What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 210 added, 176 removed, 575 unchanged (40% of the section changed)

1 unchanged sentence

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

Accordingly, we have compared our results of operations for the three months ended March 31, 2024 to our results of operations for the three months ended December 31, 2023 and March 31, 2023, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

During the first three months of 2024, we delivered solid results in the quarter that clearly reflect our driving principles centered on a strong risk management culture, profitability and organic growth.

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

Total deposits as of March 31, 2024 were $22.35 billion, compared to $22.24 billion as of December 31, 2023.

Uninsured deposits (excluding collateralized deposits and intercompany deposits) as of March 31, 2024 were approximately $4.64 billion, or 21% of total deposits.

• Capital levels were steady during the quarter, with all regulatory capital ratios remaining significantly above “well-capitalized” guidelines as of March 31, 2024 (see Table 11 in the Risk-Based Capital section below).

As of March 31, 2024, our ratio of common equity to total assets was 12.56%, the ratio of tangible common equity to tangible assets was 7.75% and our Tier 1 leverage ratio was 9.44%.

• Key credit quality metrics as of March 31, 2024 also remained solid, with our nonperforming loan coverage ratio at 212% 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 March 31, 2024 and December 31, 2023.

Additional liquidity sources available to us as of March 31, 2024 totaled $11.46 billion and our uninsured, non-collateralized deposit coverage ratio was 2.5x.

Net income for the three months ended March 31, 2024 was $38.9 million, or $0.31 diluted earnings per share, compared to net income of $23.9 million, or $0.19 diluted earnings per share, and $45.6 million, or $0.36 diluted earnings per share, for the three months ended December 31, 2023 and March 31, 2023, respectively.

Included in the results for the three months ended March 31, 2024 were certain items related to a FDIC special assessment and early retirement program costs;

results for the three months ended December 31, 2023 included certain items related to a FDIC special assessment, early retirement program costs and loss on sale of securities;

and results for the three months ended March 31, 2023 included certain items related to acquisition costs.

Also included in each comparative period end results were certain items related to branch right sizing initiatives.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended March 31, 2024 were $40.4 million, or $0.32 adjusted diluted earnings per share, compared to $50.2 million, or $0.40 adjusted diluted earnings per share, and $47.3 million, or $0.37 adjusted diluted earnings per share, for the three months ended December 31, 2023 and March 31, 2023, respectively.

Accordingly, we have compared our results of operations for the three months ended June 30, 2024 to our results of operations for the three months ended March 31, 2024, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

For additional information regarding the Company’s results for the three months ended March 31, 2024, please refer to our first quarter Form 10-Q filed with the SEC on May 7, 2024.

During the first half of 2024, we delivered solid results that clearly reflect our driving principles centered on a strong risk management culture, profitability and organic growth.

While we continue to operate against a backdrop of uncertainty concerning slower economic growth and the timing of lower interest rates, we are comforted by our strong capital and liquidity positions:

• Total deposits as of June 30, 2024 were $21.84 billion, compared to $22.24 billion as of December 31, 2023.

Uninsured non-collateralized deposits as of June 30, 2024 were approximately $4.41 billion, or 20% of total deposits.

• Capital levels were steady during the quarter, with all regulatory capital ratios remaining significantly above “well-capitalized” guidelines as of June 30, 2024 (see Table 11 in the Risk-Based Capital section below).

As of June 30, 2024, our ratio of common equity to total assets was 12.64%, the ratio of tangible common equity to tangible assets was 7.84% and our Tier 1 leverage ratio was 9.49%.

• Key credit quality metrics as of June 30, 2024 also remained solid, with our nonperforming loan coverage ratio at 223% 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 79% and 76% as of June 30, 2024 and December 31, 2023, respectively.

Additional liquidity sources available to us as of June 30, 2024 totaled $11.12 billion and our uninsured, non-collateralized deposit coverage ratio was 2.5x.

Our net income for the three months ended June 30, 2024 was $40.8 million, or $0.32 diluted earnings per share, compared to net income of $38.9 million, or $0.31 diluted earnings per share, for the three months ended March 31, 2024.

Included in both comparative period end results were certain items related to our branch right sizing initiatives, FDIC special assessment, and early retirement program costs, while the results for the three months ended June 30, 2024 also included certain adjustments for the termination of vendor and software services.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended June 30, 2024 were $41.9 million, or $0.33 adjusted diluted earnings per share, compared to $40.4 million, or $0.32 adjusted diluted earnings per share, for the three months ended March 31, 2024.

Net income for the six months ended June 30, 2024 was $79.6 million, or $0.63 diluted earnings per share, compared to net income of $103.9 million, or $0.82 diluted earnings per share, for the six months ended June 30, 2023.

Included in the results for the six months ended June 30, 2024 were certain items related to a FDIC special assessment and termination of vendor and software services;

results for the six months ended June 30, 2023 included certain items related to acquisition costs and loss on sale of securities.

Also included in each comparative period end results were certain items related to branch right sizing initiatives and early retirement program costs.

Excluding these certain items and the tax effect, adjusted earnings for the six months ended June 30, 2024 were $82.2 million, or $0.65 adjusted diluted earnings per share, compared to $108.7 million, or $0.85 adjusted diluted earnings per share, for the six months ended June 30, 2023.

In 2024, Simmons Bank was recognized by U.S.

News & World Report as one of the “2024-2025 Best Companies to Work For in the South” and by Forbes as one of “America’s Best-In-State Banks 2024 in Tennessee”.

Credit trends throughout the industry are beginning to normalize after an extended period at historically low levels.

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 March 31, 2024, December 31, 2023, and March 31, 2023 were $107.3 million, $84.5 million, and $63.7 million, respectively.

Non-performing assets as a percent of total assets were 0.41% at March 31, 2024, compared to 0.33% at December 31, 2023 and 0.26% at March 31, 2023.

Stockholders’ equity as of March 31, 2024 was $3.44 billion, book value per share was $27.42 and tangible book value per share was $16.02.

Total loans were $17.00 billion at March 31, 2024, compared to $16.85 billion at December 31, 2023, reflecting our focus on maintaining disciplined pricing strategies and prudent underwriting standards given in light of uncertainty related to near-term economic activity and conditions in our markets.

Our unfunded commitments were $4.14 billion and $4.17 billion as of March 31, 2024 and December 31, 2023, respectively.

Our commercial loan pipeline experienced growth for the third consecutive quarter and totaled $1.01 billion as of March 31, 2024, compared to $948.2 million at December 31, 2023.

Our 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 June 30, 2024, December 31, 2023, and June 30, 2023 were $103.4 million, $84.5 million, and $72.0 million, respectively.

Non-performing assets as a percent of total assets were 0.39% at June 30, 2024, compared to 0.33% at December 31, 2023 and 0.28% at June 30, 2023.

As of June 30, 2024, stockholders’ equity was $3.46 billion, book value per share was $27.56 and tangible book value per share was $16.20.

Total loans were $17.19 billion at June 30, 2024, compared to $16.85 billion at December 31, 2023.

Our unfunded commitments were $4.02 billion and $4.17 billion as of June 30, 2024 and December 31, 2023, respectively.

Our commercial loan pipeline totaled $1.00 billion as of June 30, 2024, compared to $948.2 million at December 31, 2023.

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

1 unchanged sentence

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

Simmons First National Corporation is a Mid-South based financial holding company that, as of March 31, 2024, has approximately $27.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Simmons First National Corporation is a Mid-South based financial holding company that, as of June 30, 2024, has approximately $27.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

CRITICAL ACCOUNTING ESTIMATES

18 unchanged sentences

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.

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.

14 unchanged sentences

Results are compared to book value;

no impairment was indicated as of March 31, 2024.

no impairment was indicated as of June 30, 2024.

Judgement is inherent in assessing goodwill for impairment.

21 unchanged sentences

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.

As of March 31, 2024, our interest rate sensitivity shows that approximately 44% of our loans and 94% of our time deposits will reprice in the next year.

As of June 30, 2024, our interest rate sensitivity shows that approximately 45% of our loans and 93% of our time deposits will reprice in the next year.

Net Interest Income - Sequential Quarter Analysis

For the three month period ended March 31, 2024, net interest income on a fully taxable equivalent basis was $158.3 million, a decrease of $3.8 million, or 2.4%, compared to the three months ended December 31, 2023.

The decrease in net interest income was primarily the result of a $1.0 million decrease in fully tax equivalent interest income, coupled by a $2.9 million increase in interest expense.

The decrease in interest income primarily resulted from a $61,000 increase in interest income on loans, more than offset by a decrease of $919,000 in interest income on investment securities.

The marginal increase in interest income provided by loans reflects an increase in loan volume of $1.7 million, offset by a $1.6 million decrease in interest income related to loan yield.

While the loan yield for the first quarter of 2024 was 6.24% compared to 6.20% from the preceding sequential quarter, representing a 4 basis point increase, the lower number of days during the three month period ended March 31, 2024 led to the decrease in interest income related to loan yield.

The decrease in interest income on investment securities was primarily due to a $2.5 million decrease in volume related to our taxable investment portfolio, 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 of our investment securities portfolio 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.

The decrease in interest income on taxable investment securities due to volume decreases was mitigated by a $1.8 million increase in interest income on taxable investment securities due to yield increases of 22 basis points.

The $2.9 million increase in interest expense is mostly due to the increase in deposit account rates and change in deposit mix as consumers migrate toward higher rate deposits in the current higher rate environment.

Interest expense increased $6.0 million due to the increase in rate of 17 basis points on interest-bearing deposit accounts as pricing measures were implemented to defend the core deposit base.

Interest expense also increased $2.0 million due to the increase in deposit volume over the period.

The increases due to deposit volume and yields were partially offset by the reduced reliance on other wholesale borrowings sources, which led to a $5.0 million decrease in interest expense.

For the three month period ended June 30, 2024, net interest income on a fully taxable equivalent basis was $160.5 million, an increase of $2.2 million, or 1.4%, compared to the three months ended March 31, 2024.

The increase in net interest income was primarily the result of a $6.7 million increase in fully tax equivalent interest income, partially offset by a $4.5 million increase in interest expense.

The increase in interest income on a fully taxable equivalent basis primarily resulted from a $9.4 million increase in interest income on loans, partially offset by a decrease of $2.8 million in interest income on investment securities.

The increase in interest income provided by loans reflects an increase in loan volume of $3.2 million, coupled with a $6.3 million increase in interest income related to loan yield.

The loan yield for the second quarter of 2024 was 6.39% compared to 6.24% from the preceding sequential quarter, representing a 15 basis point increase.

The decrease in interest income on investment securities was primarily related to a $1.7 million decrease in interest income on taxable investment securities due to yield decreases of 16 basis points.

Further contributing to the decrease in interest income on taxable investment securities was a $1.3 million decrease in volume related to our taxable investment portfolio, as our portfolio experienced pay downs and maturities over the period, which was reinvested into our loan portfolio.

The $4.5 million increase in interest expense is mostly due to the additional reliance on other wholesale borrowings sources, primarily Federal Home Loan Bank (“FHLB”) advances, which led to a $3.4 million increase in interest expense during the quarter.

Interest expense increased $2.2 million due to the modest increase in rate of 5 basis points on interest-bearing deposit accounts as the pace of higher rate account migration eased.

Interest expense decreased by $1.1 million due to the decrease in deposit volume over the period, which partially offset the increase related to rates.

Net Interest Income - Year-over-Year Analysis

Net interest income on a fully taxable equivalent basis for the three month period ended March 31, 2024 decreased $25.8 million, or 14.0%, over the same period in 2023.

Net interest income on a fully taxable equivalent basis for the six month period ended June 30, 2024 decreased $34.7 million, or 9.8%, over the same period in 2023.

The decrease in net interest income on a fully taxable equivalent basis was the result of a $76.0 million increase in fully tax equivalent interest income, more than offset by a $110.7 million increase in interest expense.

The increase in interest income during the three month period ended March 31, 2024 resulted from increases in interest income on loans and investments, primarily as a result of rising market interest rates.

The increase in interest income during the six month period ended June 30, 2024 resulted from increases in interest income on loans and investments, primarily as a result of rising market interest rates.

The increase in interest income on loans of $60.9 million reflects an increase in loan volume of $14.2 million coupled with a 54 basis point rise in loan yield that resulted in a $46.7 million increase.

1 unchanged sentence

The increase of $15.9 million in interest income on investment securities is primarily related to an increase of $27.6 million in interest income on taxable investment securities due to yield increases over the period of 129 basis points.

The increase in interest income on taxable investment securities due to yield increases was mitigated by a $5.7 million decrease due to the decline in our taxable investment portfolio average balances which decreased by $768.5 million or 15.6%, as our portfolio experienced pay downs, maturities and a strategic sale as discussed above.

The increase in interest income on taxable investment securities due to yield increases was mitigated by an $11.7 million decrease due to the decline in our taxable investment portfolio average balances which decreased by $776.8 million or 15.9%, as our portfolio experienced pay downs, maturities and a strategic sale of $241.1 million of lower-yielding available-for-sale (“AFS”) securities late in the fourth quarter of 2023, the proceeds of which we used to pay off higher-rate wholesale fundings.

The $110.7 million increase in interest expense is mainly due to the increase in our deposit account rates over the period, combined with the 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 $55.4 million due to the increase in rate of 138 basis points on interest-bearing deposit accounts and increased $9.0 million due to the increase in deposit volume over the period.

Further, an increase of $2.8 million to interest expense was related to an increase in other borrowings during the same period.

Interest expense increased $94.8 million due to the increase in rate of 116 basis points on interest-bearing deposit accounts and $14.2 million due to the increase in deposit volume over the period.

Further, an increase of $2.7 million in interest expense was related to an increase in rates on our subordinated debentures during the same period.

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

Net Interest Margin

Our net interest margin on a fully tax equivalent basis was 2.66% for the three month period ended March 31, 2024, as compared to 2.68% and 3.09% for the three months ended December 31, 2023 and March 31, 2023, respectively.

While net interest margin was relatively flat compared to the preceding sequential quarter with a decrease of 2 basis points, net interest margin decreased 43 basis points during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Our net interest margin on a fully tax equivalent basis was 2.69% and 2.68% for the three and six month period ended June 30, 2024, as compared to 2.66% and 2.92% for the three months ended March 31, 2024 and the six months ended June 30, 2023, respectively.

While net interest margin was relatively flat compared to the preceding sequential quarter with an increase of 3 basis points, net interest margin decreased 24 basis points during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The decrease when compared to the same period in the prior year was primarily due to the rising deposit rate pressure from increased market competition and consumer migration toward higher rate deposits.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively.

Analysis of Net Interest Margin

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

Three Months Ended

March 31, December 31, March 31,

Three Months Ended Six Months Ended

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

(In thousands) 2024 2024 2024 2023

9 unchanged sentences

Changes in Fully Taxable Equivalent Net Interest Margin

Three Months Ended

(In thousands) March 31, 2024 compared to December 31, 2023 March 31, 2024 compared to March 31, 2023

Three Months Ended Six Months Ended

(In thousands) June 30, 2024 compared to March 31, 2024 June 30, 2024 compared to June 30, 2023

Increase (decrease) due to change in earning assets $ 1,647 $ (991)

Increase (decrease) due to change in earning asset yields (576) 42,132

Increase (decrease) due to change in interest bearing liabilities 2,530 (9,781)

Increase due to change in earning asset yields 5,003 77,009

Decrease due to change in interest bearing liabilities (2,068) (10,462)

Decrease due to change in interest rates paid on interest bearing liabilities (2,429) (100,229)

Decrease in net interest income $ (3,811) $ (25,818)

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

Increase (decrease) in net interest income $ 2,153 $ (34,673)

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively.

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

4 unchanged sentences

Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

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

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

June 30, 2024 March 31, 2024

Average Income/ Yield/ Average Income/ Yield/

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

Earning assets:

24 unchanged sentences

Net interest margin – FTE $ 160,481 2.69 $ 158,328 2.66

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended March 31, 2024 as compared to the three months ended December 31, 2023 and March 31, 2023, respectively.

Six Months Ended

June 30, 2024 June 30, 2023

Average Income/ Yield/ Average Income/ Yield/

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

Earning assets:

Interest bearing balances due from banks and federal funds sold $ 212,949 $ 5,974 5.64 $ 360,221 $ 6,806 3.81

Investment securities - taxable 4,098,980 81,481 4.00 4,875,784 65,549 2.71

Investment securities - non-taxable 2,616,187 42,730 3.28 2,625,923 42,775 3.28

Mortgage loans held for sale 9,688 342 7.10 7,526 236 6.32

Loans - including fees 17,001,148 534,265 6.32 16,517,110 473,408 5.78

Total interest earning assets 23,938,952 664,792 5.58 24,386,564 588,774 4.87

Non-earning assets 3,343,386 3,241,638

Total assets $ 27,282,338 $ 27,628,202

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest bearing liabilities:

Interest bearing transaction and savings deposits $ 11,052,928 $ 157,779 2.87 $ 11,365,205 $ 102,475 1.82

Time deposits 6,447,635 147,187 4.59 5,535,186 93,417 3.40

Total interest bearing deposits 17,500,563 304,966 3.50 16,900,391 195,892 2.34

Federal funds purchased and securities sold under agreements to repurchase 52,359 345 1.33 134,249 641 0.96

Other borrowings 992,506 26,674 5.40 1,120,421 27,460 4.94

Subordinated debt and debentures 366,179 13,998 7.69 366,028 11,299 6.23

Total interest bearing liabilities 18,911,607 345,983 3.68 18,521,089 235,292 2.56

Noninterest bearing liabilities:

Noninterest bearing deposits 4,639,498 5,458,509

Other liabilities 282,144 283,849

Total liabilities 23,833,249 24,263,447

Stockholders’ equity 3,449,089 3,364,755

Total liabilities and stockholders’ equity $ 27,282,338 $ 27,628,202

Net interest spread – FTE 1.90 2.31

Net interest margin – FTE $ 318,809 2.68 $ 353,482 2.92

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended June 30, 2024 as compared to the three months ended March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively.

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

Volume/Rate Analysis

Three Months Ended

March 31, 2024 compared to December 31, 2023 March 31, 2024 compared to March 31, 2023

Three Months Ended Six Months Ended

June 30, 2024 compared to March 31, 2024 June 30, 2024 compared to June 30, 2023

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

15 unchanged sentences

Total 2,068 2,429 4,497 10,462 100,229 110,691

Increase (decrease) in net interest income $ 2,148 $ (5,959) $ (3,811) $ (8,290) $ (17,528) $ (25,818)

(Decrease) increase in net interest income $ (421) $ 2,574 $ 2,153 $ (11,453) $ (23,220) $ (34,673)

PROVISION FOR CREDIT LOSSES

2 unchanged sentences

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

For the three months ended March 31, 2024, our provision for credit losses was $10.2 million as compared to $24.2 million for the same period ended March 31, 2023.

Provision expense for the three months ended March 31, 2024 was related to loans and reflected loan growth in the quarter, as well as the impact of updated economic assumptions.

Provision expense for the same period ended March 31, 2023 consisted of a $10.9 million expense related to loans and was primarily due to the impacts described above, combined with a $13.3 million expense related to securities and was due to decreases in the value of corporate bonds in the investment securities portfolio.

The provision for credit losses for the three months ended June 30, 2024 was $11.1 million as compared to $10.2 million for the three months ended March 31, 2024.

Provision expense for both periods was related to loans and reflected loan growth in the quarters, as well as the impact of updated economic assumptions.

For the six months ended June 30, 2024, our provision for credit losses was $21.3 million as compared to $24.3 million for the same period ended June 30, 2023.

Provision expense for the six months ended June 30, 2024 was related to loans and reflected loan growth in the quarter, as well as the impact of updated economic assumptions.

Provision expense for the same period ended June 30, 2023 consisted of a $16.0 million expense related to loans and was primarily due to the impacts described above, combined with a $13.3 million expense related to securities and was primarily due to decreases in the value of corporate bonds in the investment securities portfolio.

NONINTEREST INCOME

1 unchanged sentence

Noninterest income also includes income on the sale of mortgage loans, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities.

For the three month period ended March 31, 2024, total noninterest income was $43.2 million, an increase of approximately $21.2 million or 96.5%, compared to the three month period ended December 31, 2023.

The sequential increase was primarily driven by a certain item related to the loss on sale of securities of $20.2 million during the three months ended December 31, 2023, which was due 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.

Adjusting for this certain item, adjusted noninterest income for the three months ended March 31, 2024, increased $992,000, or 2.4%, as compared to the three months ended December 31, 2023.

Noninterest income for the three months ended March 31, 2024 decreased by approximately $2.7 million or 5.8% as compared to the three months ended March 31, 2023.

The decrease as compared to the same period in 2023 was primarily due to a $4.0 million legal reserve recapture associated with litigation recorded during the three months ended March 31, 2023, which was partially offset by a modest increase of $750,000 in mortgage lending income, coupled with an increase of $841,000 in bank owned life insurance income related to a higher earnings credit rate as compared to the prior period.

Table 5 shows noninterest income for the three month periods ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively, as well as changes between periods.

For the three month period ended June 30, 2024, total noninterest income was $43.3 million, an increase of approximately $115,000 or 0.3%, compared to the three month period ended March 31, 2024.

While the individual line items were all relatively flat as compared to the three month period ended March 31, 2024, the sequential increase was primarily driven by an increase of $796,000 in wealth management fees due to more favorable market conditions during the quarter, partially offset by a decrease of $347,000 in mortgage lending income.

Noninterest income for the six months ended June 30, 2024 decreased by approximately $4.3 million or 4.8% as compared to the six months ended June 30, 2023.

The decrease, as compared to the same period in 2023, was primarily due to a $4.0 million legal reserve recapture associated with litigation, coupled with fair value adjustments related to Small Business Investment Company (“SBIC”) investments and death benefits from bank owned life insurance totaling $3.5 million recorded during the six months ended June 30, 2023, which were partially offset by an increase of $2.2 million in bank owned life insurance income related to a higher earnings credit rate as compared to the prior period.

Table 5 shows noninterest income for the three month periods ended June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively, as well as changes between periods.

Noninterest Income

Three Months Ended

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

Three Months Ended Six Months Ended

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

(Dollars in thousands) 2024 2024 $ % 2024 2023 $ %

8 unchanged sentences

Total noninterest income $ 43,299 $ 43,184 $ 115 0.3% $ 86,483 $ 90,815 $ (4,332) (4.8)%

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) was $29.9 million, $30.6 million, and $30.0 million for the three month periods ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) was $31.0 million and $29.9 million for the three month periods ended June 30, 2024 and March 31, 2024, respectively, and was $60.9 million and $60.6 million for the six month periods ended June 30, 2024 and 2023, respectively.

NONINTEREST EXPENSE

6 unchanged sentences

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

Noninterest expense was $139.9 million for the three month period ended March 31, 2024, as compared to noninterest expense of $148.1 million for the three month period ended December 31, 2023, representing a decrease of $8.3 million, or 5.6%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing, FDIC special assessment and early retirement program costs, for the three months ended March 31, 2024, increased $5.1 million, or 3.9%, as compared to the three months ended December 31, 2023.

Noninterest expense for the three months ended March 31, 2024 decreased by approximately $3.3 million or 2.3% as compared to the three months ended March 31, 2023.

Adjusted noninterest expense, which excludes branch right sizing, merger related costs (for the three months ended March 31, 2023), FDIC special assessment (for the three months ended March 31, 2024) and early retirement program costs (for the three months ended March 31, 2024), decreased $3.0 million, or 2.1%, as compared to the three months ended March 31, 2023.

Salaries and employee benefits expense increased $5.7 million during the three month period ended March 31, 2024 as compared to the preceding sequential quarter and decreased $4.4 million when compared to the same period in the prior year.

Adjusted salaries and employee benefits expense, which excludes early retirement program costs, for the three months ended March 31, 2024, increased $6.5 million, or 9.8%, as compared to the preceding sequential quarter and decreased $4.6 million, or 6.0%, when compared to the same period in the prior year.

The increase as compared to the preceding sequential quarter is primarily due to higher payroll taxes typically incurred during the first quarter, while the decrease as compared to the same period in the prior year is primarily due to the successful execution of programs as part of our Better Bank Initiative.

Deposit insurance expense for the three months ended March 31, 2024 as compared to the three months ended December 31, 2023 and three months ended March 31, 2023 decreased by $8.1 million and increased by $2.2 million, respectively.

The variances in deposit insurance expense are significantly attributable to the FDIC special assessments of $1.5 million during the three months ended March 31, 2024 and $10.5 million during the three months ended December 31, 2023, which were levied to support the Deposit Insurance Fund following the failure of certain banks in 2023.

Otherwise, increases in the base assessment rate related to changes in the mix of deposits contributed approximately $887,000 and $693,000 to the deposit insurance expense increases when comparing the three months ended March 31, 2024 to the three months ended December 31, 2023 and March 31, 2023, respectively.

Table 6 below shows noninterest expense for the three month periods ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively, as well as changes between periods.

Noninterest expense was $139.4 million for the three month period ended June 30, 2024, as compared to noninterest expense of $139.9 million for the three month period ended March 31, 2024, representing a decrease of $525,000, or 0.4%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing, FDIC special assessment, early retirement program costs and termination of vendor and software services (for the three months ended June 30, 2024), for the three months ended June 30, 2024 was flat as compared to the three months ended March 31, 2024, and resulted in a modest decrease of $56,000.

Noninterest expense for the six months ended June 30, 2024 decreased by approximately $3.7 million or 1.3% as compared to the six months ended June 30, 2023.

Adjusted noninterest expense, which excludes branch right sizing, merger related costs (for the six months ended June 30, 2023), FDIC special assessment (for the six months ended June 30, 2024), termination of vendor and software services (for the six months ended June 30, 2024) and early retirement program costs, decreased $1.1 million, or 0.4%, as compared to the six months ended June 30, 2023.

Salaries and employee benefits expense decreased $1.9 million during the three month period ended June 30, 2024 as compared to the preceding sequential quarter and decreased $8.4 million during the six month period ended June 30, 2024 when compared to the same period in the prior year.

Adjusted salaries and employee benefits expense, which excludes early retirement program costs, for the three months ended June 30, 2024, decreased $1.8 million, or 2.5%, as compared to the preceding sequential quarter and decreased $5.1 million, or 3.5%, during the six month period ended June 30, 2024 when compared to the same period in the prior year.

The decrease as compared to the preceding sequential quarter is primarily due to higher payroll taxes typically incurred during the first quarter, while the decrease as compared to the same period in the prior year is primarily due to the successful execution of programs as part of our Better Bank Initiative.

Deposit insurance expense for the three and six months ended June 30, 2024 as compared to the three months ended March 31, 2024 and six months ended June 30, 2023 decreased by $1.5 million and increased by $2.7 million, respectively.

The variance in deposit insurance expense on a sequential quarter basis is significantly attributable to the additional FDIC special assessments of $283,000 and $1.5 million during the three months ended June 30, 2024 and March 31, 2024, respectively, which were levied to support the Deposit Insurance Fund following the failure of certain banks in 2023.

The increase in deposit insurance expense for the six months ended June 30, 2024 as compared to the same period in 2023 is primarily due to the base assessment rate related to changes in the mix of deposits.

Table 6 below shows noninterest expense for the three month periods ended June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively, as well as changes between periods.

Noninterest Expense

Three Months Ended

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

Three Months Ended Six Months Ended

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

(Dollars in thousands) 2024 2024 $ % 2024 2023 $ %

18 unchanged sentences

Total noninterest expense $ 139,354 $ 139,879 $ (525) (0.4)% $ 279,233 $ 282,924 $ (3,691) (1.3)%

* Not meaningful

INVESTMENTS AND SECURITIES

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

Securities within the portfolio are classified as either HTM or AFS.

Securities within the portfolio are classified as either held-to-maturity (“HTM”) or AFS.

Our philosophy regarding investments is conservative based on investment type and maturity.

3 unchanged sentences

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

HTM and AFS investment securities were $3.71 billion and $3.03 billion, respectively, at March 31, 2024, compared to the HTM amount of $3.73 billion and AFS amount of $3.15 billion at December 31, 2023.

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

HTM and AFS investment securities were $3.69 billion and $2.89 billion, respectively, at June 30, 2024, compared to the HTM amount of $3.73 billion and AFS amount of $3.15 billion at December 31, 2023.

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

During the quarters ended June 30, 2022 and September 30, 2021, we transferred, at fair value, $1.99 billion and $500.8 million, respectively, of securities from the AFS portfolio to the HTM portfolio.

The related remaining combined net unrealized losses of $121.9 million in accumulated other comprehensive income (loss) as of March 31, 2024 will be amortized over the remaining life of the securities.

The related remaining combined net unrealized losses of $117.4 million in accumulated other comprehensive income (loss) as of June 30, 2024 will be amortized over the remaining life of the securities.

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

2 unchanged sentences

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

Furthermore, as of March 31, 2024, we have the ability to hold the securities classified as AFS for a period of time sufficient for a recovery of amortized cost, we do not have an immediate intent to sell the securities classified as AFS, and we believe the accounting standard of “more likely than not” has not been met regarding whether we would be required to sell any of the AFS securities before recovery of amortized cost.

During 2024, we may continue to evaluate targeted sales of AFS securities based on prevailing market conditions and our funding and liquidity positions.

Furthermore, as of June 30, 2024, we have the ability to hold the securities classified as AFS for a period of time sufficient for a recovery of amortized cost, we do not have an immediate intent to sell the securities classified as AFS, and we believe the accounting standard of “more likely than not” has not been met regarding whether we would be required to sell any of the AFS securities before recovery of amortized cost.

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 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 March 31, 2024, we believe the declines in fair value are temporary and we do not believe any of the securities are impaired due to reasons of credit quality.

Accordingly, as of June 30, 2024, we believe the declines in fair value are temporary and we do not believe any of the securities are impaired due to reasons of credit quality.

During the third quarter of 2021, we began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio.

These swap agreements consist of a two year forward start date and involve the payment of fixed interest rates with a weighted average of 1.21% in exchange for variable interest rates based on federal funds rates, which became effective during late third quarter of 2023.

These swap agreements consist of a two year forward start date and involve the payment of fixed interest rates with a weighted average rate of 1.21% in exchange for variable interest rates based on federal funds rates, which became effective during late third quarter of 2023.

Securities within these swap agreements have maturity dates varying between 2028 and 2029.

For the three months ended March 31, 2024, the net amount included in interest income on investment securities in the consolidated statements of income related to these swap agreements was $12.4 million.

For the six months ended June 30, 2024, the net amount included in interest income on investment securities in the consolidated statements of income related to these swap agreements was $23.1 million.

LOAN PORTFOLIO

Our loan portfolio averaged $16.90 billion and $16.33 billion during the first three months of 2024 and 2023, respectively.

As of March 31, 2024, total loans were $17.00 billion, an increase of $156.1 million from December 31, 2023.

The increase in the average loan balance during the first three months of 2024 when compared to the same period in 2023 is primarily due to the continued widespread organic loan growth throughout our geographic markets over the comparative period.

Our loan portfolio averaged $17.00 billion and $16.52 billion during the first six months of 2024 and 2023, respectively.

As of June 30, 2024, total loans were $17.19 billion, an increase of $346.8 million from December 31, 2023.

The increase in the average loan balance during the first six months of 2024 when compared to the same period in 2023 is primarily due to the continued widespread organic loan growth throughout our geographic markets over the comparative period.

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

7 unchanged sentences

Loan Portfolio

March 31, December 31,

June 30, December 31,

(In thousands) 2024 2023

12 unchanged sentences

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

Consumer loans were $307.3 million at March 31, 2024, or 1.8% of total loans, compared to $318.7 million, or 1.9% of total loans at December 31, 2023.

The decrease in consumer loans from December 31, 2023, to March 31, 2024, was primarily due to loan payoffs and pay downs within the credit card portfolio during the period.

Consumer loans were $308.6 million at June 30, 2024, or 1.8% of total loans, compared to $318.7 million, or 1.9% of total loans at December 31, 2023.

The decrease in consumer loans from December 31, 2023, to June 30, 2024, was primarily due to loan payoffs and pay downs within the credit card portfolio during the period.

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

Real estate loans were $13.46 billion at March 31, 2024, or 79.2% of total loans, compared to $13.34 billion, or 79.2%, of total loans at December 31, 2023, an increase of $126.3 million, or 0.9%.

Our C&D loans increased by $187.5 million, or 6.0%, single family residential loans decreased by $16.8 million, or 0.6%, and CRE loans decreased by $44.4 million, or 0.6%.

The incremental changes among our real estate portfolio reflected our focus on maintaining conservative underwriting standards and structure guidelines while emphasizing prudent pricing discipline during the first three months of 2024.

Real estate loans were $13.48 billion at June 30, 2024, or 78.4% of total loans, compared to $13.34 billion, or 79.2%, of total loans at December 31, 2023, an increase of $145.0 million, or 1.1%.

Our C&D loans decreased by $87.5 million, or 2.8%, single family residential loans increased by $24.6 million, or 0.9%, and CRE loans increased by $207.9 million, or 2.8%.

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 $2.73 billion at March 31, 2024, or 16.0% of total loans, compared to $2.72 billion, or 16.2% of total loans at December 31, 2023, an increase of $3.1 million, or 0.1%.

The modest increase in non-real estate loans related to business of $9.1 million, or 0.4%, was partially offset by the decrease in agricultural loans of $6.1 million, or 2.6%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter.

Total commercial loans were $2.77 billion at June 30, 2024, or 16.1% of total loans, compared to $2.72 billion, or 16.2% of total loans at December 31, 2023, an increase of $46.8 million, or 1.7%.

The increase in commercial loans was related to the increase in agricultural loans of $52.5 million, or 22.5%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter.

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

Mortgage volume experienced an increase in demand during the first three months of 2024 as compared to December 31, 2023, and was coupled with continued organic growth in our municipal loans during the quarter, leading to an increase of $38.1 million in other loans.

While loan growth was widespread throughout our geographic markets and was generally broad-based by loan type during the first three months of 2024, loan growth during the first quarter of 2024 reflected moderating demand and increased payoff activity, as we focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment.

Our commercial loan pipeline consisting of all commercial loan opportunities was $1.01 billion at March 31, 2024 compared to $948.2 million at December 31, 2023.

Mortgage volume experienced an increase in demand during the first six months of 2024 as compared to December 31, 2023, and was coupled with continued organic growth in our municipal loans during the quarter, leading to an increase of $165.0 million in other loans.

While loan growth was widespread throughout our geographic markets and was generally broad-based by loan type during the first six months of 2024, loan growth during the first half of 2024 reflected moderating demand and increased payoff activity, as we focus on maintaining disciplined pricing and conservative underwriting standards given the current economic environment.

Our commercial loan pipeline consisting of all commercial loan opportunities was $1.00 billion at June 30, 2024 compared to $948.2 million at December 31, 2023.

Loans approved and ready to close at the end of the quarter totaled $329.7 million.

9 unchanged sentences

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 $22.0 million from December 31, 2023 to March 31, 2024.

Nonaccrual loans increased by $22.5 million from December 31, 2023 and foreclosed assets held for sale and other real estate owned decreased $562,000 as compared to December 31, 2023.

Total non-performing assets increased $16.6 million from December 31, 2023 to June 30, 2024.

Nonaccrual loans increased by $19.6 million from December 31, 2023 and foreclosed assets held for sale and other real estate owned decreased $1.9 million as compared to December 31, 2023.

The increase in nonaccrual assets was primarily due to two large loans being placed in nonaccrual status during the period.

One is an $11.0 million asset based lending loan and the other is a $6.6 million non-owner occupied real estate loan to a business that was negatively impacted by the COVID-19 pandemic.

Non-performing assets, including modifications to borrowers experiencing financial difficulty (“FDMs”) and acquired foreclosed assets, as a percent of total assets were 0.53% at March 31, 2024, compared to 0.45% at December 31, 2023.

One is a $5.9 million asset based lending loan and the other is a $6.6 million non-owner occupied real estate loan to a business that was negatively impacted by the COVID-19 pandemic.

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

2 unchanged sentences

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.

Modifications to borrowers experiencing financial difficulties (“FDMs”) 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.

There were no loan modifications granted to borrowers experiencing financial difficulty during the three month periods ended March 31, 2024 and 2023.

There was one loan modification granted to borrowers experiencing financial difficulty during the three and six month periods ended June 30, 2024 and 2023.

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

The allowance for credit losses as a percent of total loans was 1.34% as of March 31, 2024.

The allowance for credit losses as a percent of total loans was 1.34% as of June 30, 2024.

Non-performing loans equaled 0.60% of total loans.

Non-performing assets were 0.41% of total assets, an 8 basis point increase from December 31, 2023.

Non-performing assets were 0.39% of total assets, a 6 basis point increase from December 31, 2023.

The allowance for credit losses was 223% of non-performing loans.

Our annualized net charge-offs to average total loans ratio for the first three months of 2024 was 0.19%.

Annualized net credit card charge-offs to average total credit card loans were 2.88% for the first three months of 2024, compared to 2.20% during the full year 2023, and 119 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Our annualized net charge-offs to average total loans ratio for the first six months of 2024 was 0.19%.

Annualized net credit card charge-offs to average total credit card loans were 2.69% for the first six months of 2024, compared to 2.20% during the full year 2023, and 196 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

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

Non-performing Assets

March 31, December 31, March 31,

June 30, December 31, June 30,

(Dollars in thousands) 2024 2023 2023

8 unchanged sentences

Total non-performing assets $ 106,825 $ 90,271 $ 76,939

Performing FDMs $ 33,576 $ 33,577 $ 2,183

Allowance for credit losses to non-performing loans 223 % 267 % 292 %

Non-performing loans to total loans 0.60 % 0.50 % 0.43 %

Non-performing assets (including performing FDMs) to total assets 0.53 % 0.45 % 0.27 %

Non-performing assets to total assets 0.39 % 0.33 % 0.28 %

_______________________________________

(1) Includes nonaccrual FDMs of approximately $282,000 at December 31, 2023.

The interest income on nonaccrual loans is not considered material for the three month periods ended March 31, 2024 and 2023.

(1) Includes nonaccrual FDMs of approximately $842,000 and $282,000 at June 30, 2024 and December 31, 2023, respectively.

The interest income on nonaccrual loans is not considered material for the three and six month periods ended June 30, 2024 and 2023.

ALLOWANCE FOR CREDIT LOSSES

30 unchanged sentences

Provision for credit losses 21,305 15,977

Balance, March 31, $ 227,367 $ 206,557

Balance, June 30, $ 230,389 $ 209,966

Loans charged off:

14 unchanged sentences

Provision for Credit Losses

The amount of provision added to or released from the allowance during the three months ended March 31, 2024 and 2023, and for the year ended December 31, 2023, was based on management’s judgment, with consideration given to the composition and asset quality of the portfolio, historical loan loss experience, and assessment of current and expected economic forecasts and conditions.

The amount of provision added to or released from the allowance during the three and six months ended June 30, 2024 and 2023, and for the year ended December 31, 2023, was based on management’s judgment, with consideration given to the composition and asset quality of the portfolio, historical loan loss experience, and assessment of current and expected economic forecasts and conditions.

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

Allowance for Credit Losses Allocation

As of March 31, 2024, the allowance for credit losses reflected an increase of approximately $2.1 million from December 31, 2023, while total loans increased by $156.1 million over the same three month period.

As of June 30, 2024, the allowance for credit losses reflected an increase of approximately $5.2 million from December 31, 2023, while total loans increased by $346.8 million over the same six month period.

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

The increase in the allowance for credit losses during the first three months of 2024 was primarily due to the loan growth experienced during the first quarter of the year, as well as refreshed economic forecasts.

Our allowance for credit losses at March 31, 2024 was considered appropriate given the current economic environment and other related factors.

The increase in the allowance for credit losses during the first six months of 2024 was primarily due to the loan growth experienced during the first half of the year, as well as refreshed economic forecasts.

Our allowance for credit losses at June 30, 2024 was considered appropriate given the current economic environment and other related factors.

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

3 unchanged sentences

Allocation of Allowance for Credit Losses

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(Dollars in thousands) Allowance

7 unchanged sentences

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

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 233 financial centers as of March 31, 2024.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 234 financial centers as of June 30, 2024.

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

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

As of March 31, 2024, core deposits comprised 78.6% of our total deposits.

As of June 30, 2024, core deposits comprised 78.7% 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.

This approach helps ensure 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.

3 unchanged sentences

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

Our total deposits as of March 31, 2024, were $22.35 billion, compared to $22.24 billion as of December 31, 2023.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.77 billion at March 31, 2024, compared to $15.80 billion at December 31, 2023, a slight decrease of $29.0 million.

Total time deposits increased $137.0 million to $6.58 billion at March 31, 2024, from $6.45 billion at December 31, 2023.

We had $3.02 billion and $2.90 billion of brokered deposits at March 31, 2024, and December 31, 2023, respectively.

The change in the mix of deposits at March 31, 2024 as compared to December 31, 2023 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.

Our total deposits as of June 30, 2024, were $21.84 billion, compared to $22.24 billion as of December 31, 2023.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.55 billion at June 30, 2024, compared to $15.80 billion at December 31, 2023, a decrease of $248.9 million.

Total time deposits decreased $155.2 million to $6.29 billion at June 30, 2024, from $6.45 billion at December 31, 2023.

We had $2.94 billion and $2.90 billion of brokered deposits at June 30, 2024, and December 31, 2023, respectively.

The decrease in total deposits at June 30, 2024 as compared to December 31, 2023 primarily reflects activity related to public funds deposits.

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

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.24 billion and $1.34 billion at March 31, 2024 and December 31, 2023, respectively.

The outstanding balance for March 31, 2024 includes $853.2 million in FHLB advances;

Our total debt was $1.71 billion and $1.34 billion at June 30, 2024 and December 31, 2023, respectively.

The outstanding balance for June 30, 2024 includes $1.33 billion in FHLB advances;

$366.2 million in subordinated notes and unamortized debt issuance costs;

and $18.3 million of other long-term debt.

FHLB advances outstanding at March 31, 2024 are primarily fixed rate, fixed term advances, which are due less than one year from origination and therefore are classified as short-term advances.

FHLB advances outstanding at June 30, 2024 are primarily fixed rate, fixed term advances, which are due less than one year from origination and therefore are classified as short-term advances.

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

5 unchanged sentences

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 (“SOFR”), as published by the Federal Reserve Bank of New York (provided, that in the event the benchmark rate is less than zero, the benchmark rate will be deemed to be zero) plus 592 basis points, payable quarterly, in arrears.

At March 31, 2024, total capital was $3.44 billion.

For information about the regulatory capital treatment of the Notes and the Spirit Notes, see the section “ Capital—Risk Based Capital .”

At June 30, 2024, total capital was $3.46 billion.

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

At March 31, 2024, our common equity to asset ratio was 12.56% compared to 12.53% at year-end 2023.

At June 30, 2024, our common equity to asset ratio was 12.64% compared to 12.53% at year-end 2023.

Capital Stock

5 unchanged sentences

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

As of March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued or outstanding.

As of June 30, 2024 and December 31, 2023, there were no shares of preferred stock issued or outstanding.

Stock Repurchase Program

In January 2022, our Board of Directors authorized a stock repurchase program (the “2022 Program”) under which we could repurchase up to $175.0 million of our Class A common stock currently issued and outstanding.

In January 2022, our Board of Directors authorized a stock repurchase program (“2022 Program”) under which we could 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.

The 2024 Program will be executed in accordance with Rule 10b-18 under the Exchange Act and will terminate on January 31, 2026 (unless terminated sooner).

No shares were repurchased during the three month periods ended March 31, 2024 and 2023.

The 2024 Program will be executed in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) and will terminate on January 31, 2026 (unless terminated sooner).

Under the 2024 Program, we may repurchase shares of our common stock through open market and privately negotiated transactions or otherwise.

2 unchanged sentences

We anticipate funding for this 2024 Program to come from available sources of liquidity, including cash on hand and future cash flow.

No shares were repurchased during the three and six month periods ended June 30, 2024.

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

Cash Dividends

We declared cash dividends on our common stock of $0.21 per share for the first three months of 2024 compared to $0.20 per share for the first three months of 2023, an increase of $0.01, or 5%.

We declared cash dividends on our common stock of $0.42 per share for the first six months of 2024 compared to $0.40 per share for the first six months of 2023, an increase of $0.02, or 5%.

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

5 unchanged sentences

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

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

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

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

6 unchanged sentences

Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses.

The Company’s management reviews regulatory capital levels on an ongoing basis in light of the size, composition and quality of the Company’s capital resources, and of trends and anticipated changes thereto.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes that, as of March 31, 2024, we meet all capital adequacy requirements to which we are subject.

Management believes that, as of June 30, 2024, we meet all capital adequacy requirements to which we are subject.

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

1 unchanged sentence

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

The Company’s risk-based capital ratios at March 31, 2024 and December 31, 2023 are presented in Table 11 below:

The Company’s risk-based capital ratios at June 30, 2024 and December 31, 2023 are presented in Table 11 below:

Risk-Based Capital

March 31, December 31,

June 30, December 31,

(Dollars in thousands) 2024 2023

35 unchanged sentences

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.

Qualifying subordinated debt of $300.2 million is included as Tier 2 and total capital as of March 31, 2024 and December 31, 2023.

Qualifying subordinated debt of $234.2 million and $300.1 million is included as Tier 2 and total capital of the Company as of June 30, 2024 and December 31, 2023, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 unchanged sentences

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

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

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

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

13 unchanged sentences

reliance on third parties for the provision of key services;

further changes in accounting principles relating to loan loss recognition;

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

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

1 unchanged sentence

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

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

the soundness of other financial institutions and indirect exposure related to the closings of other financial institutions and their impact on the broader market through other customers, suppliers and partners (or that the conditions which resulted in the liquidity concerns that led to the large regional bank failures during 2023 may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships);

2 unchanged sentences

labor shortages;

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

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

the effects of government legislation;

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

banking products and services by mail, cell phone/tablet, telephone, computer and the Internet;

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

Additional information on factors that might cause the Company’s results to differ materially from those disclosed in the forward-looking statements is included in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report, the Company’s annual report on Form 10-K for the year ended December 31, 2023, and related disclosures in other filings with the SEC, which are available on the SEC’s website at www.sec.gov.

information on factors that might cause the Company’s results to differ materially from those disclosed in the forward-looking statements is included in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report, the Company’s annual report on Form 10-K for the year ended December 31, 2023, and related disclosures in other filings with the SEC, which are available on the SEC’s website at www.sec.gov.

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

4 unchanged sentences

GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The tables below present computations of adjusted earnings (net income excluding certain items {net branch right sizing costs, merger related costs, FDIC special assessment, loss (gain) on sale of securities and early retirement program costs}) (non-GAAP), and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest income (non-GAAP), adjusted noninterest expense (non-GAAP), adjusted salaries and employee benefits expense (non-GAAP) and the coverage ratio of uninsured, non-collateralized deposits (non-GAAP).

The tables below present computations of adjusted earnings (net income excluding certain items {net branch right sizing costs, merger related costs, FDIC special assessment, loss (gain) on sale of securities, termination of vendor and software services, early retirement program costs and tax effect}) (non-GAAP), and adjusted diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP), adjusted noninterest income (non-GAAP), adjusted noninterest expense (non-GAAP), adjusted salaries and employee benefits expense (non-GAAP), uninsured, non-collateralized deposits (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).

13 unchanged sentences

• Investor presentations of Company performance

We have $1.430 billion and $1.433 billion total goodwill and other intangible assets for the periods ended March 31, 2024 and December 31, 2023, respectively.

We have $1.426 billion and $1.433 billion total goodwill and other intangible assets for the periods ended June 30, 2024 and December 31, 2023, respectively.

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

7 unchanged sentences

Reconciliation of Adjusted Earnings (non-GAAP)

Three Months Ended

March 31, December 31, March 31,

Three Months Ended Six Months Ended

June 30, March 31 June 30, June 30,

(In thousands, except per share data) 2024 2024 2024 2023

4 unchanged sentences

Early retirement program 118 219 337 3,609

Termination of vendor and software services 615 — 615 —

Loss on sale of securities — — — 391

10 unchanged sentences

Early retirement program — — — 0.03

Termination of vendor and software services 0.01 — — —

Loss on sale of securities — — — —

9 unchanged sentences

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

Three Months Ended

March 31, December 31, March 31,

Three Months Ended Six Months Ended

June 30, March 31 June 30, June 30,

(In thousands) 2024 2024 2024 2023

8 unchanged sentences

Early retirement program (118) (219) (337) (3,609)

Termination of vendor and software services (615) — (615) —

FDIC Special Assessment (283) (1,549) (1,832) —

4 unchanged sentences

Early retirement program (118) (219) (337) (3,609)

Other 1 — 1 —

Adjusted salaries and employee benefits expense (non-GAAP) $ 70,599 $ 72,434 $ 143,033 $ 148,152

1 unchanged sentence

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

March 31, December 31,

June 30, December 31,

(In thousands, except per share data) 2024 2023

10 unchanged sentences

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

March 31, December 31,

June 30, December 31,

(Dollars in thousands) 2024 2023

13 unchanged sentences

Ratio of tangible common equity to tangible assets (non-GAAP) 7.84 % 7.69 %

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

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

March 31, December 31,

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

Reconciliation of Uninsured, Non-Collateralized Deposits and the Calculation of Uninsured, Non-Collateralized Deposit Coverage Ratio (non-GAAP)

June 30, December 31,

(In thousands) 2024 2023

13 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis