What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-04 · 173 added, 166 removed, 628 unchanged (35% of the section changed)

1 unchanged sentence

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

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.

Accordingly, we have compared our results of operations for the three months ended September 30, 2023 to our results of operations for the three months ended June 30, 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 June 30, 2023, please refer to our second quarter Form 10-Q filed with the SEC on August 4, 2023.

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

Despite these challenges, which have seemed to abate slightly in the third quarter of 2023, we remain resolute in serving our customers’ financial needs while diligently focusing on maintaining strong asset quality, capital and liquidity positions, and on strategies to improve our financial performance and maximize the value of our shareholders’ investment in the current rate environment.

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 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.

Total deposits as of September 30, 2023 were $22.23 billion, compared to $22.55 billion as of December 31, 2022.

Uninsured deposits (excluding collateralized deposits and intercompany deposits) as of September 30, 2023 were approximately $4.63 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 September 30, 2023 (see Table 11 in the Risk Based Capital section below).

As of September 30, 2023, our ratio of common equity to total assets was 11.92%, the ratio of tangible common equity to tangible assets was 7.07% and our Tier 1 leverage ratio was 9.31%.

• Key credit quality metrics as of September 30, 2023 also remained solid, with our nonperforming loan coverage ratio at 267% and our allowance for credit losses as a percent of total loans ratio was 1.30%.

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

Additional liquidity sources available to us as of September 30, 2023 totaled $11.45 billion and our uninsured, non-collateralized deposit coverage ratio was 2.5x.

Our net income for the three months ended September 30, 2023 was $47.2 million, or $0.37 diluted earnings per share, compared to net income of $58.3 million, or $0.46 diluted earnings per share, for the three months ended June 30, 2023.

Included in each comparative period end results were certain items related to our acquisitions, early retirement program costs and branch right sizing initiatives.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended September 30, 2023 were $48.8 million, or $0.39 adjusted diluted earnings per share, compared to $61.1 million, or $0.48 adjusted diluted earnings per share, for the three months ended June 30, 2023.

Net income for the nine months ended September 30, 2023 was $151.2 million, or $1.19 diluted earnings per share, compared to net income of $173.2 million, or $1.40 diluted earnings per share for the nine months ended September 30, 2022.

Included in the results for the nine months ended September 30, 2023 were certain items related to acquisition costs, early retirement costs and branch right sizing initiatives, while the results for the nine months ended September 30, 2022 included certain items related to acquisition costs, branch right sizing initiatives, the Day 2 CECL provision required for loans and unfunded commitments acquired in connection with the Spirit acquisition, loss from early retirement of TruPS, gain on sale of intellectual property and a donation to Simmons First Foundation.

Excluding these certain items and the tax effect, adjusted earnings for the nine months ended September 30, 2023 were $157.2 million, or $1.24 adjusted diluted earnings per share, compared to $217.5 million, or $1.76 adjusted diluted earnings per share for the nine months ended September 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.

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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.

During the third quarter of 2023, we 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 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.

As a result, we were able to achieve all of the original $15 million of annual cost savings we previously estimated by the end of the third quarter, one quarter sooner than anticipated.

Asset quality metrics remain strong and reflect our conservative credit culture, as well as our focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment.

Total nonperforming loans as of September 30, 2023, December 31, 2022, and September 30, 2022 were $81.9 million, $58.9 million, and $57.8 million, respectively.

Non-performing assets as a percent of total assets were 0.32% at September 30, 2023, compared to 0.23% at both periods ended December 31, 2022 and September 30, 2022.

Stockholders’ equity as of September 30, 2023 was $3.29 billion, book value per share was $26.26 and tangible book value per share was $14.77.

We repurchased 1,128,962 shares of our common stock under the 2022 Program during the third quarter of 2023.

Total loans were $16.77 billion at September 30, 2023, compared to $16.14 billion at December 31, 2022.

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

Our unfunded commitments were $4.32 billion and $5.64 billion as of September 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 $877.3 million as of September 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 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.

Simmons First National Corporation is a Mid-South based financial holding company that, as of September 30, 2023, has approximately $27.6 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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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.

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

Judgement is inherent in assessing goodwill for impairment.

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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 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.

As of September 30, 2023, our interest rate sensitivity shows that approximately 41% of our loans and 95% of our time deposits will reprice in the next year.

Net Interest Income - Sequential Quarter Analysis

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.

For the three month period ended September 30, 2023, net interest income on a fully taxable equivalent basis was $159.9 million, a decrease of $9.4 million, or 5.5%, compared to the three months ended June 30, 2023.

The decrease in net interest income was primarily the result of a $13.5 million increase in fully tax equivalent interest income, more than offset by a $22.9 million increase in interest expense.

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.

The increase in interest income primarily resulted from a $11.6 million increase in interest income on loans, coupled with an increase of $2.3 million in interest income on investment securities.

The majority of the increase in interest income provided by loans was due to yield increases during the quarter, as a 19 basis point increase in loan yield resulted in $10.8 million of interest income.

The loan yield for the third quarter of 2023 was 6.08% compared to 5.89% from the preceding sequential quarter.

The increase in interest income on investment securities was primarily due to a 25 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 $22.9 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 deposit, in the current higher rate environment.

Interest expense increased $20.2 million due to the increase in rate of 49 basis points on interest-bearing deposit accounts as pricing measures were implemented to defend the core deposit base.

Interest expense increased $4.6 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.

The increases due to deposit volume and yields were partially offset by the reduced reliance on other wholesale borrowings sources, primarily Federal Home Loan Bank advances during the third quarter of 2023, which led to a $2.2 million decrease in interest expense.

Net Interest Income - Year-over-Year Analysis

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.

Net interest income on a fully taxable equivalent basis for the nine month period ended September 30, 2023 decreased $28.8 million, or 5.3%, over the same period in 2022.

The decrease in net interest income on a fully taxable equivalent basis was the result of a $290.5 million increase in fully tax equivalent interest income, more than offset by a $319.3 million increase in interest expense.

The increase in interest income during the nine month period ended September 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 $250.9 million reflects an increase in loan volume of $103.1 million coupled with a 127 basis point rise in loan yield that resulted in a $147.8 million increase.

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 in our loan volume during the first nine 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 $35.4 million in interest income on investment securities reflects an increase of $48.6 million in interest income on investment securities due to yield increases over the period of 125 basis points and 14 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 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 increase in interest income on investment securities due to yield increases was mitigated by a $13.2 million decrease due to the decline in our investment portfolio average balances which decreased by $915.2 million or 11.0%, as our portfolio experienced pay downs and maturities over the period, which was reinvested into our loan portfolio.

The $319.3 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.

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Net Interest Margin

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.

Our net interest margin on a fully tax equivalent basis was 2.61% and 2.82% for the three and nine month periods ended September 30, 2023, as compared to 2.76% and 3.12% for the three months ended June 30, 2023 and the nine months ended September 30, 2022, respectively.

The decrease of 15 basis points in the net interest margin during the three months ended September 30, 2023 compared to the three months ended June 30, 2023 was primarily due to the rising deposit rate pressure from increased market competition and consumer migration toward higher rate deposits.

The decrease of 30 basis points in the net interest margin during the nine months ended September 30, 2023 compared to the nine months ended September 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 June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended September 30, 2023 and June 30, 2023 and the nine months ended September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2023 2023 2022

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Changes in Fully Taxable Equivalent Net Interest Margin

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

Three Months Ended Nine Months Ended

(In thousands) September 30, 2023 compared to June 30, 2023 September 30, 2023 compared to September 30, 2022

Increase (decrease) due to change in earning assets $ (1,297) $ 85,904

Increase due to change in earning asset yields 14,772 204,619

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Decrease due to change in interest rates paid on interest bearing liabilities (21,383) (294,894)

(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 June 30, 2023 and March 31, 2023 and the six months ended June 30, 2023 and 2022, respectively.

Decrease in net interest income $ (9,388) $ (28,761)

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

June 30, 2023 March 31, 2023

September 30, 2023 June 30, 2023

Average Income/ Yield/ Average Income/ Yield/

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Net interest margin – FTE $ 159,948 2.61 $ 169,336 2.76

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Average Income/ Yield/ Average Income/ Yield/

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Net interest margin – FTE $ 513,430 2.82 $ 542,191 3.12

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.

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023 and the nine months ended September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2023 compared to June 30, 2023 September 30, 2023 compared to September 30, 2022

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

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

The provision for credit losses for the three months ended June 30, 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.

The provision for credit losses for the three months ended September 30, 2023 was $7.7 million as compared to $61,000 for the three months ended June 30, 2023.

The change for the three month period ended September 30, 2023 as compared to the preceding quarter is primarily due to a $20.2 million expense related to loans and reflected loan growth, as well as the impact of updated economic assumptions, which was partially offset by the recapture of $11.3 million reflecting the continued decline in unfunded commitments and the recapture of $1.2 million based upon improvements in the value of select corporate bonds in the investment securities portfolio.

For the nine months ended September 30, 2023, our provision for credit losses was $32.0 million as compared to $14.0 million for the same period ended September 30, 2022.

The change for the nine months ended September 30, 2023 as compared to the same period ended September 30, 2022 is primarily due to the impacts described above, coupled with prior decreases in the value of select corporate bonds in the investment securities portfolio, while the nine months ended September 30, 2022 reflected the adjustments due to the Spirit Day 2 provision expense for the acquired loans and additional unfunded commitments added to our portfolio, offset by improved credit quality metrics and improved macroeconomic factors during the period.

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 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.

For the three month period ended September 30, 2023, total noninterest income was $42.8 million, a decrease of approximately $2.2 million or 4.9%, compared to the three month period ended June 30, 2023.

The sequential decrease was primarily driven by the 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 period ended June 30, 2023, and was partially offset by an incremental increase in bank owned life insurance income during the three month period ended September 30, 2023.

Noninterest income for the nine months ended September 30, 2023 increased by approximately $8.2 million or 6.5% as compared to the nine months ended September 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 a legal reserve recapture of $4.0 million previously disclosed 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 $3.3 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.

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.

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

Noninterest Income

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

30, June 30, Change Sept.

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

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Other service charges and fees 2,232 2,262 (30) (1.3) 6,776 5,593 1,183 21.2

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

Loss on sale of securities, net — (391) 391 * (391) (226) (165) (73.0)

Loss on sale of branches — — — — — (153) 153 100.0

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* 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.

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for the three month period ended September 30, 2023 was $30.1 million, a decrease of $478,000 as compared to the three month period ended June 30, 2023 due to certain insufficient funds fee structure changes for consumer deposit accounts that were implemented during the third quarter of 2023.

Recurring fee income for the nine month period ended September 30, 2023 was $90.7 million, an increase of $3.4 million from the nine month period ended September 30, 2022 and was primarily due to the increased consumer base provided by the Spirit acquisition.

We expect service charges to moderate through the end of 2023 and into early 2024 due to the elimination of returned item fees for consumer deposit accounts with insufficient funds.

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 $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.

Noninterest expense was $132.0 million for the three month period ended September 30, 2023, as compared to noninterest expense of $139.7 million for the three month period ended June 30, 2023, representing a decrease of $7.7 million, or 5.5%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing, merger related costs and early retirement program costs, for the three months ended September 30, 2023, decreased $6.1 million, or 4.5%, as compared to the three months ended June 30, 2023.

Noninterest expense for the nine months ended September 30, 2023 decreased by approximately $9.3 million or 2.2% as compared to the nine months ended September 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 nine months ended September 30, 2023, increased $9.1 million, or 2.3%, as compared to the nine months ended September 30, 2022.

The $7.3 million decrease in salaries and employee benefits expense during the three month period ended September 30, 2023 as compared to the preceding sequential quarter is primarily due to the successful execution of programs as part of our Better Bank Initiative.

Adjusted salaries and employee benefits expense, which excludes early retirement program costs, for the three months ended September 30, 2023, decreased $5.3 million, or 7.4%, as compared to the three months ended June 30, 2023.

Salaries and employee benefits expense increased $5.2 million during the nine month period ended September 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 nine months ended September 30, 2023 as compared to the three months ended June 30, 2023 and nine months ended September 30, 2022 decreased by $529,000 and increased by $6.8 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.

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

Noninterest Expense

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

30, June 30, Change Sept.

(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 $3.76 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.

HTM and AFS investment securities were $3.74 billion and $3.36 billion, respectively, at September 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 $136.0 million in accumulated other comprehensive income (loss) as of June 30, 2023 will be amortized over the remaining life of the securities.

The related remaining combined net unrealized losses of $131.2 million in accumulated other comprehensive income (loss) as of September 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 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.

Furthermore, as of September 30, 2023, we have the ability to hold the securities classified as AFS for a period of time sufficient for a recovery of amortized cost, we do not have an immediate intent to sell the securities classified as AFS, and we believe the accounting standard of “more likely than not” has not been met regarding whether we would be required to sell any of the AFS securities before recovery of amortized 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 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 2023, management reduced the allowance for credit loss related to isolated corporate bonds within the AFS investment securities portfolio by $1.2 million due to price recovery on the impaired bonds.

As of September 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.

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.

LOAN PORTFOLIO

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.

Our loan portfolio averaged $16.60 billion and $13.91 billion during the first nine months of 2023 and 2022, respectively.

As of September 30, 2023, total loans were $16.77 billion, an increase of $629.8 million from December 31, 2022.

The increase in the average loan balance during the first nine 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

June 30, December 31,

September 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 $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.

Consumer loans were $304.4 million at September 30, 2023, or 1.8% 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 September 30, 2023, was primarily due to loan payoffs and pay downs within the other consumer portfolio 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 $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%.

Real estate loans were $13.25 billion at September 30, 2023, or 79.0% of total loans, compared to $12.58 billion, or 77.9%, of total loans at December 31, 2022, an increase of $663.9 million, or 5.3%.

Our C&D loans increased by $455.7 million, or 17.8%, single family residential loans increased by $111.8 million, or 4.4%, and CRE loans increased by $96.5 million, or 1.3%.

The increases were due to diversified organic growth by type and geographic market during the quarter.

The increases were due to diversified organic growth by type and geographic market during the first nine months of 2023.

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 $2.85 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.

Total commercial loans were $2.77 billion at September 30, 2023, or 16.5% of total loans, compared to $2.84 billion, or 17.6% of total loans at December 31, 2022, a decrease of $63.9 million, or 2.3%.

The decrease in non-real estate loans related to business of $155.2 million, or 5.9%, was partially offset by the increase in agricultural loans of $91.3 million, or 44.4%, 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 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 $689.1 million at June 30, 2023 compared to $1.12 billion at December 31, 2022.

Mortgage volume experienced an increase in demand during the first nine 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 $75.2 million in other loans.

While loan growth was widespread throughout our geographic markets and was generally broad-based by loan type during the first nine months of 2023, loan growth during the third quarter of 2023 reflected moderating demand and increased payoff activity, as we focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment.

Our commercial loan pipeline consisting of all commercial loan opportunities was $877.3 million at September 30, 2023 compared to $1.12 billion at December 31, 2022.

Loans approved and ready to close at the end of the quarter totaled $432.9 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 $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.

Total non-performing assets increased $24.7 million from December 31, 2022 to September 30, 2023.

Nonaccrual loans increased by $22.7 million during the period and foreclosed assets held for sale and other real estate owned increased $922,000 as compared to December 31, 2022.

The increase in nonaccrual assets during the period was primarily due to an increase in nonaccrual loans within our commercial loan portfolio.

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 0.44% at September 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 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.

During the three months ended September 30, 2023, there were two commercial loans modified for borrowers experiencing financial difficulties, with a combined period-end balance of $85,000.

During the nine months ended September 30, 2023, there were three commercial loans modified for borrowers experiencing financial difficulties, with a combined period-end balance of $736,000.

The financial effects of the loan modifications made to borrowers experiencing financial difficulty, specifically related to the commercial portfolio, was not significant during the three and nine month periods ended September 30, 2023.

During the three and nine month periods ending September 30, 2023, there was one other CRE loan modified for a borrower experiencing financial difficulties, with a period-end balance of $30.6 million.

The modification allowed for two months of interest only payments with the remaining balance due at maturity.

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 June 30, 2023.

The allowance for credit losses as a percent of total loans was 1.30% as of September 30, 2023.

Non-performing loans equaled 0.49% of total loans.

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The allowance for credit losses was 267% of non-performing loans.

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.

Our annualized net charge-offs to average total loans ratio for the first nine months of 2023 was 0.12%.

Annualized net credit card charge-offs to average total credit card loans were 2.04% for the first nine months of 2023, compared to 1.49% during the full year 2022, and 134 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

June 30, December 31, June 30,

September 30, December 31, September 30,

(Dollars in thousands) 2023 2022 2022

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_______________________________________

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

(1) Includes nonaccrual FDMs (formerly known as TDRs) of approximately $209,000 at September 30, 2023 and $1.6 million 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 and six month periods ended June 30, 2023 and 2022.

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

ALLOWANCE FOR CREDIT LOSSES

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Acquisition adjustment for PCD loans — 5,100

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

Balance, September 30, $ 218,547 $ 197,589

Loans charged off:

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Provision for Credit Losses

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

As of September 30, 2023, the allowance for credit losses reflected an increase of approximately $21.6 million from December 31, 2022 while total loans increased by $629.8 million over the same nine month period.

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

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

Our allowance for credit losses at September 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

June 30, 2023 December 31, 2022

September 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 June 30, 2023.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 232 financial centers as of September 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 June 30, 2023, core deposits comprised 78.5% of our total deposits.

As of September 30, 2023, core deposits comprised 77.8% of our total deposits.

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

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

Our total deposits as of June 30, 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.

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.

Our total deposits as of September 30, 2023, were $22.23 billion, compared to $22.55 billion as of December 31, 2022.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.56 billion at September 30, 2023, compared to $17.78 billion at December 31, 2022, a decrease of $2.22 billion.

Total time deposits increased $1.90 billion to $6.67 billion at September 30, 2023, from $4.77 billion at December 31, 2022.

We had $3.26 billion and $2.75 billion of brokered deposits at September 30, 2023, and December 31, 2022, respectively.

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

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

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.74 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;

Our total debt was $1.71 billion and $1.23 billion at September 30, 2023 and December 31, 2022, respectively.

The outstanding balance for September 30, 2023 includes $1.33 billion in FHLB advances;

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

and $19.6 million of other long-term debt.

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.

FHLB advances outstanding at September 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 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 June 30, 2023, total capital was $3.36 billion.

At September 30, 2023, total capital was $3.29 billion.

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

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

At September 30, 2023, our common equity to asset ratio was 11.92% compared to 11.91% at year-end 2022.

Capital Stock

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The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share (“Series D Preferred Stock”), 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 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 June 30, 2023, there were no shares of preferred stock issued or outstanding.

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

Stock Repurchase Program

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

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.

During the three and nine month periods ended September 30, 2023, we repurchased 1,128,962 shares at an average price per share of $17.69 and 2,257,049 shares at an average price of $17.72 per share, respectively, under the 2022 Program.

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

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

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 $0.40 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%.

We declared cash dividends on our common stock of $0.60 per share for the first nine months of 2023 compared to $0.57 per share for the first nine months of 2022, an increase of $0.03, 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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Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

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

Management believes that, as of September 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.

1 unchanged sentence

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

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

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

Risk-Based Capital

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2023 2022

39 unchanged sentences

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

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

Qualifying subordinated debt of $300.1 million is included as Tier 2 and total capital as of September 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, 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 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 and other agencies, capital resources, market risk, plans for future and current investments in securities and investment portfolio strategies, 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;

actions taken by the Company to manage its investment securities portfolio;

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

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possible adverse rulings, judgements, settlements, fines and other outcomes of pending or future litigation or government actions;

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;

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 and between Israel and Hamas) 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 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);

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GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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).

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, loss from early retirement of TruPS, gain on sale of intellectual property 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), adjusted salaries and employee benefits expense (non-GAAP) and the coverage ratio of uninsured, non-collateralized deposits (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 $1.442 billion and $1.449 billion total goodwill and other intangible assets for the periods ended June 30, 2023 and December 31, 2022, respectively.

We have $1.437 billion and $1.449 billion total goodwill and other intangible assets for the periods ended September 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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Reconciliation of Adjusted Earnings (non-GAAP)

Three Months Ended

June 30, Six Months Ended

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

Three Months Ended Nine Months Ended

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

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

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Certain items:

Loss from early retirement of TruPS — — — 365

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

Donation to Simmons First Foundation — — — 1,738

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Certain items:

Loss from early retirement of TruPS — — — —

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

Donation to Simmons First Foundation — — — 0.01

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

Three Months Ended

June 30, Six Months Ended

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

Three Months Ended Nine Months Ended

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

(In thousands) 2023 2023 2023 2022

1 unchanged sentence

Certain items:

Loss from early retirement of TruPS — — — 365

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

Branch right sizing — — — 153

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

June 30, December 31,

September 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)

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2023 2022

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Ratio of tangible common equity to tangible assets (non-GAAP) 7.07 % 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,

See Table 16 below for the calculation of uninsured, non-collateralized deposit coverage ratio.

Calculation of Uninsured, Non-Collateralized Deposit Coverage Ratio (non-GAAP)

September 30, December 31,

(In thousands) 2023 2022

Uninsured deposits at Simmons Bank $ 8,143,200 $ 8,913,990

Collateralized deposits (excluding portion that is FDIC insured) 2,835,405 2,759,248

Intercompany eliminations 676,840 529,042

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

Total uninsured, non-collateralized deposits $ 4,630,955 $ 5,625,700

FHLB borrowing availability $ 5,372,000 $ 5,442,000

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Additional liquidity sources $ 11,447,000 $ 10,604,000

Uninsured deposit coverage ratio 2.3 1.6

Uninsured, non-collateralized deposit coverage ratio 2.5x 1.9x

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