SIMMONS FIRST NATIONAL CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 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. OVERVIEW 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 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. 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.” 53 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 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 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. We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the adjusted financial measures of the Company and predicting future performance. See the GAAP Reconciliation of Non-GAAP Financial Measures section below for additional discussion and reconciliations of non-GAAP measures. Simmons First National Corporation is a Mid-South based financial holding company that, as of September 30, 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 Overview We follow accounting and reporting policies that conform, in all material respects, to US GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the determination of the adequacy of the allowance for credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes. 54 Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, quantitative factors, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected credit losses and risks inherent in the loan portfolio. Our allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . For further information see the section Allowance for Credit Losses below. Our evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. The actual amounts of credit losses realized in the near term could differ from the amounts estimated in arriving at the allowance for credit losses reported in the financial statements. In the first quarter of 2023, we refined the estimation process by improving systems, models, processes, methodology, and assumptions used within the calculation. After multiple parallel runs with the former process, it was determined that the changes did not and are not expected to result in material differences of results. Acquisition Accounting, Loans We account for our acquisitions under ASC Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as a premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are purchased credit deteriorated (“PCD”) loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. We then record the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other , as amended by ASU 2011-08 – Testing Goodwill for Impairment and ASU 2017-04 - Intangibles – Goodwill and Other. 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 September 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. 55 Stock-Based Compensation Plans We have adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, 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. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 16, Stock-Based Compensation, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report. Income Taxes We are subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities. NET INTEREST INCOME Overview Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of noninterest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135%. Our practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing. In the last several years, on average, approximately 42% of our loan portfolio and approximately 80% of our time deposits have repriced in one year or less. 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 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 $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. 56 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. 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 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 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 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. Interest expense increased $259.8 million due to the increase in rate of 222 basis points on interest-bearing deposit accounts and increased $27.2 million due to the increase in deposit volume over the period. Further, an increase of $28.2 million to interest expense was related to an increase in other borrowings during the same period. The rate increase of 338 basis points in other borrowings resulted in an increase of $29.3 million, that was partially offset by a $1.1 million decrease in 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. Net Interest Margin 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. 57 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 September 30, 2023 and June 30, 2023 and the nine months ended September 30, 2023 and 2022, respectively. Table 1: Analysis of Net Interest Margin (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, (In thousands) 2023 2023 2023 2022 Interest income $ 310,286 $ 297,220 $ 886,643 $ 597,151 FTE adjustment 6,515 6,106 18,932 17,901 Interest income – FTE 316,801 303,326 905,575 615,052 Interest expense 156,853 133,990 392,145 72,861 Net interest income – FTE $ 159,948 $ 169,336 $ 513,430 $ 542,191 Yield on earning assets – FTE 5.16 % 4.95 % 4.97 % 3.54 % Cost of interest bearing liabilities 3.29 % 2.85 % 2.81 % 0.57 % Net interest spread – FTE 1.87 % 2.10 % 2.16 % 2.97 % Net interest margin – FTE 2.61 % 2.76 % 2.82 % 3.12 % Table 2: Changes in Fully Taxable Equivalent Net Interest Margin 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 Decrease due to change in interest bearing liabilities (1,480) (24,390) Decrease due to change in interest rates paid on interest bearing liabilities (21,383) (294,894) Decrease in net interest income $ (9,388) $ (28,761) 58 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. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans. Table 3: Average Balance Sheets and Net Interest Income Analysis (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Three Months Ended September 30, 2023 June 30, 2023 Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 331,444 $ 3,569 4.27 $ 404,639 $ 4,023 3.99 Investment securities - taxable 4,638,486 34,734 2.97 4,821,231 32,745 2.72 Investment securities - non-taxable 2,617,152 21,563 3.27 2,627,192 21,253 3.24 Mortgage loans held for sale 9,542 178 7.40 9,560 154 6.46 Loans - including fees 16,758,597 256,757 6.08 16,702,403 245,151 5.89 Total interest earning assets 24,355,221 316,801 5.16 24,565,025 303,326 4.95 Non-earning assets 3,239,390 3,201,114 Total assets $ 27,594,611 $ 27,766,139 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 10,682,767 $ 65,095 2.42 $ 11,011,746 $ 54,485 1.98 Time deposits 6,558,110 68,062 4.12 5,911,139 53,879 3.66 Total interest bearing deposits 17,240,877 133,157 3.06 16,922,885 108,364 2.57 Federal funds purchased and securities sold under agreements to repurchase 89,769 277 1.22 119,985 318 1.06 Other borrowings 1,222,557 16,450 5.34 1,449,403 18,612 5.15 Subordinated debt and debentures 366,085 6,969 7.55 366,047 6,696 7.34 Total interest bearing liabilities 18,919,288 156,853 3.29 18,858,320 133,990 2.85 Noninterest bearing liabilities: Noninterest bearing deposits 5,032,631 5,276,267 Other liabilities 271,014 272,628 Total liabilities 24,222,933 24,407,215 Stockholders’ equity 3,371,678 3,358,924 Total liabilities and stockholders’ equity $ 27,594,611 $ 27,766,139 Net interest spread – FTE 1.87 2.10 Net interest margin – FTE $ 159,948 2.61 $ 169,336 2.76 59 Nine Months Ended September 30, 2023 September 30, 2022 Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 350,523 $ 10,375 3.96 $ 939,411 $ 2,907 0.41 Investment securities - taxable 4,795,820 100,283 2.80 5,589,298 64,791 1.55 Investment securities - non-taxable 2,622,967 64,338 3.28 2,744,644 64,474 3.14 Mortgage loans held for sale 8,205 414 6.75 19,309 568 3.93 Other loans held for sale — — — 10,552 3,061 38.78 Loans - including fees 16,598,492 730,165 5.88 13,910,831 479,251 4.61 Total interest earning assets 24,376,007 905,575 4.97 23,214,045 615,052 3.54 Non-earning assets 3,240,875 2,948,091 Total assets $ 27,616,882 $ 26,162,136 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 11,135,226 $ 167,570 2.01 $ 12,385,888 $ 28,418 0.31 Time deposits 5,879,908 161,479 3.67 2,718,145 13,582 0.67 Total interest bearing deposits 17,015,134 329,049 2.59 15,104,033 42,000 0.37 Federal funds purchased and securities sold under agreements to repurchase 119,259 918 1.03 208,090 492 0.32 Other borrowings 1,154,840 43,910 5.08 1,233,534 15,671 1.70 Subordinated debt and debentures 366,047 18,268 6.67 404,609 14,698 4.86 Total interest bearing liabilities 18,655,280 392,145 2.81 16,950,266 72,861 0.57 Noninterest bearing liabilities: Noninterest bearing deposits 5,314,988 5,714,412 Other liabilities 279,526 222,715 Total liabilities 24,249,794 22,887,393 Stockholders’ equity 3,367,088 3,274,743 Total liabilities and stockholders’ equity $ 27,616,882 $ 26,162,136 Net interest spread – FTE 2.16 2.97 Net interest margin – FTE $ 513,430 2.82 $ 542,191 3.12 60 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. Table 4: Volume/Rate Analysis 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/ Rate Total Volume Yield/ Rate Total Increase (decrease) in: Interest income: Interest bearing balances due from banks and federal funds sold $ (769) $ 315 $ (454) $ (2,886) $ 10,354 $ 7,468 Investment securities - taxable (1,275) 3,264 1,989 (10,308) 45,800 35,492 Investment securities - non-taxable (81) 391 310 (2,921) 2,785 (136) Mortgage loans held for sale — 24 24 (431) 277 (154) Other loans held for sale — — — (680) (2,381) (3,061) Loans - including fees 828 10,778 11,606 103,130 147,784 250,914 Total (1,297) 14,772 13,475 85,904 204,619 290,523 Interest expense: Interest bearing transaction and savings accounts (1,671) 12,281 10,610 (3,155) 142,307 139,152 Time deposits 6,257 7,926 14,183 30,399 117,498 147,897 Federal funds purchased and securities sold under agreements to repurchase (88) 47 (41) (285) 711 426 Other borrowings (3,019) 857 (2,162) (1,062) 29,301 28,239 Subordinated notes and debentures 1 272 273 (1,507) 5,077 3,570 Total 1,480 21,383 22,863 24,390 294,894 319,284 (Decrease) increase in net interest income $ (2,777) $ (6,611) $ (9,388) $ 61,514 $ (90,275) $ (28,761) 61 PROVISION FOR CREDIT LOSSES The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for credit losses at a level considered appropriate in relation to the estimated lifetime risk inherent in the loan portfolio. The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, assessment of current economic conditions, reasonable and supportable forecasts, past due and non-performing loans and historical net credit loss experience. It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance. 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 Noninterest income is principally derived from recurring fee income, which includes service charges, wealth management fees and debit and credit card fees. Noninterest income also includes income on the sale of mortgage loans, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities. 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. 62 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. Table 5: Noninterest Income Three Months Ended Nine Months Ended Sept. 30, June 30, Change Sept. 30, Sept. 30, Change (Dollars in thousands) 2023 2023 $ % 2023 2022 $ % Service charges on deposit accounts $ 12,429 $ 12,882 $ (453) (3.5)% $ 37,748 $ 34,635 $ 3,113 9.0% Debit and credit card fees 7,712 7,986 (274) (3.4) 23,650 23,358 292 1.3 Wealth management fees 7,719 7,440 279 3.8 22,524 23,744 (1,220) (5.1) Mortgage lending income 2,157 2,403 (246) (10.2) 6,130 9,383 (3,253) (34.7) Bank owned life insurance income 3,095 2,555 540 21.1 8,623 8,171 452 5.5 Other service charges and fees 2,232 2,262 (30) (1.3) 6,776 5,593 1,183 21.2 Loss on sale of securities, net — (391) 391 * (391) (226) (165) (73.0) Loss on sale of branches — — — — — (153) 153 100.0 Other income 7,433 9,843 (2,410) (24.5) 28,532 20,914 7,618 36.4 Total noninterest income $ 42,777 $ 44,980 $ (2,203) (4.9)% $ 133,592 $ 125,419 $ 8,173 6.5% * Not meaningful 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 Noninterest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for our operations. Management remains committed to controlling the level of noninterest expense through the continued use of expense control measures. We utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements. Noninterest expense 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. 63 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 September 30, 2023 and June 30, 2023 and the nine months ended September 30, 2023 and 2022, respectively, as well as changes between periods. Table 6: Noninterest Expense Three Months Ended Nine Months Ended Sept. 30, June 30, Change Sept. 30, Sept. 30, Change (Dollars in thousands) 2023 2023 $ % 2023 2022 $ % Salaries and employee benefits $ 67,374 $ 74,723 $ (7,349) (9.8)% $ 219,135 $ 213,964 $ 5,171 2.4% Occupancy expense, net 12,020 11,410 610 5.4 35,008 32,701 2,307 7.1 Furniture and equipment expense 5,117 5,128 (11) (0.2) 15,296 15,273 23 0.2 Other real estate and foreclosure expense 228 289 (61) (21.1) 703 653 50 7.7 Deposit insurance 4,672 5,201 (529) (10.2) 14,766 7,928 6,838 86.3 Merger related costs 5 19 (14) * 1,420 22,441 (21,021) * Other operating expenses: Professional services 4,801 5,233 (432) (8.3) 14,443 13,987 456 3.3 Postage 2,283 2,366 (83) (3.5) 6,973 6,728 245 3.6 Telephone 1,750 1,701 49 2.9 5,182 4,921 261 5.3 Debit and credit card 3,356 3,444 (88) (2.6) 9,989 8,892 1,097 12.3 Marketing 5,787 6,044 (257) (4.3) 18,041 21,556 (3,515) (16.3) Software and technology 10,707 10,236 471 4.6 31,299 30,565 734 2.4 Operating supplies 474 683 (209) (30.6) 1,762 1,852 (90) (4.9) Amortization of intangibles 4,097 4,098 (1) — 12,291 11,807 484 4.1 Branch right sizing 547 95 452 * 1,621 2,371 (750) (31.6) Other 8,780 9,026 (246) (2.7) 26,993 28,534 (1,541) (5.4) Total noninterest expense $ 131,998 $ 139,696 $ (7,698) (5.5)% $ 414,922 $ 424,173 $ (9,251) (2.2)% * Not meaningful INVESTMENTS AND SECURITIES Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either HTM or AFS. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, MBS and municipal securities. 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 $3.74 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 $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. Management has the ability and intent to hold the securities classified as HTM until they mature, at which time we expect to receive full value for the securities. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. We expect the cash flows from principal maturities of securities to provide flexibility to fund future loan growth or reduce wholesale funding. 64 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 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, which became effective during late third quarter of 2023. Securities within these swap agreements have maturity dates varying between 2028 and 2029. LOAN PORTFOLIO 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). We seek to manage our credit risk by diversifying our loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an appropriate allowance for credit losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose, industry and geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for credit losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits. 65 The balances of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan. Table 7: Loan Portfolio September 30, December 31, (In thousands) 2023 2022 Consumer: Credit cards $ 191,550 $ 196,928 Other consumer 112,832 152,882 Total consumer 304,382 349,810 Real estate: Construction and development 3,022,321 2,566,649 Single family residential 2,657,879 2,546,115 Other commercial 7,565,008 7,468,498 Total real estate 13,245,208 12,581,262 Commercial: Commercial 2,477,077 2,632,290 Agricultural 296,912 205,623 Total commercial 2,773,989 2,837,913 Other 448,309 373,139 Total loans before allowance for credit losses $ 16,771,888 $ 16,142,124 Consumer loans consist of credit card loans and other consumer loans. 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 $13.25 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 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 $2.77 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 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. 66 ASSET QUALITY Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. Simmons Bank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or interest or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses. When credit card loans reach 90 days past due and there are attachable assets, the accounts are considered for litigation. Credit card loans are generally charged off when payment of interest or principal exceeds 150 days past due. The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible. Total non-performing assets 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. As a result, these borrowers seek to reduce contractual cash outlays, the most prominent being debt payments. In an effort to preserve our net interest margin and earning assets, we are open to working with existing customers in order to maximize the collectability of the debt. We have internal loan modification programs for borrowers experiencing financial difficulties. Modifications to borrowers experiencing financial difficulties may include interest rate reductions, principal or interest forgiveness and/or term extensions. We primarily use interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. 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 1.30% as of September 30, 2023. Non-performing loans equaled 0.49% of total loans. Non-performing assets were 0.32% of total assets, a 9 basis point increase from December 31, 2022. The allowance for credit losses was 267% of non-performing loans. 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. 67 Table 8 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for sale. Table 8: Non-performing Assets September 30, December 31, September 30, (Dollars in thousands) 2023 2022 2022 Nonaccrual loans (1) $ 81,135 $ 58,434 $ 57,534 Loans past due 90 days or more (principal or interest payments) 806 507 242 Total non-performing loans 81,941 58,941 57,776 Other non-performing assets: Foreclosed assets held for sale and other real estate owned 3,809 2,887 3,612 Other non-performing assets 1,417 644 1,146 Total other non-performing assets 5,226 3,531 4,758 Total non-performing assets $ 87,167 $ 62,472 $ 62,534 Performing FDMs (formerly TDRs) $ 33,723 $ 1,849 $ 1,869 Allowance for credit losses to non-performing loans 267 % 334 % 342 % Non-performing loans to total loans 0.49 % 0.37 % 0.37 % Non-performing assets (including performing FDMs (formerly TDRs)) to total assets 0.44 % 0.23 % 0.24 % Non-performing assets to total assets 0.32 % 0.23 % 0.23 % _______________________________________ (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 nine month periods ended September 30, 2023 and 2022. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is a reserve established through a provision for credit losses charged to expense which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, quantitative factors, and other qualitative considerations. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated for collective assessment. We use statistically-based models that leverage assumptions about current and future economic conditions throughout the contractual life of the loan. Expected credit losses are estimated by either lifetime loss rates or expected loss cash flows based on three key parameters: probability-of-default (“PD”), exposure-at-default (“EAD”), and loss-given-default (“LGD”). Future economic conditions are incorporated to the extent that they are reasonable and supportable. Beyond the reasonable and supportable periods, the economic variables revert to a historical equilibrium at a pace dependent on the state of the economy reflected within the economic scenarios. We also include qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Loans that have unique risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. For a collateral-dependent loan, our evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. 68 An analysis of the allowance for credit losses on loans is shown in Table 9. Table 9: Allowance for Credit Losses (In thousands) 2023 2022 Balance, beginning of year $ 196,955 $ 205,332 Loans charged off: Credit card 3,803 2,827 Other consumer 1,755 1,438 Real estate 11,362 730 Commercial 2,857 8,880 Total loans charged off 19,777 13,875 Recoveries of loans previously charged off: Credit card 766 773 Other consumer 1,020 967 Real estate 1,601 2,799 Commercial 1,783 1,898 Total recoveries 5,170 6,437 Net loans charged off 14,607 7,438 Provision for credit losses 36,199 (5,405) Acquisition adjustment for PCD loans — 5,100 Balance, September 30, $ 218,547 $ 197,589 Loans charged off: Credit card 1,035 Other consumer 438 Real estate 3,392 Commercial 5,390 Total loans charged off 10,255 Recoveries of loans previously charged off: Credit card 251 Other consumer 230 Real estate 4,117 Commercial 475 Total recoveries 5,073 Net loans charged off 5,182 Provision for credit losses 26 Acquisition adjustment for PCD loans 4,522 Balance, end of year $ 196,955 Provision for Credit Losses 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. 69 Allowance for Credit Losses Allocation 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 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. The table also reflects the percentage of loans in each category to the total loan portfolio for each of the periods indicated. The allowance for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories. Table 10: Allocation of Allowance for Credit Losses September 30, 2023 December 31, 2022 (Dollars in thousands) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Credit cards $ 5,950 1.1 % $ 5,140 1.2 % Other consumer 5,444 3.3 % 6,614 3.2 % Real estate 173,047 79.0 % 150,795 78.0 % Commercial 34,106 16.6 % 34,406 17.6 % Total $ 218,547 100.0 % $ 196,955 100.0 % Allowance for credit losses to period-end loans 1.30 % 1.22 % _______________________________________ (1) Percentage of loans in each category to total loans. DEPOSITS 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 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. Because of our community banking philosophy, our executives in the local markets, with oversight by the Chief Deposit Officer, Asset Liability Committee and the Bank’s Treasury Department, establish the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe we are paying a competitive rate when compared with pricing in those markets. We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment. 70 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 $1.71 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 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. We incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and are subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries. We assumed Fixed-to-Floating Rate Subordinated Notes in an aggregate principal amount, net of premium adjustments, of $37.4 million in connection with the Spirit acquisition in April 2022 (the “Spirit Notes”). The Spirit Notes will mature on July 31, 2030, and initially bear interest at a fixed annual rate of 6.00%, payable quarterly, in arrears, to, but excluding, July 31, 2025. From and including July 31, 2025, to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be the then-current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York (provided, that in the event the benchmark rate is less than zero, the benchmark rate will be deemed to be zero) plus 592 basis points, payable quarterly, in arrears. CAPITAL Overview 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 September 30, 2023, our common equity to asset ratio was 11.92% compared to 11.91% at year-end 2022. Capital Stock On February 27, 2009, at a special meeting, our shareholders approved an amendment to the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. On April 27, 2022, our shareholders approved amendments to our Articles of Incorporation to remove an $80.0 million cap on the aggregate liquidation preference associated with the preferred stock and increase the number of authorized shares of our Class A common stock from 175,000,000 to 350,000,000. On October 29, 2019, we filed Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share (“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 September 30, 2023, there were no shares of preferred stock issued or outstanding. 71 Stock Repurchase Program Effective July 23, 2021, our Board of Directors approved an amendment to our stock repurchase program originally approved in October 2019 (“2019 Program”) that increased the amount of our common stock that could be repurchased under the 2019 Program from a maximum of $180.0 million to a maximum of $276.5 million and extended the term of the 2019 Program from October 31, 2021, to October 31, 2022. During January 2022, we substantially exhausted the remaining capacity under the 2019 Program, and our Board of Directors authorized a new stock repurchase program (the “2022 Program”) under which we may repurchase up to $175.0 million of our Class A common stock currently issued and outstanding. The 2022 Program replaced the 2019 Program and will terminate on January 31, 2024 (unless terminated sooner). 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. The timing, pricing, and amount of any repurchases under the 2022 Program will be determined by management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and legal requirements. The 2022 Program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. We anticipate funding for this 2022 Program to come from available sources of liquidity, including cash on hand and future cash flow. Cash Dividends We declared cash dividends on our common stock of $0.60 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. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all. Parent Company Liquidity The primary liquidity needs of the Parent Company are the payment of dividends to shareholders, the funding of debt obligations and cash needs for acquisitions. The primary sources for meeting these liquidity needs are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends by Simmons Bank is subject to various regulatory limitations. 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 10-Q. 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. 72 Risk Based Capital The Company and Simmons Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Company and Simmons Bank must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of 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. To be categorized as well capitalized, the Company and Simmons Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s categories. Our risk-based capital ratios at September 30, 2023 and December 31, 2022 are presented in Table 11 below: Table 11: Risk-Based Capital September 30, December 31, (Dollars in thousands) 2023 2022 Tier 1 capital: Stockholders’ equity $ 3,285,555 $ 3,269,362 CECL transition provision 61,746 92,619 Goodwill and other intangible assets (1,402,682) (1,412,667) Unrealized loss on available-for-sale securities, net of income taxes 544,380 517,560 Total Tier 1 capital 2,488,999 2,466,874 Tier 2 capital: Subordinated notes and debentures 366,103 365,989 Subordinated debt phase out (66,000) — Qualifying allowance for credit losses and reserve for unfunded commitments 165,490 115,627 Total Tier 2 capital 465,593 481,616 Total risk-based capital $ 2,954,592 $ 2,948,490 Risk weighted assets $ 20,703,669 $ 20,738,727 Assets for leverage ratio $ 26,733,658 $ 26,407,061 Ratios at end of period: Common equity Tier 1 ratio (CET1) 12.02 % 11.90 % Tier 1 leverage ratio 9.31 % 9.34 % Tier 1 risk-based capital ratio 12.02 % 11.90 % Total risk-based capital ratio 14.27 % 14.22 % Minimum guidelines: Common equity Tier 1 ratio (CET1) 4.50 % 4.50 % Tier 1 leverage ratio 4.00 % 4.00 % Tier 1 risk-based capital ratio 6.00 % 6.00 % Total risk-based capital ratio 8.00 % 8.00 % 73 Regulatory Capital Changes In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact of the adoption on earnings and Tier 1 capital (the “CECL Transition Provision”). In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios with a more risk-sensitive approach. The Basel III Capital Rules established risk-weighting categories depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures. The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets to 6.0% and require a minimum leverage ratio of 4.0%. Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities were no longer included as Tier 1 capital. 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 September 30, 2023. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS See the Recently Issued Accounting Standards section in Note 1, Preparation of Interim Financial Statements, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on the Company’s ongoing financial position and results of operation. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this quarterly report may not be based on historical facts and should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 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. 74 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: changes in the Company’s operating, acquisition, or expansion strategy; the effects of future economic conditions (including unemployment levels and slowdowns in economic growth), governmental monetary and fiscal policies, including policies of the Federal Reserve, as well as legislative and regulatory changes; changes in real estate values; changes in interest rates and related governmental policies; inflation; 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; developments in information technology affecting the financial industry; changes in customer behaviors, including consumer spending, borrowing and saving habits; 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 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; 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 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); the loss of key employees; increased unemployment; labor shortages; 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; the effects of 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, cell phone/tablet, telephone, computer and the Internet; 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. In addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of future performance. We believe the assumptions and expectations that underlie or are reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations or whether our future performance will differ materially from the performance reflected in or implied by our forward-looking statements, and you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this section. 75 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, 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). We believe the exclusion of these certain items in expressing earnings and certain other financial measures, including “adjusted earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the adjusted financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business because management does not consider these certain items to be relevant to ongoing financial performance. Management and the Board of Directors utilize “adjusted earnings” (non-GAAP) for the following purposes: • Preparation of the Company’s operating budgets • Monthly financial performance reporting • Monthly “flash” reporting of consolidated results (management only) • Investor presentations of Company performance We believe the presentation of “adjusted earnings” on a diluted per share basis (non-GAAP) provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the adjusted financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business, because management does not consider these certain items to be relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize “adjusted diluted earnings per share” (non-GAAP) for the following purposes: • Calculation of annual performance-based incentives for certain executives • Calculation of long-term performance-based incentives for certain executives • Investor presentations of Company performance We have $1.437 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). We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that is applied by management and the Board of Directors. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as adjusted to ensure that the Company’s “adjusted” results are properly reflected for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes certain items does not represent the amount that effectively accrues directly to stockholders (i.e., certain items are included in earnings and stockholders’ equity). Additionally, similarly titled non-GAAP financial measures used by other companies may not be computed in the same or similar fashion. 76 See Table 12 below for the reconciliation of non-GAAP financial measures, which exclude certain items for the periods presented. Table 12: Reconciliation of Adjusted Earnings (non-GAAP) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, (In thousands, except per share data) 2023 2023 2023 2022 Net income available to common stockholders $ 47,247 $ 58,314 $ 151,150 $ 173,152 Certain items: Loss from early retirement of TruPS — — — 365 Gain on sale of intellectual property — — — (750) Donation to Simmons First Foundation — — — 1,738 Merger related costs 5 19 1,420 22,441 Early retirement program 1,557 3,609 5,166 — Branch right sizing (net) 547 95 1,621 2,524 Day 2 CECL Provision — — — 33,779 Tax effect (1) (552) (972) (2,145) (15,707) Certain items, net of tax 1,557 2,751 6,062 44,390 Adjusted earnings (non-GAAP) $ 48,804 $ 61,065 $ 157,212 $ 217,542 Diluted earnings per share (2) $ 0.37 $ 0.46 $ 1.19 $ 1.40 Certain items: Loss from early retirement of TruPS — — — — Gain on sale of intellectual property — — — (0.01) Donation to Simmons First Foundation — — — 0.01 Merger related costs — — 0.01 0.18 Early retirement program 0.01 0.03 0.04 — Branch right sizing (net) 0.01 — 0.02 0.02 Day 2 CECL Provision — — — 0.28 Tax effect (1) — (0.01) (0.02) (0.12) Certain items, net of tax 0.02 0.02 0.05 0.36 Adjusted diluted earnings per share (non-GAAP) $ 0.39 $ 0.48 $ 1.24 $ 1.76 _______________________________________ (1) Effective tax rate of 26.135%. (2) See Note 17, Earnings Per Share (“EPS”), for number of shares used to determine EPS. 77 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. Table 13: Reconciliation of Adjusted Noninterest Income (non-GAAP), Adjusted Noninterest Expense (non-GAAP) and Adjusted Salaries and Employee Benefits Expense (non-GAAP) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, (In thousands) 2023 2023 2023 2022 Noninterest income $ 42,777 $ 44,980 $ 133,592 $ 125,419 Certain items: Loss from early retirement of TruPS — — — 365 Gain on sale of intellectual property — — — (750) Branch right sizing — — — 153 Total certain items — — — (232) Adjusted noninterest income (non-GAAP) $ 42,777 $ 44,980 $ 133,592 $ 125,187 Noninterest expense $ 131,998 $ 139,696 $ 414,922 $ 424,173 Certain items: Merger related costs (5) (19) (1,420) (22,441) Early retirement program (1,557) (3,609) (5,166) — Donation to Simmons First Foundation — — — (1,738) Branch right sizing (547) (95) (1,621) (2,371) Total certain items (2,109) (3,723) (8,207) (26,550) Adjusted noninterest expense (non-GAAP) $ 129,889 $ 135,973 $ 406,715 $ 397,623 Salaries and employee benefits expense $ 67,374 $ 74,723 $ 219,135 $ 213,964 Early retirement program costs (1,557) (3,609) (5,166) — Adjusted salaries and employee benefits expense (non-GAAP) $ 65,817 $ 71,114 $ 213,969 $ 213,964 See Table 14 below for the reconciliation of tangible book value per common share. Table 14: Reconciliation of Tangible Book Value per Common Share (non-GAAP) September 30, December 31, (In thousands, except per share data) 2023 2022 Total common stockholders’ equity $ 3,285,555 $ 3,269,362 Intangible assets: Goodwill (1,320,799) (1,319,598) Other intangible assets (116,660) (128,951) Total intangibles (1,437,459) (1,448,549) Tangible common stockholders’ equity $ 1,848,096 $ 1,820,813 Shares of common stock outstanding 125,133,281 127,046,654 Book value per common share $ 26.26 $ 25.73 Tangible book value per common share (non-GAAP) $ 14.77 $ 14.33 78 See Table 15 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets. Table 15: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) September 30, December 31, (Dollars in thousands) 2023 2022 Total common stockholders’ equity $ 3,285,555 $ 3,269,362 Intangible assets: Goodwill (1,320,799) (1,319,598) Other intangible assets (116,660) (128,951) Total intangibles (1,437,459) (1,448,549) Tangible common stockholders’ equity $ 1,848,096 $ 1,820,813 Total assets $ 27,564,325 $ 27,461,061 Intangible assets: Goodwill (1,320,799) (1,319,598) Other intangible assets (116,660) (128,951) Total intangibles (1,437,459) (1,448,549) Tangible assets $ 26,126,866 $ 26,012,512 Ratio of common equity to assets 11.92 % 11.91 % Ratio of tangible common equity to tangible assets (non-GAAP) 7.07 % 7.00 % See Table 16 below for the calculation of uninsured, non-collateralized deposit coverage ratio. Table 16: 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 Less: Collateralized deposits (excluding portion that is FDIC insured) 2,835,405 2,759,248 Less: Intercompany eliminations 676,840 529,042 Total uninsured, non-collateralized deposits $ 4,630,955 $ 5,625,700 FHLB borrowing availability $ 5,372,000 $ 5,442,000 Unpledged securities 4,124,000 3,180,000 Fed funds lines, Fed discount window and Bank Term Funding Program 1,951,000 1,982,000 Additional liquidity sources $ 11,447,000 $ 10,604,000 Uninsured, non-collateralized deposit coverage ratio 2.5x 1.9x 79