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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-06 · 162 added, 153 removed, 632 unchanged (33% of the section changed)

1 unchanged sentence

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

Accordingly, we have compared our results of operations for the three months ended June 30, 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.

Accordingly, we have compared our results of operations for the three months ended September 30, 2024 to our results of operations for the three months ended June 30, 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 June 30, 2024, please refer to our second quarter Form 10-Q filed with the SEC on August 6, 2024.

During the first nine months 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 the macroeconomic environment and the timing of lower interest rates, we are comforted by our strong capital and liquidity positions:

• Total deposits as of September 30, 2024 were $21.94 billion, compared to $22.24 billion as of December 31, 2023.

Uninsured non-collateralized deposits as of September 30, 2024 were approximately $4.66 billion, or 21% of total deposits.

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

As of September 30, 2024, our ratio of common equity to total assets was 12.94%, the ratio of tangible common equity to tangible assets was 8.15% and our Tier 1 leverage ratio was 9.57%.

• Key credit quality metrics as of September 30, 2024 also remained solid, with our nonperforming loan coverage ratio at 229% and our allowance for credit losses as a percent of total loans ratio was 1.35%.

• Significant liquidity position with a loan to deposit ratio of 79% and 76% as of September 30, 2024 and December 31, 2023, respectively.

Additional liquidity sources available to us as of September 30, 2024 totaled $11.17 billion and our uninsured, non-collateralized deposit coverage ratio was 2.4x.

Our net income for the three months ended September 30, 2024 was $24.7 million, or $0.20 diluted earnings per share, compared to net income of $40.8 million, or $0.32 diluted earnings per share, for the three months ended June 30, 2024.

Included in the results for the three months ended September 30, 2024 were the impacts of a loss on sale of securities;

results for the three months ended June 30, 2024 included certain items related to a FDIC special assessment.

Also included in both comparative period end results were certain items related to our branch right sizing initiatives, termination of vendor and software services, and early retirement program costs.

Excluding these certain items and the tax effect, adjusted earnings for the three months ended September 30, 2024 were $46.0 million, or $0.37 adjusted diluted earnings per share, compared to $41.9 million, or $0.33 adjusted diluted earnings per share, for the three months ended June 30, 2024.

During the third quarter of 2024, given prevailing market conditions, we executed a strategic decision to sell approximately $251.5 million of AFS investment securities with a weighted average yield of approximately 1.29%, resulting in an after-tax loss of $21.0 million.

The proceeds from the sale were used to pay off higher rate wholesale funding consisting of Federal Home Loan Bank (“FHLB”) advances.

Net income for the nine months ended September 30, 2024 was $104.4 million, or $0.83 diluted earnings per share, compared to net income of $151.2 million, or $1.19 diluted earnings per share, for the nine months ended September 30, 2023.

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

results for the nine months ended September 30, 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, loss on sale of securities and early retirement program costs.

Excluding these certain items and the tax effect, adjusted earnings for the nine months ended September 30, 2024 were $128.3 million, or $1.02 adjusted diluted earnings per share, compared to $157.5 million, or $1.24 adjusted diluted earnings per share, for the nine months ended September 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”.

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” and one of “America’s Best-In-State Employers 2024 in Missouri”.

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

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.

Total nonperforming loans as of September 30, 2024, December 31, 2023, and September 30, 2023 were $101.7 million, $84.5 million, and $81.9 million, respectively.

Non-performing assets as a percent of total assets were 0.38% at September 30, 2024, compared to 0.33% at December 31, 2023 and 0.32% at September 30, 2023.

As of September 30, 2024, stockholders’ equity was $3.53 billion, book value per share was $28.11 and tangible book value per share was $16.78.

Total loans were $17.34 billion at September 30, 2024, compared to $16.85 billion at December 31, 2023.

Our unfunded commitments were $3.96 billion and $4.17 billion as of September 30, 2024 and December 31, 2023, respectively.

Our commercial loan pipeline totaled $1.24 billion as of September 30, 2024, compared to $948.2 million at December 31, 2023.

We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the adjusted financial measures of the Company and predicting future performance.

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

Simmons First National Corporation is a Mid-South based financial holding company that, as of 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.

Simmons First National Corporation is a Mid-South based financial holding company that, as of September 30, 2024, has approximately $27.3 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.

CRITICAL ACCOUNTING ESTIMATES

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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 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.

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Results are compared to book value;

no impairment was indicated as of June 30, 2024.

no impairment was indicated as of September 30, 2024.

Judgement is inherent in assessing goodwill for impairment.

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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 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.

As of September 30, 2024, our interest rate sensitivity shows that approximately 46% of our loans and 94% of our time deposits will reprice in the next year.

Net Interest Income - Sequential Quarter Analysis

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.

For the three month period ended September 30, 2024, net interest income on a fully taxable equivalent basis was $164.1 million, an increase of $3.6 million, or 2.3%, compared to the three months ended June 30, 2024.

The increase in net interest income was primarily the result of a $5.0 million increase in fully tax equivalent interest income, partially offset by a $1.3 million increase in interest expense.

The increase in interest income on a fully taxable equivalent basis primarily resulted from a $6.9 million increase in interest income on loans, partially offset by a decrease of $1.9 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.

The increase in interest income provided by loans reflects an increase attributable to loan volume of $1.7 million, coupled with a $5.2 million increase in interest income related to loan yield.

The loan yield for the third quarter of 2024 was 6.44% compared to 6.39% from the preceding sequential quarter, representing a 5 basis point increase.

The decrease in interest income on investment securities was primarily related to a $2.0 million decrease attributable to volume related to our taxable investment portfolio, as our portfolio experienced pay downs, maturities, and a strategic sale of $251.5 million of lower-yielding available-for-sale (“AFS”) securities to pay off higher rate wholesale fundings consisting of FHLB advances during the three months ended September 30, 2024.

The $1.3 million increase in interest expense is mostly due to the additional reliance on other wholesale borrowings sources, primarily FHLB advances, which led to a $2.0 million increase in interest expense during the quarter.

Interest expense decreased by $2.1 million due to the decrease in deposit volume over the period, which was partially offset by the $1.3 million increase related to rates, largely due to the modest 2 basis point increase related to time deposit accounts, as we believe deposit costs appeared to have peaked during the third quarter of 2024.

Net Interest Income - Year-over-Year Analysis

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.

Net interest income on a fully taxable equivalent basis for the nine month period ended September 30, 2024 decreased $30.5 million, or 5.9%, over the same period in 2023.

The decrease in net interest income on a fully taxable equivalent basis was the result of a $99.9 million increase in fully tax equivalent interest income, more than offset by a $130.4 million increase in interest expense.

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.

The increase in our loan volume was due to solid organic loan growth over the comparative period.

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

The increase in interest income on loans of $82.9 million reflects an increase attributable to loan volume of $21.2 million coupled with a 48 basis point rise in loan yield that resulted in a $61.7 million increase.

The increase attributable to loan volume was due to solid organic loan growth over the comparative period.

The increase of $18.4 million in interest income on investment securities is primarily related to an increase of $37.1 million in interest income on taxable investment securities due to yield increases over the period of 116 basis points.

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 increase in interest income on taxable investment securities due to yield increases was mitigated by an $18.4 million decrease due to the decline in our taxable investment portfolio average balances which decreased by $788.2 million or 16.4%, as our portfolio experienced pay downs, maturities, the strategic sale of lower-yielding AFS securities during the third quarter of 2024 as discussed above and a strategic 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 in each period.

The $130.4 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.

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Net Interest Margin

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.

Our net interest margin on a fully tax equivalent basis was 2.74% and 2.70% for the three and nine month periods ended September 30, 2024, as compared to 2.69% and 2.82% for the three months ended June 30, 2024 and the nine months ended September 30, 2023, respectively.

Net interest margin experienced a 5 basis point increase for the three months ended September 30, 2024 compared to the preceding sequential quarter, while net interest margin decreased 12 basis points during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase as compared to the preceding sequential quarter was aided by the strategic sale of lower-yielding AFS investment securities during the three month period ended September 30, 2024.

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 June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023, respectively.

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended September 30, 2024 and June 30, 2024 and the nine months ended September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

(In thousands) 2024 2024 2024 2023

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Changes in Fully Taxable Equivalent Net Interest Margin

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)

Three Months Ended Nine Months Ended

(In thousands) September 30, 2024 compared to June 30, 2024 September 30, 2024 compared to September 30, 2023

Decrease due to change in earning assets $ (283) $ (2,265)

Increase due to change in earning asset yields 5,249 102,169

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

Increase (decrease) due to change in interest bearing liabilities 196 (9,788)

Decrease due to change in interest rates paid on interest bearing liabilities (1,533) (120,627)

Increase (decrease) in net interest income $ 3,629 $ (30,511)

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.

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

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Three Months Ended

June 30, 2024 March 31, 2024

September 30, 2024 June 30, 2024

Average Income/ Yield/ Average Income/ Yield/

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Net interest margin – FTE $ 164,110 2.74 $ 160,481 2.69

Six Months Ended

June 30, 2024 June 30, 2023

Nine Months Ended

September 30, 2024 September 30, 2023

Average Income/ Yield/ Average Income/ Yield/

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Net interest margin – FTE $ 482,919 2.70 $ 513,430 2.82

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.

Table 4 shows changes in interest income and interest expense resulting from changes in both volume and interest rates for the three months ended September 30, 2024 as compared to the three months ended June 30, 2024 and the nine months ended September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2024 compared to June 30, 2024 September 30, 2024 compared to September 30, 2023

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

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

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

The provision for credit losses for the three months ended September 30, 2024 was $12.1 million as compared to $11.1 million for the three months ended June 30, 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.

For the nine months ended September 30, 2024, our provision for credit losses was $33.5 million as compared to $32.0 million for the same period ended September 30, 2023.

Provision expense for the nine months ended September 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 September 30, 2023 consisted of a $36.2 million expense related to loans and was primarily due to the impacts described above, which was partially offset by the recapture of $16.3 million reflecting the continued decline in unfunded commitments over the period, and a $12.1 million expense related to securities which was primarily due to decreases in the value of corporate bonds in the investment securities portfolio.

NONINTEREST INCOME

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

For the three month period ended June 30, 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.

For the three month period ended September 30, 2024, total noninterest income was $17.1 million, a decrease of approximately $26.2 million or 60.4%, compared to the three month period ended June 30, 2024.

The majority of the decrease in noninterest income during the three months ended September 30, 2024 was due to a loss on sale of securities of $28.4 million.

During the period, we sold approximately $251.5 million of AFS investment securities as part of a strategic decision to sell low yielding securities to pay off higher rate wholesale fundings consisting of FHLB advances.

Adjusting for this certain item, adjusted noninterest income for the three month period ended September 30, 2024 increased $2.2 million, or 5.1%, from the prior sequential quarter.

The increase in adjusted noninterest income on a sequential quarter basis was primarily due to an increase in other income of $1.9 million from the prior sequential quarter reflecting gains on the sale of other real estate owned largely related to two properties sold during the quarter.

Noninterest income for the nine months ended September 30, 2024 decreased by approximately $30.0 million or 22.4% as compared to the nine months ended September 30, 2023.

The decrease, as compared to the same period in 2023, was primarily due to losses on sale of securities of $28.4 million discussed above and $391,000, recognized during each respective period.

Adjusting for these certain items, adjusted noninterest income for the nine month period ended September 30, 2024 decreased $2.0 million, or 1.5%, from the prior comparative period.

The decrease on an adjusted basis was related to a $6.6 million decrease in other income 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 nine months ended September 30, 2023.

Partially offsetting the decrease in other income was an increase of $2.8 million in bank owned life insurance income during the nine months ended September 30, 2024 related to a higher earnings credit rate as compared to the prior period.

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

Noninterest Income

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

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

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Total noninterest income $ 17,130 $ 43,299 $ (26,169) (60.4)% $ 103,613 $ 133,592 $ (29,979) (22.4)%

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.

_________________________

*Not meaningful

Recurring fee income (total service charges, wealth management fees, debit and credit card fees) was $31.5 million and $31.0 million for the three month periods ended September 30, 2024 and June 30, 2024, respectively, and was $92.4 million and $90.7 million for the nine month periods ended September 30, 2024 and 2023, respectively.

NONINTEREST EXPENSE

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

Noninterest expense was $139.4 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 was $137.2 million for the three month period ended September 30, 2024, as compared to noninterest expense of $139.4 million for the three month period ended June 30, 2024, representing a decrease of $2.2 million, or 1.6%, as compared to the preceding quarter.

Adjusted noninterest expense, which excludes branch right sizing, early retirement program costs, termination of vendor and software services, and FDIC special assessment (for the three months ended June 30, 2024), for the three months ended September 30, 2024 was $136.8 million, a decrease of $1.0 million as compared to the three months ended June 30, 2024.

Noninterest expense for the nine months ended September 30, 2024 increased by approximately $1.5 million or 0.4% as compared to the nine months ended September 30, 2023.

Adjusted noninterest expense, which excludes branch right sizing, merger related costs (for the nine months ended September 30, 2023), FDIC special assessment (for the nine months ended September 30, 2024), termination of vendor and software services (for the nine months ended September 30, 2024) and early retirement program costs, increased $5.8 million, or 1.4%, as compared to the nine months ended September 30, 2023.

Salaries and employee benefits expense decreased $1.5 million during the three month period ended September 30, 2024 as compared to the preceding sequential quarter and decreased $6.6 million during the nine month period ended September 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 September 30, 2024, decreased $1.4 million, or 2.0%, as compared to the preceding sequential quarter and decreased $1.8 million, or 0.8%, during the nine month period ended September 30, 2024 when compared to the same period in the prior year.

The decrease as compared to the preceding sequential quarter reflects incentive compensation accrual adjustments, 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 nine months ended September 30, 2024 as compared to the three months ended June 30, 2024 and nine months ended September 30, 2023 decreased by $111,000 and increased by $3.6 million, respectively.

While the variance in deposit insurance expense on a sequential quarter basis is relatively flat, the increase on a year over year basis for the nine months ended September 30, 2024 is significantly attributable to the additional FDIC special assessments totaling $1.8 million during the nine months ended September 30, 2024, which were levied to support the Deposit Insurance Fund following the failure of certain banks in 2023, coupled with base assessment rate increases related to changes in the mix of deposits.

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

Noninterest Expense

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

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

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Total noninterest expense $ 137,193 $ 139,354 $ (2,161) (1.6)% $ 416,426 $ 414,922 $ 1,504 0.4%

* Not meaningful

INVESTMENTS AND SECURITIES

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

HTM and AFS investment securities were $3.69 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.

HTM and AFS investment securities were $3.66 billion and $2.69 billion, respectively, at September 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 $117.4 million in accumulated other comprehensive income (loss) as of June 30, 2024 will be amortized over the remaining life of the securities.

The related remaining combined net unrealized losses of $112.7 million in accumulated other comprehensive income (loss) as of September 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.

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

Furthermore, as of June 30, 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.

During the three month period ended September 30, 2024, we sold approximately $251.5 million of AFS investment securities as part of a strategic decision to sell low yielding securities to pay off higher rate wholesale fundings consisting of FHLB advances resulting in a gross realized loss of $28.4 million.

Furthermore, as of September 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.

For the remainder of 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 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.

Accordingly, as of September 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 $1.00 billion of fixed rate callable municipal securities held in the AFS portfolio.

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

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.

For the nine months ended September 30, 2024, the net amount included in interest income on investment securities in the consolidated statements of income related to these swap agreements was $33.8 million.

LOAN PORTFOLIO

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.

Our loan portfolio averaged $17.07 billion and $16.60 billion during the first nine months of 2024 and 2023, respectively.

As of September 30, 2024, total loans were $17.34 billion, an increase of $490.4 million from December 31, 2023.

The increase in the average loan balance during the first nine 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).

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Loan Portfolio

June 30, December 31,

September 30, December 31,

(In thousands) 2024 2023

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

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.

Consumer loans were $291.6 million at September 30, 2024, or 1.7% 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 September 30, 2024, was primarily due to loan payoffs and pay downs within the credit card and other consumer portfolios 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 $13.48 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%.

Real estate loans were $13.51 billion at September 30, 2024, or 78.0% of total loans, compared to $13.34 billion, or 79.2%, of total loans at December 31, 2023, an increase of $175.3 million, or 1.3%.

Our C&D loans decreased by $347.8 million, or 11.1%, single family residential loans increased by $83.1 million, or 3.1%, and CRE loans increased by $440.0 million, or 5.8%.

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 six months of 2024.

The 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 nine months of 2024.

We expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers.

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

Total commercial loans were $2.77 billion at 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%.

Total commercial loans were $2.78 billion at September 30, 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 $58.8 million, or 2.2%.

The increase in commercial loans was related to the increase in agricultural loans of $81.6 million, or 35.1%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter.

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

Mortgage volume experienced an increase in demand during the first six months of 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.

Mortgage volume experienced an increase in demand during the first nine 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 $283.3 million in other loans.

While loan growth was widespread throughout our geographic markets and was generally broad-based by loan type during the first nine months of 2024, loan growth during the first nine months 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 $1.24 billion at September 30, 2024 compared to $948.2 million at December 31, 2023.

Loans approved and ready to close at the end of the quarter totaled $549.1 million.

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

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

Total non-performing assets increased $14.0 million from December 31, 2023 to September 30, 2024.

Nonaccrual loans increased by $17.5 million from December 31, 2023 and foreclosed assets held for sale and other real estate owned decreased $2.8 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 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.

One is a $3.9 million non-owner occupied real estate construction 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.

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

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

There were three loan modifications granted to borrowers experiencing financial difficulty during the nine month period ended September 30, 2024.

Such modifications included interest rate reductions and had a total period-end amortized cost basis of $795,000 at September 30, 2024.

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 June 30, 2024.

The allowance for credit losses as a percent of total loans was 1.35% as of September 30, 2024.

Non-performing loans equaled 0.59% of total loans.

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The allowance for credit losses was 229% of non-performing loans.

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.

Our annualized net charge-offs to average total loans ratio for the first nine months of 2024 was 0.20%.

Annualized net credit card charge-offs to average total credit card loans were 2.87% for the first nine months of 2024, compared to 2.20% during the full year 2023, and 186 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

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

Non-performing Assets

June 30, December 31, June 30,

September 30, December 31, September 30,

(Dollars in thousands) 2024 2023 2023

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_______________________________________

(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.

(1) Includes nonaccrual FDMs of approximately $818,000 and $282,000 at September 30, 2024 and December 31, 2023, respectively.

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

ALLOWANCE FOR CREDIT LOSSES

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Provision for credit losses 33,453 36,199

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

Balance, September 30, $ 233,223 $ 218,547

Loans charged off:

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Provision for Credit Losses

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

As of September 30, 2024, the allowance for credit losses reflected an increase of approximately $8.0 million from December 31, 2023, while total loans increased by $490.4 million over the same nine month period.

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

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

Our allowance for credit losses at September 30, 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.

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Allocation of Allowance for Credit Losses

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(Dollars in thousands) Allowance

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

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

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 234 financial centers as of September 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 June 30, 2024, core deposits comprised 78.7% of our total deposits.

As of September 30, 2024, core deposits comprised 77.2% of our total deposits.

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

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

Our total deposits as of June 30, 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.

Our total deposits as of September 30, 2024, were $21.94 billion, compared to $22.24 billion as of December 31, 2023.

Noninterest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $15.39 billion at September 30, 2024, compared to $15.80 billion at December 31, 2023, a decrease of $412.6 million.

Total time deposits increased $103.1 million to $6.55 billion at September 30, 2024, from $6.45 billion at December 31, 2023.

We had $3.36 billion and $2.90 billion of brokered deposits at September 30, 2024, and December 31, 2023, respectively.

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

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

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

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

Our total debt was $1.41 billion and $1.34 billion at September 30, 2024 and December 31, 2023, respectively.

The outstanding balance for September 30, 2024 includes $1.03 billion in FHLB advances;

$366.3 million in subordinated notes and unamortized debt issuance costs;

and $17.9 million of other long-term debt.

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.

FHLB advances outstanding at September 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.

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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.

At September 30, 2024, total capital was $3.53 billion.

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

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

At September 30, 2024, our common equity to asset ratio was 12.94% compared to 12.53% at year-end 2023.

Capital Stock

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

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

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

Stock Repurchase Program

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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.

No shares were repurchased during the three and nine month periods ended September 30, 2024.

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

Cash Dividends

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%.

We declared cash dividends on our common stock of $0.63 per share for the first nine months of 2024 compared to $0.60 per share for the first nine months of 2023, an increase of $0.03, or 5%.

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

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

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

Management believes that, as of September 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.

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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 June 30, 2024 and December 31, 2023 are presented in Table 11 below:

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

Risk-Based Capital

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2024 2023

26 unchanged sentences

In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13.

The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”).

The rule provided 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.

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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 $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.

Qualifying subordinated debt of $234.3 million and $300.1 million is included as Tier 2 and total capital of the Company as of September 30, 2024 and December 31, 2023, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

31 unchanged sentences

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.

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.

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.

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

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• Investor presentations of Company performance

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.

We have $1.422 billion and $1.433 billion total goodwill and other intangible assets for the periods ended September 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).

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.

We believe that presenting these non-GAAP financial measures permits 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.

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Reconciliation of Adjusted Earnings (non-GAAP)

Three Months Ended Six Months Ended

June 30, March 31 June 30, June 30,

Three Months Ended Nine Months Ended

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

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

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(2) See Note 16, Earnings Per Share (“EPS”), for number of shares used to determine EPS.

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

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

Three Months Ended Six Months Ended

June 30, March 31 June 30, June 30,

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

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

Three Months Ended Nine Months Ended

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

(In thousands) 2024 2024 2024 2023

19 unchanged sentences

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

June 30, December 31,

September 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)

June 30, December 31,

September 30, December 31,

(Dollars in thousands) 2024 2023

15 unchanged sentences

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

June 30, December 31,

September 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