger related costs 19 1,396 1,415 21,019

Early retirement program 3,609 — 3,609 —

Branch right sizing (net) 95 979 1,074 1,289

Day 2 CECL Provision — — — 33,779

Tax effect (1)

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Certain items:

Gain on insurance settlement — (0.03) —

Donation to Simmons First Foundation — — — 0.01

Merger related costs — 0.01 0.01 0.17

Early retirement program 0.03 — 0.03 —

Branch right sizing (net) — 0.01 0.01 0.01

Day 2 CECL Provision — — — 0.28

Tax effect (1)

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

See Table 13 below for the reconciliation of adjusted noninterest income and adjusted noninterest expense for the periods presented.

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

See Table 13 below for the reconciliation of adjusted noninterest income, adjusted noninterest expense and adjusted salaries and employee benefits expense for the periods presented.

Reconciliation of Adjusted Noninterest Income (non-GAAP), Adjusted Noninterest Expense (non-GAAP) and Adjusted Salaries and Employee Benefits Expense (non-GAAP)

Three Months Ended

March 31, December 31, March 31,

June 30, Six Months Ended

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

(In thousands) 2023 2023 2023 2022

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Certain items:

Gain on insurance settlement — (4,074) —

Branch right sizing — — — 88

Total certain items — — — 88

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Merger related costs (19) (1,396) (1,415) (21,019)

Early retirement program (3,609) — (3,609) —

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

Branch right sizing (95) (979) (1,074) (1,201)

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Adjusted noninterest expense (non-GAAP) $ 135,973 $ 140,853 $ 276,826 $ 261,272

Salaries and employee benefits expense $ 74,723 $ 77,038 $ 151,761 $ 142,041

Early retirement program costs (3,609) — (3,609) —

Adjusted salaries and employee benefits expense (non-GAAP) $ 71,114 $ 77,038 $ 148,152 $ 142,041

See Table 14 below for the reconciliation of tangible book value per common share.

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

March 31, December 31,

June 30, December 31,

(In thousands, except per share data) 2023 2022

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

March 31, December 31,

June 30, December 31,

(Dollars in thousands) 2023 2022

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Ratio of tangible common equity to tangible assets (non-GAAP) 7.22 % 7.00 %

See Table 16 below for the calculation of uninsured deposit coverage ratio.

Calculation of Uninsured Deposit Coverage Ratio (non-GAAP)

June 30, December 31,

(In thousands) 2023 2022

Uninsured deposits at Simmons Bank $ 5,491,062 $ 7,267,220

Intercompany eliminations 674,552 527,542

Total uninsured deposits $ 4,816,510 $ 6,739,678

FHLB borrowing availability $ 5,345,000 $ 5,442,000

Unpledged securities 3,877,000 3,180,000

Fed funds lines, Fed discount window and Bank Term Funding Program 1,874,000 1,982,000

Additional liquidity sources $ 11,096,000 $ 10,604,000

Uninsured deposit coverage ratio 2.3 1.6

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis