SIMMONS FIRST NATIONAL CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2023 and 2022 and results of operations for each of the years then ended. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on February 27, 2023 (the “ 2022 Form 10-K ”) for a discussion and analysis of the more significant factors that affected the 2021 period, which are incorporated herein by reference. Certain immaterial reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with our financial statements, notes thereto and other financial information appearing elsewhere in this report, as well as the cautionary note regarding forward-looking statements and the risks discussed in Item 1A of Part I of this Form 10-K. Critical Accounting Estimates Overview The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the determination of the adequacy of the allowance for credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes. Allowance for Credit Losses The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, 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 Accounting Standard Codification (“ASC”) Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. For further information see the section Allowance for Credit Losses below. Our evaluation of the allowance for credit losses is inherently subjective as it requires material estimates. The actual amounts of credit losses realized in the near term could differ from the amounts estimated in arriving at the allowance for credit losses reported in the financial statements. 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. 36 Acquisition Accounting, Loans We account for our acquisitions under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations , which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are purchased credit deteriorated (“PCD”) loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit and non-credit components, is accreted or amortized into interest income over the remaining life of the loan using a constant yield method. We then record the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other , as amended by ASU 2011-08 – T esting Goodwill for Impairment and ASU 2017-04 - Intangibles – Goodwill and Other . ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur. Our assessment depends on several assumptions which are dependent on market and economic conditions. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses. 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 December 31, 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. 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. 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. 37 2023 Overview Our net income available to common shareholders for the year ended December 31, 2023 was $175.1 million, or $1.38 diluted earnings per share, compared to $256.4 million, or $2.06 diluted earnings per share, for the same period in 2022. Included in 2023 results were $32.7 million of certain items, net of tax, that were primarily related to early retirement program costs, loss on sale of securities, a FDIC special assessment and branch right sizing initiatives. Included in 2022 results were $42.4 million of certain items, net of tax, that were primarily related to our acquisitions, Day 2 accounting provision in connection with acquisitions, gain on an insurance settlement related to a weather event, merger related costs and branch right sizing initiatives. Adjusting for these certain items, adjusted earnings for the year ended December 31, 2023 were $207.7 million, or $1.64 adjusted diluted earnings per share, compared to $298.8 million, or $2.40 adjusted diluted earnings per share, in 2022. See GAAP Reconciliation of Non-GAAP Financial Measures for additional discussion and reconciliations of non-GAAP measures. Throughout 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-collateralized deposits, liquidity, capital and operations. Despite these challenges, which have seemed to abate slightly in the latter half of the year, 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 over the year, 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 December 31, 2023 were $22.24 billion, compared to $22.55 billion as of December 31, 2022. Uninsured deposits (excluding collateralized deposits and intercompany deposits) as of December 31, 2023 were approximately $4.75 billion, or 21% of total deposits. • Capital levels were steady during the year, with all regulatory capital ratios remaining significantly above “well-capitalized” guidelines as of December 31, 2023 (see Table 18 in the Risk Based Capital section below). As of December 31, 2023, our ratio of common equity to total assets was 12.53%, the ratio of tangible common equity to tangible assets was 7.69% and our Tier 1 leverage ratio was 9.39%. • Key credit quality metrics as of December 31, 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 1.34%. • Significant liquidity position with a loan to deposit ratio of 76% as of December 31, 2023, compared to 72% as of December 31, 2022. Additional liquidity sources available to us as of December 31, 2023 totaled $11.22 billion and our uninsured, non-collateralized deposit coverage ratio was 2.4x. 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.” During 2023, we completed our Better Bank Initiative, which focused on programs designed to enhance operational processes and increase capacity to capitalize on organic growth opportunities, and achieved success across multiple fronts. We completed our early retirement program and extensive progress was completed on other identified opportunities related to process improvements and streamlining or upgrading systems. As a result, we were able to achieve $18 million of annualized cost savings, compared to the original $15 million of annual cost savings we previously estimated. 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 December 31, 2023 were $84.5 million, as compared to $58.9 million at December 31, 2022. Non-performing assets as a percent of total assets were 0.33%, compared to 0.23% at December 31, 2023 and 2022, respectively. Stockholders’ equity as of December 31, 2023 was $3.43 billion, book value per share was $27.37 and tangible book value per common share was $15.92. Our ratio of common stockholders’ equity to total assets was 12.5% and the ratio of tangible common stockholders’ equity to tangible assets was 7.7% at December 31, 2023. See GAAP Reconciliation of Non-GAAP Financial Measures for additional discussion and reconciliations of non-GAAP measures. We repurchased approximately 2.3 million shares of our common stock during 2023. 38 Total loans were $16.85 billion at December 31, 2023, an increase of $703.5 million, or 4.4%, from the same time in 2022. The increase in total loans during the period primarily reflects diverse loan growth driven by increased activity throughout our geographic footprint. Our unfunded commitments decreased to $4.17 billion at December 31, 2023, as compared to $5.64 billion at December 31, 2022. 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 $948.2 million as of December 31, 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 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP. We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. See the GAAP Reconciliation of Non-GAAP Measures section below for additional discussion and reconciliations of non-GAAP measures. Simmons First National Corporation is an Arkansas-based financial holding company that, as of December 31, 2023, has approximately $27.35 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. Net Interest Income Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of noninterest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135%. The FRB sets various benchmark interest rates which influence the general market rates of interest, including the deposit and loan rates offered by financial institutions. Between December 2015 and December 2018, the FRB had been gradually raising benchmark interest rates. The FRB target for the federal funds rate, which is the cost to banks of immediately available overnight funds, increased gradually from 0% - 0.50% in December 2015 to 2.25% - 2.50% over a three year period. The federal funds rate was flat until the FRB began to lower the rate in August 2019 and ultimately reduced it to 1.50% - 1.75% in October 2019. During March 2020, the Federal Open Market Committee (“FOMC”) of the FRB substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic. The federal funds rate was cut to a range of 0% - 0.25%, where it remained throughout 2021 and into early 2022. During March 2022, the FOMC began a series of rate increases in an effort to curb rising inflation. From early 2022 through 2023, the federal funds rate range was increased on eleven occasions and ended 2023 with a range set at 5.25% - 5.50%. To date in 2024, rates have been held steady by the FOMC. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, also increased from 3.25% to 5.50% during the years 2015 through 2018. The prime interest rate remained flat until it began to decrease in July 2019 and was eventually reduced to 4.75% in October 2019. Similarly to the reduction in the federal funds rate, the prime rate was cut to 3.25% in mid-March of 2020 in response to the COVID-19 pandemic and remained unchanged throughout 2021 and into early 2022. Paralleling the federal funds rate, multiple increases by the Federal Reserve during 2022 and 2023 increased the prime rate to 8.50% as of the end of 2023. Markets anticipate potential rate cuts by the Federal Reserve during 2024. 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 41% of our loan portfolio and approximately 89% of our time deposits have repriced in one year or less. Our current interest rate sensitivity shows that approximately 42% of our loans and 94% of our time deposits will reprice in the next year, largely contributing to our liability-sensitive position at December 31, 2023. For the year ended December 31, 2023, net interest income on a fully taxable equivalent basis was $675.6 million, a decrease of $66.4 million, or 9.0%, over the same period in 2022. The decrease in net interest income was primarily the result of a $349.2 million increase in interest income, more than offset by a $415.6 million increase in interest expense. 39 The increase in interest income primarily resulted from a $296.5 million increase in interest income on loans, coupled with an increase of $48.0 million in interest income on investment securities. Regarding the increase in interest income on loans during 2023, the increase in loan volume resulted in an increase of $117.6 million in interest income, while a 113 basis point increase in yield due to rising market rates resulted in a $178.9 million increase in interest income during the year ended December 31, 2023. The loan yield for 2023 was 5.96%, compared to 4.83% for 2022. The increase in our loan volume during 2023 was due to the Spirit acquisition in the second quarter of 2022, combined with solid organic loan growth over the comparative period. The increase in interest income on investment securities reflects an increase of $66.0 million due to yield increases over the period of 132 basis points and 9 basis points for our taxable and non-taxable investment security portfolios, respectively, which were a result of rising market interest rates. The increase in interest income on investment securities due to yield increases was mitigated by a $17.9 million decrease due to the decline in our investment portfolio average balances which decreased by $861.5 million or 10.5%, as our portfolio experienced pay downs and maturities over the period, which was reinvested into our loan portfolio. Also contributing to the decrease in the average portfolio balance was a targeted sale of $241.1 million of lower-yielding AFS securities late in the fourth quarter of 2023, the proceeds of which we used to pay off higher-rate wholesale fundings. Included in interest income is the additional yield accretion recognized as a result of updated estimates of the cash flows of our loans acquired. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate may increase or decrease based on payment histories and loss expectations of the loans. The resulting adjustment to interest income is spread on a level-yield basis over the remaining expected lives of the loans. For the years ended December 31, 2023, 2022 and 2021, interest income included $8.8 million, $23.9 million and $22.1 million, respectively, for the yield accretion recognized on loans acquired. The $415.6 million increase in interest expense is mostly 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 $323.4 million due to the increase in rate of 212 basis points on interest-bearing deposit accounts and increased $50.5 million due to the increase in deposit volume over the period. Additionally, interest expense increased $35.3 million due to the increase in rate of 302 basis points on other borrowings. We continually monitor and look for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment. Our net interest margin on a fully tax equivalent basis was 2.78% for the year ended December 31, 2023, down 39 basis points from 2022. The decrease in the net interest margin 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. Over the course of 2024, we anticipate moderating pressure on our margin due to several factors. We saw moderate organic loan growth during 2023, but our loan pipeline experienced decreased volume throughout the year. We expect further modest organic loan growth during 2024, subject to macroeconomic uncertainties that may reduce or otherwise impact loan demand, with continued focus on maintaining prudent underwriting standards and pricing discipline given projects surrounding near term future economic growth. We sold $241.1 million of low yield AFS securities late in the fourth quarter of 2023, and used sale proceeds to pay off higher rate wholesale fundings and we will continue to evaluate opportunities to optimize our balance sheet based on changing market conditions. Further, we have $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio under swap agreements, which 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 that began in the third quarter of 2023. Additionally, while our most likely forecast embeds several rate cuts during 2024, there is still much uncertainty as to decisions that will be made by the FOMC and the risks present in the economy. 40 Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended December 31, 2023, 2022 and 2021, respectively, as well as changes in fully taxable equivalent net interest margin for the years 2023 versus 2022 and 2022 versus 2021. Table 1: Analysis of Net Interest Margin (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, (In thousands) 2023 2022 2021 Interest income $ 1,210,161 $ 861,735 $ 671,061 FTE adjustment 25,443 24,671 19,231 Interest income - FTE 1,235,604 886,406 690,292 Interest expense 560,035 144,419 79,529 Net interest income - FTE $ 675,569 $ 741,987 $ 610,763 Yield on earning assets - FTE 5.09 % 3.79 % 3.27 % Cost of interest bearing liabilities 2.99 % 0.84 % 0.52 % Net interest spread - FTE 2.10 % 2.95 % 2.75 % Net interest margin - FTE 2.78 % 3.17 % 2.89 % Table 2: Changes in Fully Taxable Equivalent Net Interest Margin (In thousands) 2023 vs. 2022 2022 vs. 2021 Increase due to change in earning assets $ 93,320 $ 147,423 Increase due to change in earning asset yields 255,878 48,691 Decrease due to change in interest bearing liabilities (48,716) (3,274) Decrease due to change in interest rates paid on interest bearing liabilities (366,900) (61,616) (Decrease) increase in net interest income $ (66,418) $ 131,224 Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for each of the years in the three-year period ended December 31, 2023. 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. 41 Table 3: Average Balance Sheets and Net Interest Income Analysis (FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%) Years Ended December 31, 2023 2022 2021 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate (%) Balance Expense Rate (%) Balance Expense Rate (%) ASSETS Earning assets: Interest bearing balances due from banks and federal funds sold $ 320,261 $ 13,490 4.21 $ 793,836 $ 5,500 0.69 $ 2,376,421 $ 2,795 0.12 Investment securities - taxable 4,698,742 143,178 3.05 5,462,427 94,437 1.73 4,512,564 58,976 1.31 Investment securities - non-taxable 2,605,868 85,861 3.29 2,703,662 86,596 3.20 2,343,117 71,207 3.04 Mortgage loans held for sale 8,064 557 6.91 16,609 720 4.33 55,204 1,565 2.83 Other loans held for sale — — — 8,322 3,120 37.49 — — — Loans - including fees 16,647,570 992,518 5.96 14,419,763 696,033 4.83 11,810,480 555,749 4.71 Total interest earning assets 24,280,505 1,235,604 5.09 23,404,619 886,406 3.79 21,097,786 690,292 3.27 Non-earning assets 3,274,354 3,014,219 2,394,522 Total assets $ 27,554,859 $ 26,418,838 $ 23,492,308 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Interest bearing liabilities: Interest bearing transaction and savings deposits $ 11,033,263 $ 238,982 2.17 $ 12,253,164 $ 63,033 0.51 $ 10,638,665 $ 19,568 0.18 Time deposits 6,038,640 233,937 3.87 3,094,747 36,016 1.16 2,804,851 21,604 0.77 Total interest bearing deposits 17,071,903 472,919 2.77 15,347,911 99,049 0.65 13,443,516 41,172 0.31 Federal funds purchased and securities sold under agreements to repurchase 105,802 1,150 1.09 200,744 941 0.47 247,448 579 0.23 Other borrowings 1,169,374 60,517 5.18 1,155,310 24,934 2.16 1,340,185 19,495 1.45 Subordinated debt and debentures 366,066 25,449 6.95 394,870 19,495 4.94 383,182 18,283 4.77 Total interest bearing liabilities 18,713,145 560,035 2.99 17,098,835 144,419 0.84 15,414,331 79,529 0.52 Noninterest bearing liabilities: Noninterest bearing deposits 5,201,384 5,827,160 4,836,839 Other liabilities 281,018 233,179 169,140 Total liabilities 24,195,547 23,159,174 20,420,310 Stockholders’ equity 3,359,312 3,259,664 3,071,998 Total liabilities and stockholders’ equity $ 27,554,859 $ 26,418,838 $ 23,492,308 Net interest spread 2.10 2.95 2.75 Net interest margin $ 675,569 2.78 $ 741,987 3.17 $ 610,763 2.89 42 Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the years 2023 versus 2022 and 2022 versus 2021. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume. Table 4: Volume/Rate Analysis Years Ended December 31, 2023 vs. 2022 2022 vs. 2021 Yield/ Yield/ (In thousands, on a fully taxable equivalent basis) Volume Rate Total Volume Rate Total Increase (decrease) in: Interest income: Interest bearing balances due from banks and federal funds sold $ (5,033) $ 13,023 $ 7,990 $ (2,952) $ 5,657 $ 2,705 Investment securities - taxable (14,763) 63,504 48,741 13,996 21,465 35,461 Investment securities - non-taxable (3,182) 2,447 (735) 11,395 3,994 15,389 Mortgage loans held for sale (472) 309 (163) (1,424) 579 (845) Other loans held for sale (791) (2,329) (3,120) 791 2,329 3,120 Loans - including fees 117,561 178,924 296,485 125,617 14,667 140,284 Total 93,320 255,878 349,198 147,423 48,691 196,114 Interest expense: Interest bearing transaction and savings accounts (6,881) 182,830 175,949 3,386 40,079 43,465 Time deposits 57,399 140,522 197,921 2,425 11,987 14,412 Federal funds purchased and securities sold under agreements to repurchase (600) 809 209 (126) 488 362 Other borrowings 308 35,275 35,583 (2,978) 8,417 5,439 Subordinated notes and debentures (1,510) 7,464 5,954 567 645 1,212 Total 48,716 366,900 415,616 3,274 61,616 64,890 Increase (decrease) in net interest income $ 44,604 $ (111,022) $ (66,418) $ 144,149 $ (12,925) $ 131,224 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. During 2023, our provision for credit loss expense was $42.0 million, as compared to an expense of $14.1 million during 2022 and a recapture of $32.7 million during 2021. The provision for credit loss expense during 2023 was impacted by several factors throughout the year, including a $47.4 million expense related to loans and reflected loan growth, as well as the impact of updated economic assumptions, which was partially offset by a $16.3 million release from the reserve for unfunded commitments primarily due to a decline in unfunded commitments resulting from customers utilizing lines of credit during the year. Additionally, provision expense related to AFS and HTM securities recorded during the twelve months ended December 31, 2023 was $9.1 million and $1.8 million, respectively, primarily due to decreases in the value of select corporate bonds in the investment securities portfolio. 43 The provision for credit loss expense during 2022 was impacted by several factors throughout the year, including a $33.8 million Day 2 provision expense required for loans and unfunded commitments related to the Spirit acquisition, and an expense of $16.0 million related to the overall increase in unfunded commitments during the year, primarily made up of commercial construction loans, which receive a higher reserve allocation than other loans. These expenses were partially offset by a release of $16.0 million, which was driven by a reduction to certain industry specific qualitative factors for the restaurant, hospitality, student housing and office space industries due to the improvement from pandemic related stresses. Further recapture during 2022 was driven by the planned exit of several large oil and gas relationships during the year, along with our improved asset credit quality metrics and improved Moody’s economic modeling scenarios. The recapture of credit losses during 2021 was driven by improved credit quality metrics, improved macroeconomic factors, and a maturing and amortizing loan portfolio. This recapture was partially offset by $22.7 million in provision for credit loss expense for estimated lifetime credit losses for non-purchase credit deteriorated loans acquired through the acquisitions of Landmark and Triumph during the fourth quarter. Noninterest Income Noninterest income is principally derived from recurring fee income, which includes service charges, wealth management fees and debit and credit card fees. Noninterest income also includes income on the sale of mortgage loans, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities. Total noninterest income was $155.6 million in 2023, compared to $170.1 million in 2022 and $191.8 million in 2021. Noninterest income for 2023 decreased $14.5 million, or 8.5%, from 2022. Included in 2023 results was $20.6 million of a certain item related to the loss on the sale of securities during the period. Included in 2022 results were $4.0 million of certain items, primarily made up of a $4.1 million gain on an insurance settlement related to a weather event that caused severe damage to one of our branch locations. Adjusting for these certain items, adjusted noninterest income for the year ended December 31, 2023 increased $10.1 million, or 6.1%, from the prior year. See the GAAP Reconciliation of Non-GAAP Measures section for additional discussion and reconciliations of non-GAAP measures. The majority of the decrease in noninterest income during 2023 was related to the loss on sale of securities as compared to 2022. During 2023, we sold approximately $247.9 million of investment securities resulting in a net loss of $20.6 million, while we realized a net loss of $278,000 related to the call of securities during 2022. The sale of securities during 2023 was primarily related to a strategic decision to sell low yield securities and use the proceeds to pay off higher rate wholesale fundings, including both brokered deposits and FHLB advances. Mortgage lending income decreased $2.8 million during 2023 due to the rising interest rate environment and softening market conditions throughout the year, which continued to slow the demand for mortgage loans. We originated $428.0 million and $751.0 million in mortgage loans during 2023 and 2022, respectively. These decreases in noninterest income during 2023 were partially offset by an increase of $4.0 million in service charges on deposit accounts primarily attributable to a full period including the customer base from the Spirit acquisition and additional transactions due to the changes in customer spending habits. Also included in 2023 results is a $4.0 million legal reserve recapture associated with litigation. 44 Table 5 shows noninterest income for the years ended December 31, 2023, 2022 and 2021, respectively, as well as changes in 2023 from 2022 and in 2022 from 2021. Table 5: Noninterest Income Years Ended December 31, 2023 Change from 2022 Change from (Dollars in thousands) 2023 2022 2021 2022 2021 Service charges on deposit accounts $ 50,530 $ 46,527 $ 43,231 $ 4,003 8.6 % $ 3,296 7.6 % Debit and credit card fees 31,472 31,203 28,245 269 0.9 2,958 10.5 Wealth management fees 30,203 31,895 31,172 (1,692) (5.3) 723 2.3 Mortgage lending income 7,733 10,522 21,798 (2,789) (26.5) (11,276) (51.7) Bank owned life insurance income 11,717 11,146 8,902 571 5.1 2,244 25.2 Other service charges and fees 9,122 7,616 7,696 1,506 19.8 (80) (1.0) Gain (loss) on sale of securities, net (20,609) (278) 15,498 (20,331) * (15,776) * Gain on sale of branches — — 5,316 — — (5,316) * Gain on insurance settlement — 4,074 — (4,074) * 4,074 * Other income 35,398 27,361 29,957 8,037 29.4 (2,596) (8.7) Total noninterest income $ 155,566 $ 170,066 $ 191,815 $ (14,500) (8.5) % $ (21,749) (11.3) % _________________________ *Not meaningful Recurring fee income (total service charges, wealth management fees, debit and credit card fees) for 2023 was $121.3 million, an increase of $4.1 million, or 3.5%, when compared to the 2022 amounts. The increase is primarily due to the increased consumer base provided by the Spirit acquisition. We expect service charges to continue to moderate in early 2024 due to the elimination of returned item fees for consumer deposit accounts with insufficient funds implemented during the third quarter of 2023. Overall, we expect flat to modest growth in noninterest income during 2024. Noninterest Expense Noninterest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for our operations. Management remains committed to controlling the level of noninterest expense through the continued use of expense control measures. We utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements. Noninterest expense for 2023 was $563.1 million, as compared to noninterest expense for 2022 of $566.7 million, a decrease of $3.7 million, or 0.7%, compared to the prior period. Adjusted noninterest expense, which excludes branch right sizing, merger related costs, FDIC special assessment (for 2023 only), donation to Simmons First Foundation (for 2022 only) and early retirement program costs (for 2023 only), for the year ended December 31, 2023 increased $396,000, or 0.1%, from the prior year. See the GAAP Reconciliation of Non-GAAP Measures section for additional discussion and reconciliations of non-GAAP measures. Merger related costs for 2023 and 2022 were $1.4 million and $22.5 million, respectively, and were primarily related to the Spirit acquisition. Salaries and employee benefits expense decreased slightly by $865,000 as compared to 2022, while adjusted salaries and employee benefits expense decreased by $7.1 million as compared to 2022. The decrease in adjusted salaries and employee benefits expense reflects the successful execution of programs as part of our Better Bank Initiative. Early retirement program costs during 2023 were $6.2 million. 45 Deposit insurance increased by $18.4 million as compared to 2022. Excluding the FDIC special assessment of $10.5 million levied to support the Deposit Insurance Fund following the failure of certain banks in 2023, deposit insurance increased by $7.9 million primarily due to an increased base rate related to changes in the mix of deposits, coupled with the increase in deposits from the Spirit acquisition. Amortization of intangibles recorded for the years ended December 31, 2023, and 2022 was $16.3 million and $15.9 million, respectively. See Note 8, Goodwill and Other Intangible Assets, in the accompanying Notes to Consolidated Financial Statements for additional information regarding our intangibles. Table 6 below shows noninterest expense for the years ended December 31, 2023, 2022 and 2021, respectively, as well as changes in 2023 from 2022 and in 2022 from 2021. Table 6: Noninterest Expense Years Ended December 31, 2023 Change from 2022 Change from (Dollars in thousands) 2023 2022 2021 2022 2021 Salaries and employee benefits $ 279,919 $ 286,982 $ 246,335 $ (7,063) (2.5) % $ 40,647 16.5 % Early retirement program 6,198 — — 6,198 * — — Occupancy expense, net 46,741 44,321 38,797 2,420 5.5 5,524 14.2 Furniture and equipment expense 20,741 20,665 19,890 76 0.4 775 3.9 Other real estate and foreclosure expense 892 1,003 2,121 (111) (11.1) (1,118) (52.7) Deposit insurance 19,465 11,608 6,973 7,857 67.7 4,635 66.5 FDIC special assessment 10,521 — — 10,521 * — — Merger related costs 1,420 22,476 15,911 (21,056) (93.7) 6,565 41.3 Other operating expenses: Professional services 19,612 19,138 18,921 474 2.5 217 1.2 Postage 9,458 8,955 8,276 503 5.6 679 8.2 Telephone 6,965 6,394 6,234 571 8.9 160 2.6 Credit card expenses 13,243 12,243 11,112 1,000 8.2 1,131 10.2 Marketing 24,008 28,870 22,234 (4,862) (16.8) 6,636 29.9 Software and technology 42,530 40,906 40,608 1,624 4.0 298 0.7 Operating supplies 2,591 2,556 2,766 35 1.4 (210) (7.6) Amortization of intangibles 16,306 15,915 13,494 391 2.5 2,421 17.9 Branch right sizing expense 5,467 3,475 (537) 1,992 57.3 4,012 * Other expense 36,984 41,241 30,454 (4,257) (10.3) 10,787 35.4 Total noninterest expense $ 563,061 $ 566,748 $ 483,589 $ (3,687) (0.7) % $ 83,159 17.2 % _________________________ *Not meaningful Due to our Better Bank Initiative and continuous efficiency improvements, we expect marginal growth in noninterest expense during 2024. Income Taxes The provision for income taxes for 2023 was $25.5 million, compared to $50.1 million in 2022 and $61.3 million in 2021. The effective income tax rates for the years ended 2023, 2022 and 2021 were 12.7%, 16.4% and 18.4%, respectively. The decrease in the provision for income taxes during 2023 was primarily due to tax exempt income having a larger favorable impact on the rate and lower state taxes in 2023, both driven by the one time charges to income from the loss on sale of securities and the FDIC special assessment. 46 Loan Portfolio Our loan portfolio averaged $16.65 billion during 2023 and $14.42 billion during 2022. As of December 31, 2023, total loans were $16.85 billion, compared to $16.14 billion on December 31, 2022, an increase of $703.5 million, or 4.4%. The increase in the overall loan balance during 2023 is primarily due to widespread loan growth throughout our geographic markets during the year. The most significant components of the loan portfolio were loans to businesses (commercial loans, commercial real estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans). We seek to manage our credit risk by diversifying our loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an appropriate allowance for credit losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose, industry and geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for credit losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits. Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $318.7 million at December 31, 2023, or 1.9% of total loans, compared to $349.8 million, or 2.2% of total loans at December 31, 2022. The decrease in consumer loans was primarily due to loan payoffs and pay downs within the other consumer portfolio during the year. Our credit card portfolio has remained a stable source of lending. Real estate loans consist of construction and development (“C&D”) loans, single family residential loans and other commercial real estate (“CRE”) loans. Real estate loans were $13.34 billion at December 31, 2023, or 79.2% of total loans, compared to $12.58 billion, or 77.9% of total loans at December 31, 2022, an increase of $756.9 million, or 6.0%. Our C&D loans increased by $577.6 million, or 22.5%, single family residential loans increased by $95.4 million, or 3.7%, and CRE loans increased by $83.9 million, or 1.1%. The increases were due to diversified organic growth by type and geographic market during the period. 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 $2.72 billion at December 31, 2023, or 16.2% of total loans, compared to $2.84 billion, or 17.6% of total loans at December 31, 2022, a decrease of $115.0 million, or 4.1%. The decrease in non-real estate loans related to business of $142.1 million, or 5.4%, was partially offset by the increase in agricultural loans of $27.1 million, or 13.2%. Other loans mainly consists of mortgage warehouse lending and municipal loans. Mortgage volume experienced an increase in demand during 2023 as compared to 2022, and was coupled with continued organic growth in our municipal loans during the period, leading to an increase of $92.8 million in other loans. While loan growth was widespread throughout our geographic markets and was generally broad-based by loan type during the period, loan growth during the latter half of 2023 reflected moderating demand and increased payoff activity, as we focus on maintaining disciplined pricing and conservative underwriting standards given the current uncertain economic environment. Our commercial loan pipeline consisting of all commercial loan opportunities was $948.2 million at December 31, 2023, compared to $1.12 billion at December 31, 2022. The pipeline includes $416.0 million in loans approved and ready to close at the end of the year. 47 The balances of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan. Table 7: Loan Portfolio Years Ended December 31, (In thousands) 2023 2022 2021 2020 2019 Consumer: Credit cards $ 191,204 $ 196,928 $ 187,052 $ 188,845 $ 204,802 Other consumer 127,462 152,882 168,318 202,379 249,694 Total consumer 318,666 349,810 355,370 391,224 454,496 Real Estate: Construction and development 3,144,220 2,566,649 1,326,371 1,596,255 2,236,861 Single family residential 2,641,556 2,546,115 2,101,975 1,880,673 2,442,064 Other commercial 7,552,410 7,468,498 5,738,904 5,746,863 6,205,599 Total real estate 13,338,186 12,581,262 9,167,250 9,223,791 10,884,524 Commercial: Commercial 2,490,176 2,632,290 1,992,043 2,574,386 2,495,516 Agricultural 232,710 205,623 168,717 175,905 315,454 Total commercial 2,722,886 2,837,913 2,160,760 2,750,291 2,810,970 Other 465,932 373,139 329,123 535,591 275,714 Total loans before allowance for credit losses $ 16,845,670 $ 16,142,124 $ 12,012,503 $ 12,900,897 $ 14,425,704 Table 8 reflects the remaining maturities and interest rate sensitivity of loans at December 31, 2023. Table 8: Maturity and Interest Rate Sensitivity of Loans 1 year Over 1 year through Over 5 years through Over (In thousands) or less 5 years 15 years 15 years Total Consumer $ 71,581 $ 243,638 $ 2,415 $ 1,032 $ 318,666 Real estate 2,958,676 8,461,135 1,726,537 191,838 13,338,186 Commercial 1,407,354 1,218,960 54,770 41,802 2,722,886 Other 219,745 110,673 122,804 12,710 465,932 Total $ 4,657,356 $ 10,034,406 $ 1,906,526 $ 247,382 $ 16,845,670 Predetermined rate Consumer $ 68,027 $ 124,085 $ 2,359 $ 811 $ 195,282 Real estate 1,332,508 5,107,185 904,390 112,158 7,456,241 Commercial 490,569 798,540 46,874 41,797 1,377,780 Other 52,134 109,097 120,436 12,317 293,984 Total $ 1,943,238 $ 6,138,907 $ 1,074,059 $ 167,083 $ 9,323,287 Floating rate Consumer $ 3,554 $ 119,553 $ 56 $ 221 $ 123,384 Real estate 1,626,168 3,353,950 822,147 79,680 5,881,945 Commercial 916,785 420,420 7,896 5 1,345,106 Other 167,611 1,576 2,368 393 171,948 Total $ 2,714,118 $ 3,895,499 $ 832,467 $ 80,299 $ 7,522,383 48 Asset Quality Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. Simmons Bank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectibility of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses. When credit card loans reach 90 days past due and there are attachable assets, the accounts are considered for litigation. Credit card loans are generally charged off when payment of interest or principal exceeds 150 days past due. The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible. Total non-performing assets increased $27.8 million from December 31, 2022 to December 31, 2023. Nonaccrual loans increased by $24.9 million during 2023, in addition to an increase in foreclosed assets held for sale of $1.2 million. The increase in nonaccrual assets 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 0.45% at December 31, 2023 compared to 0.23% at December 31, 2022. Total non-performing assets decreased by $13.8 million from December 31, 2021 to December 31, 2022. Nonaccrual loans decreased by $9.8 million during 2022, in addition to a decrease in foreclosed assets held for sale of $3.1 million. The decrease in nonaccrual loans was primarily due to an overall improvement in economic conditions from pandemic related stresses. Total non-performing assets decreased by $67.6 million from December 31, 2020 to December 31, 2021. Nonaccrual loans decreased by $54.7 million during 2021, in addition to a decrease in foreclosed assets held for sale of $12.4 million. The decrease in nonaccrual loans was primarily due to an overall improvement in economic conditions while the decrease in foreclosed assets held for sale and other real estate owned is primarily the result of the disposition of one commercial building in the St. Louis area and the disposition of one piece of commercial land with net book values at the time of sale of $6.5 million and $2.8 million, respectively. Total non-performing assets increased by $28.6 million from December 31, 2019 to December 31, 2020. Nonaccrual loans increased by $29.5 million during 2020, partially offset by a decrease in foreclosed assets held for sale of $728,000. The increase in nonaccrual loans during 2020 is primarily related to one energy loan totaling $22.0 million which moved to nonaccrual during the fourth quarter of 2020. The remaining increase was related to various other CRE loans and commercial loan relationships. From time to time, certain borrowers experience declines in income and cash flow. As a result, these borrowers seek to reduce contractual cash outlays, the most prominent being debt payments. In an effort to preserve our net interest margin and earning assets, we are open to working with existing customers in order to maximize the collectibility of the debt. 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. The financial effects of the modified loans made to borrowers experiencing financial difficulty in the single family residential real estate and commercial portfolio were not significant during the year ended December 31, 2023 and did not significantly impact our determination of the allowance for credit losses on loans during the year. During the year ended December 31, 2023, we modified one loan related to the other CRE portfolio, whereby the borrower was experiencing financial difficulty at the time of modification. The modification allowed for two months of interest only payments with the remaining balance due at maturity. Upon modification, a charge-off of $9.6 million was recorded in relation to this modified loan during 2023. As a result of the other CRE loan modified during the year ended December 31, 2023 being collateral-dependent, the impact to our allowance for credit losses on loans was the difference between the fair value of the underlying collateral, adjusted for selling costs, and the remaining outstanding principal balance of the loan. 49 We continue to maintain good asset quality, compared to the industry, and strong asset quality remains a primary focus for us. The allowance for credit losses as a percent of total loans was 1.34% as of December 31, 2023. Non-performing loans equaled 0.50% of total loans. Non-performing assets were 0.33% of total assets, a 10 basis point increase from December 31, 2022. The allowance for credit losses was 267% of non-performing loans. Our annualized net charge-offs to total loans for 2023 was 0.12%. Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.09%. Annualized net credit card charge-offs to average total credit card loans were 2.20%, compared to 1.49% during 2022, and 129 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks. We do not own any securities backed by subprime mortgage assets, and offer no mortgage loan products that target subprime borrowers. Table 9 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for sale. Table 9: Non-performing Assets Years Ended December 31, (Dollars in thousands) 2023 2022 2021 2020 2019 Nonaccrual loans (1) $ 83,325 $ 58,434 $ 68,204 $ 122,879 $ 93,330 Loans past due 90 days or more (principal or interest payments) 1,147 507 349 578 856 Total non-performing loans 84,472 58,941 68,553 123,457 94,186 Other non-performing assets: Foreclosed assets held for sale and other real estate owned 4,073 2,887 6,032 18,393 19,121 Other non-performing assets 1,726 644 1,667 2,016 1,964 Total other non-performing assets 5,799 3,531 7,699 20,409 21,085 Total non-performing assets $ 90,271 $ 62,472 $ 76,252 $ 143,866 $ 115,271 Performing FDMs (formerly TDRs) $33,577 $1,849 $4,289 $3,138 $5,887 Allowance for credit losses to non-performing loans 267 % 334 % 300 % 193 % 72 % Non-performing loans to total loans 0.50 % 0.37 % 0.57 % 0.96 % 0.65 % Non-performing assets (including performing FDMs (formerly TDRs)) to total assets 0.45 % 0.23 % 0.33 % 0.66 % 0.57 % Non-performing assets to total assets 0.33 % 0.23 % 0.31 % 0.64 % 0.54 % _________________________ (1) Includes nonaccrual FDMs (formerly known as TDRs) of approximately $282,000, $1.6 million, $2.7 million, $4.4 million and $1.6 million at December 31, 2023, 2022, 2021, 2020 and 2019, respectively. There was no interest income on nonaccrual loans recorded for the years ended December 31, 2023, 2022 and 2021. 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. 50 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. Additional information related to net charge-offs is shown in Table 10. Table 10: Ratio of Net Charge-offs to Average Loans (Dollars in thousands) Net Charge-offs Average Loans Ratio of Net Charge-offs to Average Loans 2023 Credit cards $ (4,295) $ 195,545 (2.20) % Other consumer (984) 136,865 (0.72) % Real estate (9,999) 13,050,414 (0.08) % Commercial (3,870) 2,815,006 (0.14) % Other — 449,740 — % Total $ (19,148) $ 16,647,570 (0.12) % 2022 Credit cards $ (2,838) $ 190,119 (1.49) % Other consumer (679) 177,420 (0.38) % Real estate 2,794 11,157,499 0.03 % Commercial (11,897) 2,557,060 (0.47) % Other — 337,665 — % Total $ (12,620) $ 14,419,763 (0.09) % Allowance for Credit Losses Allocation As of December 31, 2023, the allowance for credit losses reflected an increase of approximately $28.3 million from December 31, 2022, while loans increased $703.5 million over the same 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 2023 was predominantly due to the loan growth experienced during the year, as well as refreshed economic forecasts. Our allowance for credit losses at December 31, 2023 was considered appropriate given the current economic environment and other related factors. 51 The following table sets forth the sum of the amounts of the allowance for credit losses attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of loans in each category to the total loan portfolio for each of the periods indicated. The allowance for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories. Table 11: Allocation of Allowance for Credit Losses on Loans December 31, 2023 2022 2021 (Dollars in thousands) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Allowance Amount % of loans (1) Credit cards $ 5,868 1.1% $ 5,140 1.2% $ 3,987 1.6% Other consumer 5,716 3.5% 6,614 3.2% 4,617 4.1% Real estate 177,177 79.2% 150,795 78.0% 179,270 76.3% Commercial 36,470 16.2% 34,406 17.6% 17,458 18.0% Total $ 225,231 100.0% $ 196,955 100.0% $ 205,332 100.0% Allowance for credit losses to period-end loans 1.34 % 1.22 % 1.71 % _________________________ (1) Percentage of loans in each category to total loans. Investments and Securities Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either held-to-maturity (“HTM”) or available-for-sale (“AFS”). HTM securities, which include any security for which we have the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. AFS securities, which include any security for which we have no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized mortgage-backed securities for which collection of principal and interest is not subordinated to significant superior rights held by others. HTM and AFS investment securities were $3.73 billion and $3.15 billion, respectively, at December 31, 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. As of December 31, 2023, $527.9 million, or 7.7%, of our total portfolio was invested in obligations of U.S. government agencies and U.S. Treasury securities. Our investment portfolio as of December 31, 2023 also included $2.65 billion, or 38.5%, of tax-exempt obligations of state and political subdivisions. A portion of the state and political subdivision debt obligations are rated bonds, primarily issued in states in which we are located, and are evaluated on an ongoing basis. There are no securities of any one state or political subdivision issuer exceeding ten percent of our stockholders’ equity at December 31, 2023. 52 We had approximately $3.10 billion, or 45.1%, of our total portfolio invested in mortgaged-backed securities at December 31, 2023. These mortgage-backed securities were issued by agencies of the U.S. government. During the quarters ended June 30, 2022 and September 30, 2021, we transferred, at fair value, $1.99 billion and $500.8 million, respectively, of securities from the AFS portfolio to the HTM portfolio. As of December 31, 2023, the related remaining combined net unrealized losses of $126.4 million in accumulated other comprehensive income (loss) will be amortized over the remaining life of the securities. No gains or losses on these securities were recognized at the time of transfer. Additionally, during the third quarter of 2021, we began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio. These swap agreements consist of a two year forward start date and involve the payment of fixed interest rates with a weighted average of 1.21% in exchange for variable interest rates based on federal funds rates, which became effective during the late third quarter of 2023. Securities within these swap agreements have maturity dates varying between 2028 and 2029. For the year ended December 31, 2023, the net amount included in interest income on investment securities in the consolidated statements of income related to these swap agreements was $11.9 million. The adoption of ASU 2016-13 at the beginning of 2020 required us to replace the existing impairment models for financial assets, which includes investment securities. Under this model, an estimate of expected credit losses that represents all contractual cash flows that is deemed uncollectible over the contractual life of the financial asset must be recorded. During 2023, we recorded $9.1 million of provision for credit losses related to AFS securities due to isolated corporate bonds within the portfolio. We charged-off $7.0 million directly related to one corporate bond, which was deemed uncollectible in the period, while the remaining isolated bonds were sold or experienced price recovery on previous impairments prior to the end of the period. Based upon our analysis of the underlying risk characteristics of the AFS portfolio, including credit ratings and other qualitative factors, no allowance for credit losses related to AFS securities was deemed necessary at December 31, 2023 and 2022. Our allowance for credit losses related to HTM securities was $3.2 million and $1.4 million at December 31, 2023 and 2022, respectively. An allowance for credit losses related to mortgage-backed securities and U.S. government agencies was not recorded as of December 31, 2023 due to those securities being explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. See Note 3, Investment Securities, in the accompanying Notes to Consolidated Financial Statements for additional information related to our allowance for credit losses on investment securities held. We had no gross realized gains and $20.6 million of gross realized losses from the sale of securities during the year ended December 31, 2023, compared to $46,000 of gross realized gains and $324,000 of gross realized losses from the call of securities during the year ended December 31, 2022. We sold approximately $247.9 million of investment securities during 2023, while no securities were sold during 2022. Securities sold during 2023 were in large part related to a strategic decision to sell low yield securities and use the proceeds to pay off higher rate wholesale fundings, including both brokered deposits and FHLB advances. We have the ability and intent to hold the securities classified as HTM until they mature, at which time we expect to receive full value for the securities. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. We expect the cash flows from principal maturities of securities to provide flexibility to fund future loan growth or reduce wholesale funding. Furthermore, as of December 31, 2023, we also 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. During 2024, we will continue to evaluate targeted sales of AFS securities based on prevailing market conditions and our funding and liquidity positions. The unrealized losses during 2023 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. Accordingly, as of December 31, 2023, we believe the declines in fair value detailed in the table below are temporary and we do not believe any of the securities are impaired due to reasons of credit quality. 53 Table 12 presents the amortized cost, fair value and allowance for credit losses on investment securities for each of the years indicated. Table 12: Investment Securities (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Held-to-maturity December 31, 2023 U.S. Government agencies $ 453,121 $ — $ 453,121 $ — $ (89,203) $ 363,918 Mortgage-backed securities 1,161,694 — 1,161,694 354 (107,834) 1,054,214 State and political subdivisions 1,858,680 (2,006) 1,856,674 284 (369,509) 1,487,449 Other securities 256,007 (1,208) 254,799 — (25,010) 229,789 Total HTM $ 3,729,502 $ (3,214) $ 3,726,288 $ 638 $ (591,556) $ 3,135,370 December 31, 2022 U.S. Government agencies $ 448,012 $ — $ 448,012 $ — $ (102,558) $ 345,454 Mortgage-backed securities 1,190,781 — 1,190,781 227 (118,960) 1,072,048 State and political subdivisions 1,861,102 (110) 1,860,992 56 (446,198) 1,414,850 Other securities 261,199 (1,278) 259,921 — (29,040) 230,881 Total HTM $ 3,761,094 $ (1,388) $ 3,759,706 $ 283 $ (696,756) $ 3,063,233 (In thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Available-for-sale December 31, 2023 U.S. Treasury $ 2,285 $ — $ — $ (31) $ 2,254 U.S. Government agencies 74,460 — 35 (1,993) 72,502 Mortgage-backed securities 2,138,652 — 8 (198,353) 1,940,307 State and political subdivisions 1,035,147 — 187 (132,541) 902,793 Other securities 259,165 — — (24,868) 234,297 Total AFS $ 3,509,709 $ — $ 230 $ (357,786) $ 3,152,153 December 31, 2022 U.S. Treasury $ 2,257 $ — $ — $ (60) $ 2,197 U.S. Government agencies 191,498 — 103 (7,322) 184,279 Mortgage-backed securities 2,809,319 — 20 (266,437) 2,542,902 State and political subdivisions 1,056,124 — 250 (185,300) 871,074 Other securities 272,215 — — (19,813) 252,402 Total AFS $ 4,331,413 $ — $ 373 $ (478,932) $ 3,852,854 54 Table 13 reflects the amortized cost and estimated fair value of securities at December 31, 2023, by contractual maturity and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a 26.135% tax rate) of such securities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. Table 13: Maturity Distribution of Investment Securities December 31, 2023 Over Over 1 year 5 years Total 1 year through through Over No fixed Amortized Par Fair (In thousands) or less 5 years 10 years 10 years maturity Cost Value Value Held-to-Maturity U.S. Government agencies $ — $ 3,345 $ 91,481 $ 358,295 $ — $ 453,121 $ 480,246 $ 363,918 Mortgage-backed securities — — — — 1,161,694 1,161,694 1,216,312 1,054,214 State and political subdivisions 365 5,814 44,074 1,808,427 — 1,858,680 1,869,433 1,487,449 Other securities 1,108 — 252,384 2,515 — 256,007 266,878 229,789 Total $ 1,473 $ 9,159 $ 387,939 $ 2,169,237 $ 1,161,694 $ 3,729,502 $ 3,832,869 $ 3,135,370 Percentage of total 0.1 % 0.2 % 10.4 % 58.2 % 31.1 % 100.0 % Weighted average yield 4.2 % 2.7 % 2.3 % 2.6 % 2.2 % 2.5 % Available-for-Sale U.S. Treasury $ 1,292 $ 993 $ — $ — $ — $ 2,285 $ 2,300 $ 2,254 U.S. Government agencies 633 26,481 13,933 33,413 — 74,460 73,016 72,502 Mortgage-backed securities — — — — 2,138,652 2,138,652 2,095,187 1,940,307 State and political subdivisions 3,461 17,043 19,136 995,507 — 1,035,147 1,091,938 902,793 Other securities 5,032 70,870 183,007 — 256 259,165 267,134 234,297 Total $ 10,418 $ 115,387 $ 216,076 $ 1,028,920 $ 2,138,908 $ 3,509,709 $ 3,529,575 $ 3,152,153 Percentage of total 0.3 % 3.3 % 6.2 % 29.3 % 60.9 % 100.0 % Weighted average yield 3.9 % 5.6 % 4.0 % 2.9 % 2.7 % 3.0 % Deposits Deposits are our primary source of funding for earning assets and are primarily developed through our network of 234 financial centers as of December 31, 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 December 31, 2023, core deposits comprised 79.2% 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. 55 We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment. Our total deposits as of December 31, 2023, were $22.24 billion, a decrease of $303.1 million from December 31, 2022. Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.80 billion at December 31, 2023, compared to $17.78 billion at December 31, 2022, a decrease of $1.98 billion. Total time deposits increased $1.68 billion to $6.45 billion at December 31, 2023, from $4.77 billion at December 31, 2022. We had $2.90 billion and $2.75 billion of brokered deposits at December 31, 2023, and December 31, 2022, respectively. Our uninsured deposits as of December 31, 2023 and 2022 were $4.75 billion and $5.63 billion, respectively. The change in the mix of deposits at December 31, 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. Table 14 reflects the classification of the average deposits and the average rate paid on each deposit category which is in excess of 10 percent of average total deposits for the three years ended December 31, 2023. Table 14: Average Deposit Balances and Rates December 31, 2023 2022 2021 (In thousands) Average Amount Average Rate Paid Average Amount Average Rate Paid Average Amount Average Rate Paid Noninterest bearing transaction accounts $ 5,201,384 — % $ 5,827,160 — % $ 4,836,839 — % Interest bearing transaction and savings deposits 11,033,263 2.17 % 12,253,164 0.51 % 10,638,665 0.18 % Time deposits 6,038,640 3.87 % 3,094,747 1.16 % 2,804,851 0.77 % Total $ 22,273,287 2.12 % $ 21,175,071 0.47 % $ 18,280,355 0.23 % Our maturities of time deposits not covered by deposit insurance at December 31, 2023 are presented in Table 15. Table 15: Maturities of Time Deposits Not Covered by Deposit Insurance December 31, 2023 (In thousands) Balance Percent Maturing Three months or less $ 678,976 61.5 % Over 3 months to 6 months 183,868 16.7 % Over 6 months to 12 months 189,657 17.2 % Over 12 months 50,622 4.6 % Total $ 1,103,123 100.0 % 56 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Federal funds purchased and securities sold under agreements to repurchase were $68.0 million at December 31, 2023, as compared to $160.4 million at December 31, 2022. We have historically funded our growth in earning assets through the use of core deposits, large certificates of deposits from local markets, brokered deposits, FHLB borrowings and Federal funds purchased. Management anticipates that these sources will provide necessary funding in the foreseeable future. Other Borrowings and Subordinated Debentures Our total debt was $1.34 billion and $1.23 billion at December 31, 2023 and 2022, respectively. The outstanding balance for December 31, 2023 includes $953.2 million in FHLB advances; $366.1 million in subordinated notes and unamortized debt issuance costs; and $19.1 million of other long-term debt. FHLB advances outstanding at December 31, 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 year, are primarily fixed rate, fixed term advances, which are due less than one year from origination and therefore are classified as short-term advances. A summary of information related to our FHLB short-term advances, consisting of fixed rate, fixed term advances, is presented in Table 16. Table 16: Short-Term Borrowings December 31, (Dollars in thousands) 2023 2022 2021 Amount outstanding at year-end $ 950,000 $ 835,000 $ — Weighted-average interest rate at year-end 5.40 % 4.20 % — % Maximum amount outstanding at any month-end during the year $ 1,350,000 $ 1,300,000 $ — Average amount outstanding during the year $ 1,149,387 $ 1,124,314 $ — Weighted-average interest rate for the year 5.20 % 2.08 % — % During the third quarter of 2022, we redeemed the five issuances of trust preferred securities which had an outstanding aggregate principal amount of $56.2 million. We recorded a loss of $365,000 related to the early retirement of debt, which represented the unamortized purchase discounts associated with the previously acquired trust preferred securities. In March 2018, we issued $330.0 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. We incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and 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. 57 Aggregate annual maturities of long-term debt at December 31, 2023 are presented in Table 17. Table 17: Maturities of Long-Term Debt Annual Maturities Year (In thousands) 2024 $ 1,822 2025 1,822 2026 1,824 2027 1,920 2028 332,210 Thereafter 48,909 Total $ 388,507 Capital Overview At December 31, 2023, total capital was $3.43 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At December 31, 2023, our common equity to asset ratio was 12.53% 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 an amendment 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 December 31, 2023, there were no shares of preferred stock issued or outstanding. On March 31, 2021, we filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that we are required to file with the SEC at the time of the specific offering. Stock Repurchase Program On October 22, 2019, we announced a stock repurchase program (the “2019 Program”) under which we could repurchase up to $60.0 million of our Class A Common Stock currently issued and outstanding. On March 5, 2020, we announced an amendment to the 2019 Program that increased the maximum amount that could be repurchased under the 2019 Program from $60.0 million to $180.0 million. Effective July 23, 2021, our Board of Directors approved another amendment to the 2019 Program that increased the amount of our Class A common stock that may be repurchased from a maximum of $180.0 million to a maximum of $276.5 million and extended the term of the 2019 Program from October 31, 2021, to October 31, 2022. During January 2022, we substantially exhausted the repurchase capacity under the 2019 Program. As a result, our Board of Directors authorized a new stock repurchase program in January 2022 (“2022 Program”) under which we may repurchase up to $175.0 million of our Class A common stock currently issued and outstanding. Because the 2022 Program was set to terminate on January 31, 2024, our Board of Directors authorized a new stock repurchase program in January 2024 (“2024 Program”) under which we may repurchase up to $175.0 million of our Class A common stock currently issued and outstanding. 58 During 2023, we repurchased 2,257,049 shares at an average price of $17.72 per share under the 2022 Program. During 2022, we repurchased 513,725 shares at an average price of $31.25 per share under the 2019 Program and 3,919,037 shares at an average price of $24.26 per share under the 2022 Program, respectively. The 2022 Program repurchases were all completed during the second and third quarters of 2022. Under the 2024 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 2024 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 2024 Program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. We anticipate funding for the 2024 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 $0.80 per share for the twelve months ended December 31, 2023, compared to $0.76 per share for the twelve months ended December 31, 2022, an increase of $0.04, 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 Simmons First National Corporation (the Parent Company) are the payment of dividends to shareholders, the funding of debt obligations and cash needs for acquisitions. The primary sources for meeting these liquidity needs are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends by Simmons Bank is subject to various regulatory limitations. The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising in the market via stock or debt offerings. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, for additional information regarding the parent company’s liquidity, which is incorporated herein by reference. The redemption of our trust preferred securities during the third quarter of 2022 did not have a meaningful impact on the Parent Company’s liquidity. Risk-Based Capital The Company and Simmons Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 2023, we met all capital adequacy requirements to which we are subject. As of the most recent notification from regulatory agencies, Simmons Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and Simmons Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the bank’s categories. 59 Our risk-based capital ratios at December 31, 2023 and 2022 are presented in Table 18 below: Table 18: Risk-Based Capital December 31, (Dollars in thousands) 2023 2022 Tier 1 capital: Stockholders’ equity $ 3,426,488 $ 3,269,362 CECL transition provision 61,746 92,619 Goodwill and other intangible assets (1,398,810) (1,412,667) Unrealized loss on available-for-sale securities, net of income taxes 404,375 517,560 Total Tier 1 capital 2,493,799 2,466,874 Tier 2 capital: Subordinated notes and debentures 366,141 365,989 Subordinated debt phase out (66,000) — Qualifying allowance for credit losses and reserve for unfunded commitments 170,977 115,627 Total Tier 2 capital 471,118 481,616 Total risk-based capital $ 2,964,917 $ 2,948,490 Risk weighted assets $20,599,238 $20,738,727 Assets for leverage ratio $26,552,988 $26,407,061 Ratios at end of year: Common equity Tier 1 ratio (CET1) 12.11 % 11.90 % Tier 1 leverage ratio 9.39 % 9.34 % Tier 1 risk-based capital ratio 12.11 % 11.90 % Total risk-based capital ratio 14.39 % 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 % 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, 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. 60 The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets to 6.0% and require a minimum leverage ratio of 4.0%. Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital. All of the Company’s trust preferred securities were redeemed during the third quarter of 2022. Qualifying subordinated debt of $300.1 million is included as Tier 2 and total capital of the Company as of December 31, 2023. Liquidity In the normal course of business we have entered into a number of contractual obligations and have made commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2023. Examples of these commitments include but are not limited to long-term debt financing (Note 12, Other Borrowings and Subordinated Debentures), operating lease obligations (Note, 6, Right-of-Use Lease Assets and Lease Liabilities), time deposits with stated maturity dates (Note 9, Time Deposits), and unfunded loan commitments and letters of credit (Note 19, Commitments and Credit Risk). GAAP Reconciliation of Non-GAAP Financial Measures The tables below present computations of adjusted earnings (net income excluding certain items {gain on sale of branches, early retirement program costs, loss from early retirement of TruPS, gain on sale of intellectual property, gain on insurance settlement, donation to Simmons First Foundation, merger related costs, FDIC special assessment, loss (gain) on sale of securities, net branch right sizing costs, and the Day 2 CECL Provision}) (non-GAAP) and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per common share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest income (non-GAAP), 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). The Company has updated its calculation of certain non-GAAP financial measures to exclude the impact of gains or losses on the sale of AFS investment securities in light of the impact of the Company’s strategic AFS investment securities transactions during the fourth quarter of 2023 and has presented past periods on a comparable basis. 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 61 We have $1.43 billion and $1.45 billion total goodwill and other intangible assets for the periods ended December 31, 2023 and 2022, respectively. Because our acquisition strategy has resulted in a high level of intangible assets, management believes useful calculations include tangible book value per common share (non-GAAP) and tangible common equity to tangible assets (non-GAAP). We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that is applied by management and the Board of Directors. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as adjusted to ensure that the Company’s “adjusted” results are properly reflected for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes certain items does not represent the amount that effectively accrues directly to stockholders (i.e., certain items are included in earnings and stockholders’ equity). Additionally, similarly titled non-GAAP financial measures used by other companies may not be computed in the same or similar fashion. During 2023, adjusted items primarily consisted of net branch right sizing costs of $5.5 million, mainly due to branch closures across our footprint during the year, $6.2 million in early retirement program costs related to our Better Bank Initiative, and a $20.6 million loss on sale of securities due to the strategic sale of AFS securities during the year. Additionally, we recorded $10.5 million related to a FDIC special assessment levied to support the Deposit Insurance Fund following the failure of certain banks in 2023. The net after-tax impact of all adjusted items on net income was $32.7 million, or a $0.26 impact on diluted earnings per share. During 2022, adjusted items primarily consisted of $33.8 million of Day 2 provision expense required for loans and unfunded commitments related to the Spirit acquisition, merger-related costs of $22.5 million, primarily related to the Spirit acquisition, and net branch right sizing costs of $3.6 million, mainly due to branch closures across our footprint during the year. Additionally, we had a gain on insurance settlement of $4.1 million related to a weather event that caused severe damage to one of our branch locations. The net after-tax impact of all adjusted items was $42.4 million, or $0.34 per diluted earnings per share. During 2021, adjusted items primarily consisted of $22.7 million of Day 2 provision expense required for loans related to the Landmark and Triumph acquisitions, $15.9 million of merger-related costs, related to the Landmark and Triumph acquisitions and $15.5 million of gains related to the sale of securities. Additionally, we had total gains on sale of branches of $5.3 million due to the Illinois Branch Sale. The net after-tax impact of these items was $12.5 million, or $0.11 per diluted earnings per share. 62 See Table 19 below for the reconciliation of adjusted earnings, which exclude certain items for the periods presented. Table 19: Reconciliation of Adjusted Earnings (non-GAAP) (In thousands, except per share data) 2023 2022 2021 Net income available to common stockholders $ 175,057 $ 256,412 $ 271,109 Certain items: Gain on sale of branches — — (5,316) Loss from early retirement of TruPS — 365 — Gain on sale of intellectual property — (750) — Gain on insurance settlement — (4,074) — FDIC special assessment 10,521 — — Donation to Simmons First Foundation — 1,738 — Merger related costs 1,420 22,476 15,911 Early retirement program 6,198 — — Loss (gain) on sale of securities 20,609 278 (15,498) Branch right sizing, net 5,467 3,628 (906) Day 2 CECL Provision — 33,779 22,688 Tax effect (1) (11,556) (15,012) (4,413) Certain items, net of tax 32,659 42,428 12,466 Adjusted earnings (non-GAAP) $ 207,716 $ 298,840 $ 283,575 Diluted earnings per share $ 1.38 $ 2.06 $ 2.46 Certain items: Gain on sale of branches — — (0.05) Loss from early retirement of TruPS — — — Gain on sale of intellectual property — (0.01) — Gain on insurance settlement — (0.03) — FDIC special assessment 0.08 — — Donation to Simmons First Foundation — 0.01 — Merger related costs 0.01 0.18 0.14 Early retirement program 0.05 — — Loss (gain) on sale of securities 0.17 — (0.14) Branch right sizing, net 0.04 0.03 (0.01) Day 2 CECL Provision — 0.28 0.21 Tax effect (1) (0.09) (0.12) (0.04) Certain items, net of tax 0.26 0.34 0.11 Adjusted diluted earnings per share (non-GAAP) $ 1.64 $ 2.40 $ 2.57 _________________________ (1) Effective tax rate of 26.135%. 63 See Table 20 below for the reconciliation of adjusted noninterest income, adjusted noninterest expense and adjusted salaries and employee benefits expense for the periods presented. Table 20: Reconciliation of Adjusted Noninterest Income (non-GAAP), Adjusted Noninterest Expense (non-GAAP) and Adjusted Salaries and Employee Benefits Expense (non-GAAP) (In thousands) 2023 2022 2021 Noninterest income $ 155,566 $ 170,066 $ 191,815 Certain items: Gain on sale of branches — — (5,316) Gain on insurance settlement — (4,074) — Loss from early retirement of TruPS — 365 — Gain on sale of intellectual property — (750) — Loss (gain) on sale of securities 20,609 278 (15,498) Branch right sizing — 153 (369) Total certain items 20,609 (4,028) (21,183) Adjusted noninterest income (non-GAAP) $ 176,175 $ 166,038 $ 170,632 Noninterest expense $ 563,061 $ 566,748 $ 483,589 Certain items: Merger related costs (1,420) (22,476) (15,911) Donation to Simmons First Foundation — (1,738) — Early retirement program (6,198) — — FDIC special assessment (10,521) — — Branch right sizing (5,467) (3,475) 537 Total certain items (23,606) (27,689) (15,374) Adjusted noninterest expense (non-GAAP) $ 539,455 $ 539,059 $ 468,215 Salaries and employee benefits expense $ 286,117 $ 286,982 $ 246,335 Early retirement program costs (6,198) — — Other 2 — (66) Adjusted salaries and employee benefits expense (non-GAAP) $ 279,921 $ 286,982 $ 246,269 See Table 21 below for the reconciliation of tangible book value per common share. Table 21: Reconciliation of Tangible Book Value per Common Share (non-GAAP) (In thousands, except per share data) 2023 2022 2021 Total common stockholders’ equity $ 3,426,488 $ 3,269,362 $ 3,248,841 Intangible assets: Goodwill (1,320,799) (1,319,598) (1,146,007) Other intangible assets (112,645) (128,951) (106,235) Total intangibles (1,433,444) (1,448,549) (1,252,242) Tangible common stockholders’ equity $ 1,993,044 $ 1,820,813 $ 1,996,599 Shares of common stock outstanding 125,184,119 127,046,654 112,715,444 Book value per common share $ 27.37 $ 25.73 $ 28.82 Tangible book value per common share (non-GAAP) $ 15.92 $ 14.33 $ 17.71 64 See Table 22 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets. Table 22: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP) (Dollars in thousands) 2023 2022 2021 Total common stockholders’ equity $ 3,426,488 $ 3,269,362 $ 3,248,841 Intangible assets: Goodwill (1,320,799) (1,319,598) (1,146,007) Other intangible assets (112,645) (128,951) (106,235) Total intangibles (1,433,444) (1,448,549) (1,252,242) Tangible common stockholders’ equity $ 1,993,044 $ 1,820,813 $ 1,996,599 Total assets $ 27,345,674 $ 27,461,061 $ 24,724,759 Intangible assets: Goodwill (1,320,799) (1,319,598) (1,146,007) Other intangible assets (112,645) (128,951) (106,235) Total intangibles (1,433,444) (1,448,549) (1,252,242) Tangible assets $ 25,912,230 $ 26,012,512 $ 23,472,517 Ratio of common equity to assets 12.53 % 11.91 % 13.14 % Ratio of tangible common equity to tangible assets (non-GAAP) 7.69 % 7.00 % 8.51 % See Table 23 below for the calculation of uninsured, non-collateralized deposit coverage ratio. Table 23: Calculation of Uninsured, Non-Collateralized Deposit Coverage Ratio (non-GAAP) (In thousands) 2023 2022 Uninsured deposits at Simmons Bank $ 8,328,444 $ 8,913,990 Less: Collateralized deposits (excluding portion that is FDIC insured) 2,846,716 2,759,248 Less: Intercompany eliminations 728,480 529,042 Total uninsured, non-collateralized deposits $ 4,753,248 $ 5,625,700 FHLB borrowing availability $ 5,401,000 $ 5,442,000 Unpledged securities 3,817,000 3,180,000 Fed funds lines, Fed discount window and Bank Term Funding Program 1,998,000 1,982,000 Additional liquidity sources $ 11,216,000 $ 10,604,000 Uninsured, non-collateralized deposit coverage ratio 2.4x 1.9x 65