SIMMONS FIRST NATIONAL CORP

Previous wording

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.

Current wording

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.

Previous wording

•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.

Current wording

•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.

Previous wording

•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%.

Current wording

•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%.

Previous wording

•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%.

Current wording

•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%.

Previous wording

•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.

Current wording

•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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Our practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing. In the last several years, on average, approximately 41% of our loan portfolio and approximately 89% of our time deposits have repriced in one year or less. 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.

Current wording

Our practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing. In the last several years, on average, approximately 41% of our loan portfolio and approximately 89% of our time deposits have repriced in one year or less. 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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. The decrease in net interest income on a fully taxable equivalent basis was the result of a $43.6 million increase in fully tax equivalent interest income, more than offset by a $69.4 million increase in interest expense.

Current wording

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.

Previous wording

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 on loans of $34.2 million reflects an increase in loan volume of $8.2 million coupled with a 57 basis point rise in loan yield that resulted in a $26.0 million increase. The increase in our loan volume was due to solid organic loan growth over the comparative period. The increase of $9.2 million in interest income on investment securities is primarily related to an increase of $15.1 million in interest income on taxable investment securities due to yield increases over the period of 138 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.

Current wording

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 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 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.

Previous wording

The $69.4 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. 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. We continually monitor and look for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.

Current wording

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 $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.

Previous wording

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. 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Current wording

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. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Previous wording

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. 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either HTM or AFS. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, MBS and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized MBS for which collection of principal and interest is not subordinated to significant superior rights held by others.

Current wording

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either held-to-maturity (“HTM”) or AFS. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, MBS and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized MBS for which collection of principal and interest is not subordinated to significant superior rights held by others.

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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. 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.

Current wording

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 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.

Previous wording

During the third quarter of 2021, we began utilizing interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of $1.0 billion of fixed rate callable municipal securities held in the AFS portfolio. These swap agreements consist of a two year forward start date and involve the payment of fixed interest rates with a weighted average of 1.21% in exchange for variable interest rates based on federal funds rates, which became effective during late third quarter of 2023. Securities within these swap agreements have maturity dates varying between 2028 and 2029. 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.

Current wording

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 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 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.

Previous wording

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. 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).

Current wording

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).

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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%. 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.

Previous wording

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.

Current wording

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.

Previous wording

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. Loans approved and ready to close at the end of the quarter totaled $380.9 million.

Current wording

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.