UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter EndedMarch 31, 20182019
 Commission File Number 000-06253

sfnclogoa02.jpg
(Exact name of registrant as specified in its charter)

Arkansas71-0407808
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
  
501 Main Street, Pine Bluff, Arkansas71601
 (Address(Address of principal executive offices)(Zip Code)

(870) 541-1000

(Registrant'sRegistrant’s telephone number, including area code)

Not Applicable

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x Yes   ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   

x Yes   ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” accelerated“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging Growth company
¨ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.).  ¨ Yes   x No

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareSFNCThe NASDAQ Global Select Market


The number of shares outstanding of the Registrant’s Common Stock as of April 25, 2018,May 3, 2019, was 92,243,103.

95,876,505.


Simmons First National Corporation

Quarterly Report on Form 10-Q

March 31, 2018

2019


Table of Contents


  Page
 
 
 
 
 
 
 
 
 
   
 
Item 1.Legal Proceedings*
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds77*
Item 3.Defaults Upon Senior Securities*
Item 4.Mine Safety Disclosures*
Item 5.Other Information*
   
 

___________________
*    No reportable information under this item.



Part I:Financial Information
Item 1.Financial Statements (Unaudited)(Unaudited)

Simmons First National Corporation

Consolidated Balance Sheets

March 31, 20182019 and December 31, 2017

2018
(In thousands, except share data) March 31,
2018
 December 31,
2017
  (Unaudited)  
ASSETS        
Cash and non-interest bearing balances due from banks $170,811  $205,025 
Interest bearing balances due from banks and federal funds sold  688,853   393,017 
Cash and cash equivalents  859,664   598,042 
Interest bearing balances due from banks - time  3,069   3,314 
Investment securities:        
Held-to-maturity  352,756   368,058 
Available-for-sale  1,830,113   1,589,517 
Total investments  2,182,869   1,957,575 
Mortgage loans held for sale  17,708   24,038 
Other assets held for sale  24,784   165,780 
Loans:        
Legacy loans  6,290,383   5,705,609 
Allowance for loan losses  (47,207)  (41,668)
Loans acquired, net of discount and allowance  4,696,945   5,074,076 
Net loans  10,940,121   10,738,017 
Premises and equipment  289,355   287,249 
Foreclosed assets and other real estate owned  29,140   32,118 
Interest receivable  42,129   43,528 
Bank owned life insurance  186,473   185,984 
Goodwill  845,687   842,651 
Other intangible assets  99,504   106,071 
Other assets  76,806   71,439 
Total assets $15,597,309  $15,055,806 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Deposits:        
Non-interest bearing transaction accounts $2,734,287  $2,665,249 
Interest bearing transaction accounts and savings deposits  6,720,754   6,494,896 
Time deposits  2,201,874   1,932,730 
Total deposits  11,656,915   11,092,875 
Federal funds purchased and securities sold under agreements to repurchase  120,909   122,444 
Other borrowings  1,140,986   1,380,024 
Subordinated notes and debentures  468,465   140,565 
Other liabilities held for sale  2,781   157,366 
Accrued interest and other liabilities  98,202   77,968 
Total liabilities  13,488,258   12,971,242 
         
Stockholders’ equity:        
Common stock, Class A, $0.01 par value; 120,000,000 shares authorized (1); 92,242,389 and 92,029,118 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively  922   920 
Surplus  1,590,086   1,586,034 
Undivided profits  552,105   514,874 
Accumulated other comprehensive loss  (34,062)  (17,264)
Total stockholders’ equity  2,109,051   2,084,564 
Total liabilities and stockholders’ equity $15,597,309  $15,055,806 

(1)On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,000.

 March 31, December 31,
(In thousands, except share data)2019 2018
 (Unaudited)  
ASSETS 
  
Cash and non-interest bearing balances due from banks$151,112
 $171,792
Interest bearing balances due from banks and federal funds sold340,049
 661,666
Cash and cash equivalents491,161
 833,458
Interest bearing balances due from banks - time4,684
 4,934
Investment securities:   
Held-to-maturity61,435
 289,194
Available-for-sale2,240,111
 2,151,752
Total investments2,301,546
 2,440,946
Mortgage loans held for sale18,480
 26,799
Loans:   
Legacy loans8,684,550
 8,430,388
Allowance for loan losses(59,243) (56,599)
Loans acquired, net of discount and allowance3,056,187
 3,292,783
Net loans11,681,494
 11,666,572
Premises and equipment333,740
 295,060
Foreclosed assets and other real estate owned18,952
 25,565
Interest receivable51,796
 49,938
Bank owned life insurance192,736
 193,170
Goodwill845,687
 845,687
Other intangible assets88,694
 91,334
Other assets62,669
 69,874
Total assets$16,091,639
 $16,543,337
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Deposits:   
Non-interest bearing transaction accounts$2,674,034
 $2,672,405
Interest bearing transaction accounts and savings deposits6,666,823
 6,830,191
Time deposits2,648,674
 2,896,156
Total deposits11,989,531

12,398,752
Federal funds purchased and securities sold under agreements to repurchase120,213
 95,792
Other borrowings1,169,989
 1,345,450
Subordinated debentures354,041
 353,950
Accrued interest and other liabilities155,544
 102,959
Total liabilities13,789,318

14,296,903
    
Stockholders’ equity:   
Common stock, Class A, $0.01 par value; 175,000,000 shares authorized at March 31, 2019 and December 31, 2018; 92,568,361 and 92,347,643 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively926
 923
Surplus1,599,566
 1,597,944
Undivided profits707,829
 674,941
Accumulated other comprehensive loss(6,000) (27,374)
Total stockholders’ equity2,302,321
 2,246,434
Total liabilities and stockholders’ equity$16,091,639
 $16,543,337

See Condensed Notes to Consolidated Financial Statements.

3

3






Simmons First National Corporation

Consolidated Statements of Income

Three Months Ended March 31, 20182019 and 2017

2018
  Three Months Ended
March 31,
(In thousands, except per share data (1)) 2018 2017
  (Unaudited)
INTEREST INCOME        
Loans $143,350  $68,728 
Interest bearing balances due from banks and federal funds sold  1,009   122 
Investment securities  12,622   9,451 
Mortgage loans held for sale  158   126 
TOTAL INTEREST INCOME  157,139   78,427 
         
INTEREST EXPENSE        
Deposits  15,597   4,204 
Federal funds purchased and securities sold under agreements to repurchase  110   75 
Other borrowings  5,139   1,194 
Subordinated notes and debentures  1,327   574 
TOTAL INTEREST EXPENSE  22,173   6,047 
         
NET INTEREST INCOME  134,966   72,380 
Provision for loan losses  9,150   4,307 
         
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  125,816   68,073 
         
NON-INTEREST INCOME        
Trust income  5,249   4,212 
Service charges on deposit accounts  10,345   8,102 
Other service charges and fees  2,750   2,197 
Mortgage and SBA lending income  4,445   2,423 
Investment banking income  834   690 
Debit and credit card fees  8,796   7,934 
Bank owned life insurance income  1,103   818 
Gain on sale of securities, net  6   63 
Other income  4,007   3,621 
TOTAL NON-INTEREST INCOME  37,535   30,060 
         
NON-INTEREST EXPENSE        
Salaries and employee benefits  56,357   35,536 
Occupancy expense, net  6,960   4,663 
Furniture and equipment expense  4,403   4,443 
Other real estate and foreclosure expense  1,020   589 
Deposit insurance  2,128   680 
Merger related costs  1,711   524 
Other operating expenses  25,494   19,887 
TOTAL NON-INTEREST EXPENSE  98,073   66,322 
         
INCOME BEFORE INCOME TAXES  65,278   31,811 
Provision for income taxes  13,966   9,691 
         
NET INCOME $51,312  $22,120 
BASIC EARNINGS PER SHARE $0.56  $0.35 
DILUTED EARNINGS PER SHARE $0.55  $0.35 

(1)All per share amounts have been restated to reflect the effect of the two-for-one stock split on February 8, 2018.

   Three Months Ended March 31,
(In thousands, except per share data)    2019 2018
   (Unaudited)
INTEREST INCOME       
Loans    $159,440
 $143,350
Interest bearing balances due from banks and federal funds sold    2,154
 1,009
Investment securities    17,312
 12,622
Mortgage loans held for sale    210
 158
TOTAL INTEREST INCOME    179,116
 157,139
        
INTEREST EXPENSE       
Deposits    30,750
 15,597
Federal funds purchased and securities sold under agreements to repurchase    136
 110
Other borrowings    6,793
 5,139
Subordinated notes and debentures    4,411
 1,327
TOTAL INTEREST EXPENSE    42,090
 22,173
        
NET INTEREST INCOME    137,026
 134,966
Provision for loan losses    9,285
 9,150
        
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES    127,741
 125,816
        
NON-INTEREST INCOME       
Trust income    5,708
 5,249
Service charges on deposit accounts    10,068
 10,345
Other service charges and fees    1,289
 2,750
Mortgage lending income    2,823
 3,472
SBA lending income    497
 973
Investment banking income    618
 834
Debit and credit card fees    6,098
 8,796
Bank owned life insurance income    795
 1,103
Gain on sale of securities, net    2,740
 6
Other income    3,125
 4,007
TOTAL NON-INTEREST INCOME    33,761
 37,535
        
NON-INTEREST EXPENSE       
Salaries and employee benefits    56,367
 56,357
Occupancy expense, net    7,475
 6,960
Furniture and equipment expense    3,358
 4,403
Other real estate and foreclosure expense    637
 1,020
Deposit insurance    2,040
 2,128
Merger related costs    1,470
 1,711
Other operating expenses    30,062
 25,494
TOTAL NON-INTEREST EXPENSE    101,409
 98,073
        
INCOME BEFORE INCOME TAXES    60,093
 65,278
Provision for income taxes    12,398
 13,966
        
NET INCOME    $47,695
 $51,312
BASIC EARNINGS PER SHARE    $0.52
 $0.56
DILUTED EARNINGS PER SHARE    $0.51
 $0.55



See Condensed Notes to Consolidated Financial Statements.

4

4






Simmons First National Corporation

Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 20182019 and 2017

2018
  Three Months Ended
March 31,
(In thousands) 2018 2017
  (Unaudited)
     
NET INCOME $51,312  $22,120 
         
OTHER COMPREHENSIVE (LOSS) INCOME        
Unrealized holding (losses) gains arising during the period on available-for-sale securities  (22,735)  1,567 
Less: Reclassification adjustment for realized gains included in net income  6   63 
Other comprehensive (loss) gain, before tax effect  (22,741)  1,504 
Less: Tax effect of other comprehensive (loss) income  (5,943)  590 
         
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME  (16,798)  914 
         
COMPREHENSIVE INCOME $34,514  $23,034 

   Three Months Ended March 31,
(In thousands)    2019 2018
   (Unaudited)
NET INCOME    $47,695
 $51,312
        
OTHER COMPREHENSIVE INCOME (LOSS)       
Unrealized holding gains (losses) arising during the period on available-for-sale securities    29,130
 (22,735)
Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-12    2,547
 
Less: Reclassification adjustment for realized gains included in net income    2,740
 6
Other comprehensive gain (loss), before tax effect    28,937
 (22,741)
Less: Tax effect of other comprehensive income (loss)    7,563
 (5,943)
        
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)    21,374
 (16,798)
        
COMPREHENSIVE INCOME    $69,069
 $34,514


See Condensed Notes to Consolidated Financial Statements.

5

5






Simmons First National Corporation

Consolidated Statements of Cash Flows

Three Months Ended March 31, 20182019 and 2017

2018
(In thousands) March 31,
2018
 March 31,
2017
  (Unaudited)
OPERATING ACTIVITIES        
Net income $51,312  $22,120 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:        
Depreciation and amortization  6,677   4,953 
Provision for loan losses  9,150   4,307 
Gain on sale of investments  (6)  (63)
Net accretion of investment securities and assets  (14,368)  (6,766)
Net (accretion) amortization on borrowings  (211)  106 
Stock-based compensation expense  2,585   2,329 
Loss on sale of premises and equipment, net of impairment  --   43 
Loss (gain) on sale of foreclosed assets held for sale  41   (326)
Gain on sale of mortgage loans held for sale  (2,610)  (2,360)
Deferred income taxes  3,921   3,090 
Increase in cash surrender value of bank owned life insurance  (1,103)  (818)
Originations of mortgage loans held for sale  (113,012)  (88,870)
Proceeds from sale of mortgage loans held for sale  121,952   109,264 
Changes in assets and liabilities:        
Interest receivable  1,582   1,699 
Assets held in trading accounts  --   (14)
Other assets  (5,648)  3,901 
Accrued interest and other liabilities  33,983   (16,913)
Income taxes payable  (13,955)  6,123 
Net cash provided by operating activities  80,290   41,805 
         
INVESTING ACTIVITIES        
Net originations of loans  (140,804)  (144,651)
Decrease in due from banks - time  245   -- 
Purchases of premises and equipment, net  (6,052)  (25,924)
Proceeds from sale of premises and equipment  --   1,394 
Proceeds from sale of foreclosed assets held for sale  4,359   2,844 
Proceeds from sale of available-for-sale securities  7,726   -- 
Proceeds from maturities of available-for-sale securities  58,548   26,373 
Purchases of available-for-sale securities  (320,798)  (123,787)
Proceeds from maturities of held-to-maturity securities  15,512   32,051 
Purchases of held-to-maturity securities  --   (860)
Proceeds from bank owned life insurance death benefits  616   -- 
Disposition of assets and liabilities held for sale  (75,586)  -- 
Net cash used in investing activities  (456,234)  (232,560)
         
FINANCING ACTIVITIES        
Net change in deposits  564,040   53,069 
Proceeds from issuance of subordinated notes  326,711   -- 
Dividends paid on common stock  (14,081)  (7,845)
Net change in other borrowed funds  (239,038)  167,915 
Net change in federal funds purchased and securities sold under agreements to repurchase  (1,535)  (5,022)
Net shares issued under stock compensation plans  1,469   2,260 
Net cash provided by financing activities  637,566   210,377 
         
INCREASE IN CASH AND CASH EQUIVALENTS  261,622   19,622 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  598,042   285,659 
         
CASH AND CASH EQUIVALENTS, END OF PERIOD $859,664  $305,281 

(In thousands)March 31, 2019 March 31, 2018
 (Unaudited)
OPERATING ACTIVITIES 
  
Net income$47,695
 $51,312
Adjustments to reconcile net income to net cash (used in) provided by operating activities:   
Depreciation and amortization7,451
 6,677
Provision for loan losses9,285
 9,150
Gain on sale of investments(2,740) (6)
Net accretion of investment securities and assets(9,559) (14,368)
Net amortization (accretion) on borrowings91
 (211)
Stock-based compensation expense3,084
 2,585
(Gain) loss on sale of foreclosed assets held for sale(32) 41
Gain on sale of mortgage loans held for sale(3,342) (2,610)
Deferred income taxes2,081
 3,921
Income from bank owned life insurance(876) (1,103)
Originations of mortgage loans held for sale(98,255) (113,012)
Proceeds from sale of mortgage loans held for sale109,916
 121,952
Changes in assets and liabilities:   
Interest receivable(1,858) 1,582
Lease right-of-use assets2,294
 
Other assets3,730
 (5,648)
Accrued interest and other liabilities30,805
 33,983
Income taxes payable(10,977) (13,955)
Net cash provided by operating activities88,793

80,290
    
INVESTING ACTIVITIES   
Net originations of loans(18,116) (140,804)
Decrease in due from banks - time250
 245
Purchases of premises and equipment, net(13,027) (6,052)
Proceeds from sale of foreclosed assets held for sale7,214
 4,359
Proceeds from sale of available-for-sale securities209,968
 7,726
Proceeds from maturities of available-for-sale securities55,804
 58,548
Purchases of available-for-sale securities(110,767) (320,798)
Proceeds from maturities of held-to-maturity securities11,408
 15,512
Proceeds from bank owned life insurance death benefits1,310
 616
Disposition of assets and liabilities held for sale1,393
 (75,586)
Net cash provided by (used in) investing activities145,437
 (456,234)
    
FINANCING ACTIVITIES   
Net change in deposits(409,221) 564,040
Proceeds from issuance of subordinated notes
 326,711
Dividends paid on common stock(14,807) (14,081)
Net change in other borrowed funds(175,461) (239,038)
Net change in federal funds purchased and securities sold under agreements to repurchase24,421
 (1,535)
Net shares issued under stock compensation plans(2,771) 443
Shares issued under employee stock purchase plan1,312
 1,026
Net cash (used in) provided by financing activities(576,527)
637,566
    
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(342,297) 261,622
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD833,458
 598,042
    
CASH AND CASH EQUIVALENTS, END OF PERIOD$491,161

$859,664

See Condensed Notes to Consolidated Financial Statements.

6

6






Simmons First National Corporation

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 20182019 and 2017

2018
(In thousands, except share data (1)) Common
Stock
 Surplus Accumulated
Other
Comprehensive
Income (Loss)
 Undivided
Profits
 Total
           
Balance, December 31, 2016 $626  $711,663  $(15,212) $454,034  $1,151,111 
                     
Comprehensive income  --   --   914   22,120   23,034 
Stock issued for employee stock purchase plan – 26,002 shares  --   618   --   --   618 
Stock-based compensation plans, net – 195,266  2   3,969   --   --   3,971 
Dividends on common stock – $0.125 per share  --   --   --   (7,845)  (7,845)
                     
Balance, March 31, 2017 (Unaudited)  628   716,250   (14,298)  468,309   1,170,889 
                     
Comprehensive income  --   --   50   70,820   70,870 
Reclassify stranded tax effects due to 2017 tax law changes  --   --   (3,016)  3,016   -- 
Stock-based compensation plans, net – 164,020  1   8,969   --   --   8,970 
Stock issued for Hardeman acquisition – 1,599,940 common shares  16   42,622   --   --   42,638 
Stock issued for OKSB acquisition – 14,488,604 common shares  145   431,253   --   --   431,398 
Stock issued for First Texas acquisition – 12,999,840 common shares  130   386,940   --   --   387,070 
Cash dividends – $0.375 per share  --   --   --   (27,271)  (27,271)
                     
Balance, December 31, 2017  920   1,586,034   (17,264)  514,874   2,084,564 
                     
Comprehensive income  --   --   (16,798)  51,312   34,514 
Stock issued for employee stock purchase plan – 39,782 shares  --   1,026   --   --   1,026 
Stock-based compensation plans, net – 173,489  2   3,026   --   --   3,028 
Dividends on common stock – $0.15 per share  --   --   --   (14,081)  (14,081)
                     
Balance, March 31, 2018 (Unaudited) $922  $1,590,086  $(34,062) $552,105  $2,109,051 

(1)All share and per share amounts have been restated to reflect the effect of the two-for-one stock split on February 8, 2018.

(In thousands, except share data) 
Common
Stock
 Surplus 
Accumulated
Other
Comprehensive
Income (Loss)
 
Undivided
Profits
 Total
Balance at, December 31, 2017 $920
 $1,586,034
 $(17,264) $514,874
 $2,084,564
           
Comprehensive income 
 
 (16,798) 51,312
 34,514
Stock issued for employee stock purchase plan – 39,782 shares 
 1,026
 
 
 1,026
Stock-based compensation plans, net – 173,489 2
 3,026
 
 
 3,028
Dividends on common stock – $0.15 per share 
 
 
 (14,081) (14,081)
           
Balance, March 31, 2018 (Unaudited) 922

1,590,086

(34,062)
552,105

2,109,051
           
Comprehensive income 
 
 6,688
 164,401
 171,089
Stock-based compensation plans, net – 105,254 1
 7,858
 
 
 7,859
Dividends on common stock – $0.45 per share 
 
 
 (41,565) (41,565)
           
Balance, December 31, 2018 923

1,597,944

(27,374)
674,941

2,246,434
           
Comprehensive income 
 
 21,374
 47,695
 69,069
Stock issued for employee stock purchase plan – 60,413 shares 1
 1,311
 
 
 1,312
Stock-based compensation plans, net – 160,305 2
 311
 
 
 313
Dividends on common stock – $0.16 per share 
 
 
 (14,807) (14,807)
           
Balance, March 31, 2019 (Unaudited) $926

$1,599,566

$(6,000)
$707,829

$2,302,321




See Condensed Notes to Consolidated Financial Statements.

7

7






SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS

Organizational Structure

Simmons First National Corporation (the “Company”) is a publicly traded financial holding company that trades on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “SFNC” and the parent company of Simmons Bank, an Arkansas state-chartered bank that began as a community bank in 1903, and Bank SNB, an Oklahoma state-chartered bank that was acquired in October 2017 through the Company’s merger with Southwest Bancorp, Inc.1903. Simmons Bank is also the parent company of Simmons First Investment Group, Inc. (a dually registered broker-dealer and investment adviser)broker-dealer), Simmons First Insurance Services, Inc. (an insurance company)agency), and Simmons First Insurance Services of TN, LLC (an insurance agency).

Description of Business

The Company is headquartered in Pine Bluff, Arkansas and conducts banking operations in communities throughout Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Company, through its subsidiaries, offers consumer, real estate and commercial loans, checking, savings and time deposits from 200191 financial centers conveniently located throughout its market areas. Additionally, the Company offers specialized products and services such as credit cards, trust and fiduciary services, investments, agricultural finance lending, equipment lending, insurance and small business administration (“SBA”) lending.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2017,2018, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, which was filed with the SEC on February 28, 2018.

27, 2019.

The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (“US GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates. Such estimates include, but are not limited to, the Company’s allowance for loan losses.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.

Recently Adopted Accounting Standards

Reporting Comprehensive Income

Cloud Computing Arrangements – In FebruaryAugust 2018, the FinancialFASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting Standards Boardfor Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”2018-15”), that allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting fromamends the tax reform legislation signed into law in December 2017 (“2017 Act”). Current US GAAP requires the remeasurement of deferred tax assets and liabilities as a resultdefinition of a change in tax laws or rates to be presented in net income from continuing operations. Consequently, the original deferred tax amount recorded through AOCI at the old rate will remain in AOCI despite the fact that its related deferred tax asset/liability will be reduced through continuing operations to reflect the new rate, resulting in “stranded” tax effects in AOCI. ASU 2018-02hosting arrangement and requires a reclassification from AOCIcustomer in a hosting arrangement that is a service contract to retained earnings for those stranded tax effects resulting fromcapitalize certain implementation costs as if the newly enacted federal corporate income tax rate.arrangement was an internal-use software project. The amount of reclassification wouldinternal-use software guidance states that only qualifying costs incurred during the application development stage can be the difference between 1) the amount initially charged or credited directly to other comprehensive income at the previous enacted federal corporate income tax rate that remains in AOCI and 2) the amount that would have been charged or credited using the newly enacted federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations.capitalized. The effective date is for fiscal years beginning after December 15, 2018, including2019, and interim periods within those fiscal years. As permitted, the Company elected to early adopt the provisions of ASU 2018-02 during the fourth quarter 2017, which resulted in a reclassification from AOCI to retained earnings in the amount of $3.0 million related to the change in federal corporate tax rate.

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Stock Compensation: Scope of Modification Accounting – In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), that provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. The guidance clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting and the guidance should be applied prospectively to an award modified on or after the adoption date. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017,years, with early adoption permitted. Currently,Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with the applicable guidance. At the time of adoption, entities will be required to disclose the nature of its hosting arrangements that are service contracts and provide disclosures as if


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the deferred implementation costs were a separate, major depreciable asset class. The Company has not modified any existing awards nor has any plans to do so, therefore the adoption ofearly adopted ASU 2017-09 has not had a material effect on the Company’s results of operations, financial position or disclosures.

Premium Amortization on Purchased Callable Debt Securities – In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), that amends the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments shorten the amortization period by requiring that the premium be amortized to the earliest call date. Under previous US GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The effective date is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As permitted, the Company elected to early adopt the provisions of ASU 2017-08 during2018-15 in the first quarter 2017. The adoption2019 and elected to apply the guidance prospectively to all software implementation costs incurred after the date of this standard did notadoption. As of March 31, 2019, no applicable software implementation costs have a material effect on the Company’s results of operations, financial position or disclosures.

Statement of Cash Flows – In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), designed to address the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The amendments also provide guidance on when an entity should separate or aggregate cash flows based on the predominance principle. The effective date is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard is required to be applied retrospectively, but may be applied prospectively if retrospective application would be impracticable. The adoption of 2016-15 did not have a material impact on the Company’s results of operations, financial position or disclosures since the amendment applies to the classification of cash flows. The adoption did not have a material impact on the consolidated statement of cash flows.

Financial Assets and Financial Liabilities – In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), that makes changes primarily affecting the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In February 2018, the FASB issued 2018-03 that clarified certain guidance and contained narrow scope amendments. The effective date is for fiscal periods beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2016-01 did not have a material impact on the Company’s results of operations or financial position. However, this new guidance requires the disclosed estimated fair value of the Company’s loan portfolio to be based on an exit price calculation, which considers liquidity, credit and nonperformance risk of its loans. The adoption of 2016-01 did not have a material impact on the Company’s fair value disclosures.

Revenue Recognition – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), that outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers. The core principle of this revenue model is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, deferring the effective date to annual and interim periods beginning after December 15, 2017. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other US GAAP, which comprises a significant portion of the Company’s revenue stream. However, the updated guidance affects the revenue recognition pattern for certain revenue streams, including service charges on deposit accounts, gains/losses on sale of other real estate owned (“OREO”), and trust income. The adoption of this standard did not have a material effect on the Company’s results of operations, financial position or disclosures. See below “Revenue from Contracts with Customers” for additional information.

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been incurred.


Recently Issued Accounting Standards

Derivatives and Hedging: Targeted Improvements - In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), that changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in order to better align a company’s risk management activities and financial reporting for hedging relationships. In summary, this amendment 1) expands the types of transactions eligible for hedge accounting; 2) eliminates the separate measurement and presentation of hedge ineffectiveness; 3) simplifies the requirements around the assessment of hedge effectiveness; 4) provides companies more time to finalize hedge documentation; and 5) enhances presentation and disclosure requirements. The effective date is for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. All transition requirements and elections should be applied to existing hedging relationships on the date of adoption and the effects should be reflected as of the beginning of the fiscal year of adoption. As part of this new guidance, entities are allowed to designate as the hedged item, an amount that is not expected to be affected by prepayments, defaults or other events affecting the timing and amount of cash flows in a closed portfolio of prepayable financial instruments (this is referred to as the “last-of-layer” method). Under the last-of-layer method, entities are able to reclassify, only at the time of adoption, eligible callable debt securities from held-to-maturity to available-for-sale without tainting its intentions to hold future debt securities to maturity. The available-for-sale security must be reported at fair value and any unrealized gain or loss must be recorded as an adjustment to other comprehensive income upon adoption. The Company evaluated its held-to-maturity portfolio during the first quarter 2019 and identified certain municipal bonds with a fair value of $216.4 million that met the last-of-layer criteria under ASU 2017-12 and as a result, reclassified those to available-for-sale and recorded an unrealized gain of $2.5 million during the first quarter 2019.

Leases - In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), that establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance results in a more consistent representation of the rights and obligations arising from leases by requiring lessees to recognize the lease asset and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The effective date is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 requires entities to adopt the new lease standard using a modified retrospective transition method, meaning an entity initially applies the new lease standard at the beginning of the earliest period presented in the financial statements. Due to complexities associated with using this method, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, to relieve entities of the requirement to present prior comparative years’ results when they adopt the new lease standard and giving entities the option to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings. Adoption of ASU 2016-02 resulted in the recognition of right-of-use assets of $32.8 million and right-of-use liabilities of $32.8 million on the statement of financial position with no material impact to the results of operations. The Company has elected to adopt the guidance using the optional transition method, which allows for a modified retrospective method of adoption with a cumulative effect adjustment to retained earnings without restating comparable periods. The Company also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short-term leases with a term of less than one year, whereby the Company did not recognize a lease liability or right-of-use asset on the statement of financial position but instead will recognize lease payments as an expense over the lease term as appropriate. See Note 6 for additional information related to the Company’s right-of-use lease obligations.

Recently Issued Accounting Standards
Fair Value Measurement Disclosures – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), that eliminates, amends and adds disclosure requirements for fair value measurements. These amendments are part of FASB’s disclosure review project and they are expected to reduce costs for preparers while providing more decision-useful information for financial statement users. The eliminated disclosure requirements include the 1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy of timing of transfers between levels of the fair value hierarchy; and 3) the valuation processes for Level 3 fair value measurements. Among other modifications, the amended disclosure requirements remove the term “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Under the new disclosure requirements, entities must disclose the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value

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measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its results of operations, financial position or disclosures, but it is not expected to have a material impact.

fair value disclosures.


Goodwill Impairment – In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), that eliminates Step 2 from the goodwill impairment test which required entities to compare the implied fair value of goodwill to its carrying amount. Under the amendments, the goodwill impairment will be measured as the excess of the reporting unit’s carrying amount over its fair value. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The effective date is for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual impairment tests beginning in 2017. The Company will early adopt ASU 2017-04 during the second quarter 2019 to coincide with the Company’s formal impairment analysis and it is not expected to have a material effect on the Company’s results of operations, financial position or disclosures.


Credit Losses on Financial Instruments – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires earlier measurement of credit losses, expands the range of information considered in determining expected credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has formed a cross functional team that is assessingcontinues to assess its data and system needs and evaluatingevaluate the potential impact of adopting the new guidance. The Company anticipates a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provides an option to phase in the day-one impact on earnings and tier one capital. Due to this final rule from the regulatory agencies, the Company is continuing to research and study options for recording a one-time adjustment or structuring any capital impact over an allowable period of time. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannothas not yet determinedetermined the magnitude of any such one-time adjustment or the overall impact on its results of operations, financial position or disclosures. However, the Company has begunis continuing its efforts in developing processes and procedures to ensure it is fully compliant at the required adoption date. Among other things, the Company has initiatedcontinues to gather data gathering and assessment to support forecasting ofdevelop forecast models for asset quality, loan balances, and portfolio net charge-offs and developing asset quality forecast models in preparation foris working with the implementation of this standard.

Leases – In February 2016,selected model vendor to produce parallel calculations through the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), that establishes the principlesyear leading up to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance results in a more consistent representation of the rights and obligations arising from leases by requiring lessees to recognize the lease asset and lease liabilities that arise from leasesimplementation. Model inputs began in the statementfourth quarter 2018 with additional inputs and scenarios to be modeled throughout 2019 with focus on calculating a potential range of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The effective date is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Based upon leases that were outstanding as of March 31, 2018, the Company does not expect the new standard to have a material impact on its results of operations, but anticipates increases in its assets and liabilities. Decisions to repurchase, modify or renew leases prior to the implementation date will impact the level of materiality.

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impact.

There have been no other significant changes to the Company’s accounting policies from the 20172018 Form 10-K. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on its present or future financial position or results of operations.

Revenue from Contracts


NOTE 2: SUBSEQUENT ACQUISITION
On April 12, 2019, the Company completed its merger with Customers

Accounting Standards CodificationReliance Bancshares, Inc. (“ASC”Reliance”) Topic 606, Revenue from Contracts with Customerspursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), applies to all contracts with customers to provide goods or servicesdated November 13, 2018, as amended February 11, 2019. The Company was the surviving corporation in the ordinary coursemerger. The merger was described in the Company’s Registration Statement on Form S-4 filed with the SEC on January 25, 2019, and amended on February 12, 2019. As a result of business. However, Topic 606 specifically does not apply to revenue related to financial instruments, guarantees, insurance contracts, leases, or nonmonetary exchanges. Given these scope exceptions, interest income recognitionthe merger, the Company expanded its presence in the St. Louis banking market and measurement related tonow has approximately $17.6 billion in assets and approximately $12.9 billion and $13.1 billion in loans and investments securities,deposits, respectively.


In the merger, each outstanding share of Reliance common stock and common stock equivalents was canceled and converted into the right to receive shares of the Company’s two largest sources of revenue, are not accounted for under Topic 606. Also, the Company does not use Topic 606 to account for gains or losses on its investments in securities, loans, and derivatives due to the scope exceptions.

Certain revenue streams, such as service charges on deposit accounts, gains or losses on the sale of OREO, and trust income, fall under the scope of Topic 606 and the Company must recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. Topic 606 is applied using five steps: 1) identify the contract with the customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company has evaluated the nature of all contracts with customers that fall under the scope of Topic 606 and determined that further disaggregation of revenue from contracts with customers into categories was not necessary. There has not been significant revenue recognized in the current reporting period resulting from performance obligations satisfied in previous periods. In addition, there has not been a significant change in timing of revenues received from customers.

A description of performance obligations for each type of contract with customers is as follows:

Service charges on deposit accounts – The Company’s primary source of funding comes from deposit accounts with its customers. Customers pay certain fees to access their cash on deposit including, but not limited to, non-transactional fees such as account maintenance, dormancy or statement rendering fees, and certain transaction-based fees such as ATM, wire transfer, overdraft or returned check fees. The Company generally satisfies its performance obligations as services are rendered. The transaction prices are fixed, and are charged either on a periodic basis or based on activity.

Sale of OREO – In the normal course of business, the Company will enter into contracts with customers to sell OREO, which has generally been foreclosed upon by the Company. The Company generally satisfies its performance obligation upon conveyance of property from the Company to the customer, generally by way of an executed agreement. The transaction price is fixed, and on occasion the Company will finance a portion of the proceeds the customers uses to purchase the property. These properties are generally sold without recourse or warranty.

Trust Income – The Company enters into contracts with its customers to manage assets for investment,common stock and/or transact on their accounts. The Company generally satisfies its performance obligations as services are rendered. The management fee is a fixed percentage-based fee calculated upon the average balance of assets under management and is charged to customers on a monthly basis.

Acquisition Accounting, Loans Acquired

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the loans acquired is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair valuecash in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement. The fair value estimates associated withterms of the loans include estimates relatedReliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to expected prepaymentsreceive one share of Simmons’ comparable Series A Preferred Stock or Series B Preferred Stock, respectively, and each share of Reliance’s Series C Preferred Stock was converted into the amount and timingright to receive one share of undiscounted expected principal, interest and other cash flows.

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The Company evaluates non-impaired loans acquiredSimmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive alternate consideration in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other CostsReliance Agreement). The fair value discount on these loansCompany is accreted into interest income over the weighted average life of the loans using a constant yield method. The Company evaluates purchased impaired loans in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

For impaired loans accounted for under ASC Topic 310-30, the Company continues to estimate cash flows expected to be collected on purchased credit impaired loans. The Company evaluates, at each balance sheet date, whether the present value of the purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in the consolidated statement of income. For any significant increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased credit impaired loan.

For further discussion of acquisition and loan accounting, see Note 2, Acquisitions, and Note 6, Loans Acquired.

NOTE 2: ACQUISITIONS

Southwest Bancorp, Inc.

On October 19, 2017, the Company completed the acquisition of Southwest Bancorp, Inc. (“OKSB”) headquartered in Stillwater, Oklahoma, including its wholly-owned bank subsidiary, Bank SNB. The Company issued 14,488,604issuing 3,999,623 shares of its common stock valued at approximately $431.4 million as of October 19, 2017, plus $94.9and paid $62.7 million in cash in exchange for all outstanding sharesto effect the merger. The merger was approved by stockholders of OKSB common stock.

PriorReliance on April 8, 2019.


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Due to the acquisition, OKSB conducted banking business from 29 branches located in Texas, Oklahoma, Kansastiming of the merger and Colorado. In addition, OKSB owned a loan production office in Denver, Colorado. Including the effectsamount of assets and liabilities assumed, the Company is continuing to determine their preliminary fair values and the purchase price allocation.  The Company expects to finalize the analysis of the acquired assets and liabilities over the next few months and within one year of the merger. The Company will record the merger using the acquisition method of accounting adjustments, the Company acquired approximately $2.7 billion in assets, including approximately $2.0 billion in loans (inclusive of loan discounts) and approximately $2.0 billion in deposits. The systems conversion is planned to occur late May 2018, at which time the subsidiary bank will be merged into Simmons Bank.

Goodwill of $229.1 million was recorded as a result of the transaction. The acquisition allowed the Company to enter the Texas, Oklahoma, and Colorado banking markets and it also strengthened the Company’s Kansas franchise and its product offerings in the healthcare and real estate industries, all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, ofrecognize the assets acquired and liabilities assumed in the OKSB transaction, as of the acquisition date, is as follows:

(In thousands) Acquired from
OKSB
 Fair Value
Adjustments
 Fair
Value
       
Assets Acquired            
Cash and due from banks $79,517  $--  $79,517 
Investment securities  485,468   (1,295)  484,173 
Loans acquired  2,039,524   (43,071)  1,996,453 
Allowance for loan losses  (26,957)  26,957   -- 
Foreclosed assets  6,284   (1,127)  5,157 
Premises and equipment  21,210   5,457   26,667 
Bank owned life insurance  28,704   --   28,704 
Goodwill  13,545   (13,545)  -- 
Core deposit intangible  1,933   40,191   42,124 
Other intangibles  3,806   --   3,806 
Other assets  33,455   (9,141)  24,314 
Total assets acquired $2,686,489  $4,426  $2,690,915 

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Liabilities Assumed      
Deposits:      
Non-interest bearing transaction accounts $485,971  $--  $485,971 
Interest bearing transaction accounts and savings deposits  869,252   --   869,252 
Time deposits  613,345   (2,213)  611,132 
Total deposits  1,968,568   (2,213)  1,966,355 
Securities sold under agreement to repurchase  11,256   --   11,256 
Other borrowings  347,000   --   347,000 
Subordinated debentures  46,393   --   46,393 
Accrued interest and other liabilities  17,440   5,364   22,804 
Total liabilities assumed  2,390,657   3,151   2,393,808 
Equity  295,832   (295,832)  -- 
Total equity assumed  295,832   (295,832)  -- 
Total liabilities and equity assumed $2,686,489  $(292,681) $2,393,808 
Net assets acquired          297,107 
Purchase price          526,251 
Goodwill         $229,144 

The purchase price allocation and certainat their fair value measurements remain preliminary due to the timing of the acquisition. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction over the next few months, within one year of the acquisition. Therefore, adjustments to the estimated amounts and carrying values may occur.

The Company’s operating results for all periods presented include the operating results of the acquired assets and assumed liabilities of OKSB subsequent to the acquisition date.

First Texas BHC, Inc.

On October 19, 2017, the Company completed the acquisition of First Texas BHC, Inc. (“First Texas”) headquartered in Fort Worth, Texas, including its wholly-owned bank subsidiary, Southwest Bank. The Company issued 12,999,840 shares of its common stock valued at approximately $387.1 million as of October 19, 2017, plus $70.0 million in cash in exchange for all outstanding shares of First Texas common stock.

Prior to the acquisition, First Texas operated 15 banking centers, a trust office and a limited service branch in north Texas and a loan production office in Austin, Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $2.4 billion in assets, including approximately $2.2 billion in loans (inclusive of loan discounts) and approximately $1.9 billion in deposits. The Company completed the systems conversion and merged First Texas into Simmons Bank in February 2018.

Goodwill of $240.8 million was recorded as a result of the transaction. The acquisition allowed the Company to enter the Texas banking markets and it also strengthened the Company’s specialty product offerings in the area of SBA lending and trust services, all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

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A summary, at fair value, of the assets acquired and liabilities assumed in the First Texas transaction, as of the acquisition date, is as follows:

(In thousands) Acquired from
First Texas
 Fair Value
Adjustments
 Fair
Value
       
Assets Acquired            
Cash and due from banks $59,277  $--  $59,277 
Investment securities  81,114   (596)  80,518 
Loans acquired  2,246,212   (37,834)  2,208,378 
Allowance for loan losses  (20,864)  20,664   (200)
Premises and equipment  24,864   10,123   34,987 
Bank owned life insurance  7,190   --   7,190 
Goodwill  37,227   (37,227)  -- 
Core deposit intangible  --   7,328   7,328 
Other assets  18,263   11,485   29,748 
Total assets acquired $2,453,283  $(26,057) $2,427,226 
             
Liabilities Assumed            
Deposits:            
Non-interest bearing transaction accounts $74,410  $--  $74,410 
Interest bearing transaction accounts and savings deposits  1,683,298   --   1,683,298 
Time deposits  124,233   (283)  123,950 
Total deposits  1,881,941   (283)  1,881,658 
Securities sold under agreement to repurchase  50,000   --   50,000 
Other borrowings  235,000   --   235,000 
Subordinated debentures  30,323   589   30,912 
Accrued interest and other liabilities  11,727   1,669   13,396 
Total liabilities assumed  2,208,991   1,975   2,210,966 
Equity  244,292   (244,292)  -- 
Total equity assumed  244,292   (244,292)  -- 
Total liabilities and equity assumed $2,453,283  $(242,317) $2,210,966 
Net assets acquired          216,260 
Purchase price          457,103 
Goodwill         $240,843 

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction over the next few months, within one year of the acquisition. Therefore, adjustments to the estimated amounts and carrying values may occur.  

The Company’s operating results for all periods presented include the operating results of the acquired assets and assumed liabilities of First Texas subsequent to the acquisition date.

14

Summary of Unaudited Pro forma Information

The unaudited pro forma information below for the years ended December 31, 2017 and 2016 gives effect to the OKSB and First Texas acquisitions as if the acquisitions had occurred on January 1, 2016. Pro forma earnings for the year ended December 31, 2017 were adjusted to exclude $9.4 million of acquisition-related costs, net of tax, incurred by Simmons during 2017. The pro forma financial information is not necessarily indicative of the results of operations if the acquisitions had been effective as of this date.

(In thousands, except per share data) 2017 2016
Revenue (1) $654,358  $620,461 
Net income $130,947  $136,199 
Diluted earnings per share $1.43  $1.52 

(1) Net interest income plus noninterest income.

Consolidated year-to-date 2017 results included approximately $29.2 million of revenue and $10.5 million of net income attributable to the OKSB acquisition and $27.6 million of revenue and $5.7 million of net income attributable to the First Texas acquisition.

Hardeman County Investment Company, Inc.

On May 15, 2017, the Company completed the acquisition of Hardeman County Investment Company, Inc. (“Hardeman”), headquartered in Jackson, Tennessee, including its wholly-owned bank subsidiary, First South Bank. The Company issued 1,599,940 shares of its common stock valued at approximately $42.6 million as of May 15, 2017, plus $30.0 million in cash in exchange for all outstanding shares of Hardeman common stock.

Prior to the acquisition, Hardeman conducted banking business from 10 branches located in western Tennessee. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $462.9 million in assets, including approximately $251.6 million in loans (inclusive of loan discounts) and approximately $389.0 million in deposits. The Company completed the systems conversion and merged Hardeman into Simmons Bank in September 2017. As part of the systems conversion, five existing Simmons Bank and First South Bank branches were consolidated or closed.

Goodwill of $29.4 million was recorded as a result of the transaction. The merger strengthened the Company’s position in the western Tennessee market, and the Company will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions, all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Hardeman transaction, as of the acquisition date, is as follows:

(In thousands) Acquired from
Hardeman
 Fair Value
Adjustments
 Fair
Value
       
Assets Acquired            
Cash and due from banks $8,001  $--  $8,001 
Interest bearing balances due from banks - time  1,984   --   1,984 
Investment securities  170,654   (285)  170,369 
Loans acquired  257,641   (5,992)  251,649 
Allowance for loan losses  (2,382)  2,382   -- 
Foreclosed assets  1,083   (452)  631 
Premises and equipment  9,905   1,258   11,163 
Bank owned life insurance  7,819   --   7,819 
Goodwill  11,485   (11,485)  -- 
Core deposit intangible  --   7,840   7,840 
Other intangibles  --   830   830 
Other assets  2,639   (1)  2,638 
Total assets acquired $468,829  $(5,905) $462,924 

15

Liabilities Assumed      
Deposits:      
Non-interest bearing transaction accounts $76,555  $--  $76,555 
Interest bearing transaction accounts and savings deposits  214,872   --   214,872 
Time deposits  97,917   (368)  97,549 
Total deposits  389,344   (368)  388,976 
Securities sold under agreement to repurchase  17,163   --   17,163 
Other borrowings  3,000   --   3,000 
Subordinated debentures  6,702   --   6,702 
Accrued interest and other liabilities  1,891   1,924   3,815 
Total liabilities assumed  418,100   1,556   419,656 
Equity  50,729   (50,729)  -- 
Total equity assumed  50,729   (50,729)  -- 
Total liabilities and equity assumed $468,829  $(49,173) $419,656 
Net assets acquired          43,268 
Purchase price          72,639 
Goodwill         $29,371 

During 2018, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities.

The Company’s operating results for all periods presented include the operating results of the acquired assets and assumed liabilities of Hardeman subsequent to the acquisition date.

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the acquisitions above.

Cash and due from banks and time deposits due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Foreclosed assets – These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.

Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.

Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill. Goodwill established prior to the acquisitions, if applicable, was written off.

Core deposit intangible – This intangible asset represents the value of the relationships that the acquired banks had with their deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits. Core deposit intangible established prior to the acquisitions, if applicable, was written off.

16

Other intangibles – Other intangible assets represent the value of the relationships that Hardeman had with its insurance customers and the mortgage servicing rights acquired with OKSB. The fair value of Hardeman’s insurance customer relationships was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Other intangibles established prior to the acquisitions, if applicable, were written off.

Other assets – The fair value adjustment results from certain assets whose value was estimated to be less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference when material.

Securities sold under agreement to repurchase – The carrying amount of securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities.

FHLB and other borrowings – The fair value of Federal Home Loan Bank and other borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities. Due to the floating rate nature of the debenture, the fair value approximates book value as of the date acquired.

Accrued interest and other liabilities of acquisition. The adjustment establishes a liability for unfunded commitments equal toresults of the fair value of that liability atmerger will be included in the date of acquisition.

17
Company’s consolidated operating results beginning on the acquisition date.


NOTE 3: INVESTMENT SECURITIES

The amortized cost and fair value of investment securities that are classified as held-to-maturity (“HTM”) and available-for-sale (“AFS”) are as follows:

  March 31, 2018 December 31, 2017
(In thousands) Amortized
Cost
 Gross
Unrealized
Gains
 Gross Unrealized
(Losses)
 Estimated
Fair
Value
 Amortized
Cost
 Gross
Unrealized
Gains
 Gross Unrealized
(Losses)
 Estimated
Fair
Value
                 
Held-to-Maturity                                
U.S. Government agencies $46,961  $1  $(259) $46,703  $46,945  $7  $(228) $46,724 
Mortgage-backed securities  15,404   --   (444)  14,960   16,132   8   (287)  15,853 
State and political subdivisions  286,901   3,701   (1,106)  289,496   301,491   5,962   (222)  307,231 
Other securities  3,490   --   --   3,490   3,490   --   --   3,490 
Total HTM $352,756  $3,702  $(1,809) $354,649  $368,058  $5,977  $(737) $373,298 
                                 
Available-for-Sale                                
U.S. Government agencies $152,855  $15  $(3,066) $149,804  $141,559  $116  $(1,951) $139,724 
Mortgage-backed securities  1,394,138   155   (38,114)  1,356,179   1,208,017   246   (20,946)  1,187,317 
State and political subdivisions  191,018   100   (5,230)  185,888   144,642   532   (2,009)  143,165 
Other securities  136,911   1,332   (1)  138,242   118,106   1,206   (1)  119,311 
Total AFS $1,874,922  $1,602  $(46,411) $1,830,113  $1,612,324  $2,100  $(24,907) $1,589,517 

 March 31, 2019 December 31, 2018
(In thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
(Losses)
 
Estimated
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
(Losses)
 
Estimated
Fair
Value
Held-to-Maturity 
  
  
  
  
  
  
  
U.S. Government agencies$12,996
 $
 $(9) $12,987
 $16,990
 $
 $(49) $16,941
Mortgage-backed securities12,847
 10
 (240) 12,617
 13,346
 5
 (412) 12,939
State and political subdivisions33,597
 751
 (27) 34,321
 256,863
 3,029
 (954) 258,938
Other securities1,995
 36
 
 2,031
 1,995
 17
 
 2,012
Total HTM$61,435

$797

$(276)
$61,956

$289,194

$3,051

$(1,415)
$290,830
                
Available-for-Sale              
U.S. Government agencies$163,730
 $596
 $(2,749) $161,577
 $157,523
 $518
 $(3,740) $154,301
Mortgage-backed securities1,362,950
 2,569
 (19,842) 1,345,677
 1,552,487
 3,097
 (32,684) 1,522,900
State and political subdivisions571,716
 10,307
 (1,233) 580,790
 320,142
 171
 (5,470) 314,843
Other securities151,707
 437
 (77) 152,067
 157,471
 2,251
 (14) 159,708
Total AFS$2,250,103

$13,909

$(23,901)
$2,240,111

$2,187,623

$6,037

$(41,908)
$2,151,752
Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are carried at cost and are reported as other AFS securities in the table above.


Certain investment securities are valued at less than their historical cost. Total fair value of these investments at March 31, 20182019 and December 31, 2017,2018, was $1.8$1.4 billion and $1.4$1.7 billion, which is approximately 82.1%60.1% and 73.5%70.3%, respectively, of the Company’s combined AFS and HTM investment portfolios.

18



11





The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018:

2019:
  Less Than 12 Months 12 Months or More Total
(In thousands) Estimated
Fair
Value
 Gross
Unrealized
Losses
 Estimated
Fair
Value
 Gross
Unrealized
Losses
 Estimated
Fair
Value
 Gross
Unrealized
Losses
             
Held-to-Maturity                        
U.S. Government agencies $12,957  $(17) $32,758  $(242) $45,715  $(259)
Mortgage-backed securities  5,897   (110)  8,479   (334)  14,376   (444)
State and political subdivisions  100,221   (1,070)  1,595   (36)  101,816   (1,106)
Total HTM $119,075  $(1,197) $42,832  $(612) $161,907  $(1,809)
                         
Available-for-Sale                        
U.S. Government agencies $120,100  $(1,617) $25,326  $(1,449) $145,426  $(3,066)
Mortgage-backed securities  725,518   (12,950)  589,543   (25,164)  1,315,061   (38,114)
State and political subdivisions  95,659   (1,603)  73,293   (3,627)  168,952   (5,230)
Other securities  --   --   99   (1)  99   (1)
Total AFS $941,277  $(16,170) $688,261  $(30,241) $1,629,538  $(46,411)

 Less Than 12 Months 12 Months or More Total
(In thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Held-to-Maturity 
  
  
  
  
  
U.S. Government agencies$
 $
 $12,987
 $(9) $12,987
 $(9)
Mortgage-backed securities487
 (1) 9,994
 (239) 10,481
 (240)
State and political subdivisions80
 (1) 4,881
 (26) 4,961
 (27)
Total HTM$567

$(2)
$27,862

$(274)
$28,429

$(276)
            
Available-for-Sale           
U.S. Government agencies$5,583
 $(30) $124,129
 $(2,719) $129,712
 $(2,749)
Mortgage-backed securities40,444
 (248) 1,086,169
 (19,594) 1,126,613
 (19,842)
State and political subdivisions1,016
 (4) 92,894
 (1,229) 93,910
 (1,233)
Other securities5,029
 (76) 100
 (1) 5,129
 (77)
Total AFS$52,072

$(358)
$1,303,292

$(23,543)
$1,355,364

$(23,901)
These declines reflected in the preceding table primarily resulted from the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. Management does not have the intent to sell these securities and management believes it is more likely than not the Company will not have to sell these securities before recovery of their amortized cost basis less any current period credit losses.

Declines in the fair value of HTM and AFS securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management has the ability and intent to hold the securities classified as HTM until they mature, at which time the Company expects to receive full value for the securities. Furthermore, as of March 31, 2018,2019, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2018,2019, management believes the impairments detailed in the table above are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.



12





Income earned on securities for the three months ended March 31, 20182019 and 2017,2018, is as follows:

(In thousands) 2018 2017
     
Taxable:        
Held-to-maturity $567  $661 
Available-for-sale  9,032   5,816 
         
Non-taxable:        
Held-to-maturity  1,936   2,283 
Available-for-sale  1,087   691 
Total $12,622  $9,451 

19

(In thousands)    2019 2018
Taxable:     
  
Held-to-maturity    $438
 $567
Available-for-sale    12,551
 9,032
        
Non-taxable:       
Held-to-maturity    1,162
 1,936
Available-for-sale    3,161
 1,087
Total    $17,312
 $12,622

The amortized cost and estimated fair value by maturity of securities are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities.

  Held-to-Maturity Available-for-Sale
(In thousands) Amortized
Cost
 Fair
Value
 Amortized
Cost
 Fair
Value
         
One year or less $48,493  $48,335  $370  $370 
After one through five years  75,993   75,842   35,843   35,100 
After five through ten years  92,585   92,633   22,926   22,342 
After ten years  120,281   122,879   284,834   277,981 
Securities not due on a single maturity date  15,404   14,960   1,394,138   1,356,179 
Other securities (no maturity)  --   --   136,811   138,141 
Total $352,756  $354,649  $1,874,922  $1,830,113 

 Held-to-Maturity Available-for-Sale
(In thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less$18,407
 $18,397
 $7,375
 $7,372
After one through five years20,419
 20,624
 74,428
 74,208
After five through ten years5,564
 5,691
 123,088
 124,101
After ten years4,198
 4,627
 535,761
 541,815
Securities not due on a single maturity date12,847
 12,617
 1,362,950
 1,345,677
Other securities (no maturity)
 
 146,501
 146,938
Total$61,435

$61,956

$2,250,103

$2,240,111
The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $1.4$1.06 billion at March 31, 20182019 and $1.2$1.02 billion at December 31, 2017.

2018.

There were approximately $6,000$2.7 million of gross realized gains and no gross realized losses from the sale of securities during the three months ended March 31, 2018.2019. During the quarter, the Company made adjustments to the bond portfolio based upon projected cash flow changes due to the present low rate environment. There were approximately $63,000$6,000 of gross realized gains and no gross realized losses from the sale of securities during the three months ended March 31, 2017.

2018.

The state and political subdivision debt obligations are predominately non-rated bonds representing small issuances, primarily in Arkansas, Missouri, Oklahoma, Tennessee and Texas issues, which are evaluated on an ongoing basis.

NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE

In August 2017, the Company, through its bank subsidiary, Simmons Bank, acquired the stock of Heartland Bank (“Heartland”) at a public auction held to satisfy certain indebtedness of Heartland’s former holding company, Rock Bancshares, Inc.

In March 2018, Heartland sold $141.0 million of branches and loans, as well as $154.6 million of deposits and other liabilities. At the end of the first quarter 2018, other assets held for sale of $24.8 million and other liabilities held for sale of $2.8 million related to Heartland, both recorded at fair value, remained at the Company. The Company will continue to work through the disposition of Heartland’s few remaining assets and expects to be complete within one year of the acquisition.

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the Heartland transaction.

Cash and due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – The carrying amount of these assets was deemed to be a reasonable estimate of fair value, as there were no material differences to fair value based upon quoted market prices.

Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.

20




13





NOTE 5:4: LOANS AND ALLOWANCE FOR LOAN LOSSES

At March 31, 2018,2019, the Company’s loan portfolio was $10.99$11.74 billion, compared to $10.78$11.72 billion at December 31, 2017.2018. The various categories of loans are summarized as follows:

(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Credit cards $176,602  $185,422 
Other consumer  284,285   280,094 
Total consumer  460,887   465,516 
Real Estate:        
Construction  786,077   614,155 
Single family residential  1,193,464   1,094,633 
Other commercial  2,611,358   2,530,824 
Total real estate  4,590,899   4,239,612 
Commercial:        
Commercial  971,704   825,217 
Agricultural  128,247   148,302 
Total commercial  1,099,951   973,519 
Other  138,646   26,962 
Loans  6,290,383   5,705,609 
Loans acquired, net of discount and allowance (1)  4,696,945   5,074,076 
Total loans $10,987,328  $10,779,685 

______________________                  

(1)See Note 6, Loans Acquired, for segregation of loans acquired by loan class.

(In thousands)March 31, 2019 December 31, 2018
Consumer: 
  
Credit cards$181,549
 $204,173
Other consumer213,659
 201,297
Total consumer395,208

405,470
Real Estate:   
Construction1,376,162
 1,300,723
Single family residential1,431,407
 1,440,443
Other commercial3,355,109
 3,225,287
Total real estate6,162,678

5,966,453
Commercial:   
Commercial1,801,422
 1,774,909
Agricultural147,216
 164,514
Total commercial1,948,638

1,939,423
Other178,026
 119,042
Loans8,684,550
 8,430,388
Loans acquired, net of discount and allowance (1)
3,056,187
 3,292,783
Total loans$11,740,737

$11,723,171
_____________________________
(1)    See Note 5, Loans Acquired, for segregation of loans acquired by loan class.

Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; providing an adequate allowance for loans losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Furthermore, a factor that influenced the Company’s judgment regarding the allowance for loan losses consists of an eight-yeara nine-year historical loss average segregated by each primary loan sector. On an annual basis, historical loss rates are calculated for each sector.

Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

Real estate – The real estate loan portfolio consists of construction loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the

14





overall risk through diversification across types of CRE loans.  Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors these loans closely.

21


Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one or three year balloons, and the Company has instituted a pricing mechanism for commercial loans. It is standard practice to require personal guaranties on all commercial loans for closely-held or limited liability entities.


Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless ifof whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.


Nonaccrual loans, excluding loans acquired, segregated by class of loans, are as follows:

(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Credit cards $298  $170 
Other consumer  4,711   4,605 
Total consumer  5,009   4,775 
Real estate:        
Construction  1,923   2,242 
Single family residential  13,616   13,431 
Other commercial  16,707   16,054 
Total real estate  32,246   31,727 
Commercial:        
Commercial  8,003   6,980 
Agricultural  2,137   2,160 
Total commercial  10,140   9,140 
Total $47,395  $45,642 

22

(In thousands)March 31, 2019 December 31, 2018
Consumer: 
  
Credit cards$338
 $296
Other consumer1,555
 2,159
Total consumer1,893

2,455
Real estate:   
Construction2,570
 1,269
Single family residential15,324
 11,939
Other commercial8,612
 7,205
Total real estate26,506

20,413
Commercial:   
Commercial31,409
 10,049
Agricultural1,117
 1,284
Total commercial32,526

11,333
Total$60,925

$34,201

15





An age analysis of past due loans, excluding loans acquired, segregated by class of loans, is as follows:

(In thousands) Gross
30-89 Days
Past Due
 90 Days
or More
Past Due
 Total
Past Due
 Current Total
Loans
 90 Days
Past Due &
Accruing
             
March 31, 2018                        
Consumer:                        
Credit cards $707  $672  $1,379  $175,223  $176,602  $233 
Other consumer  3,407   3,176   6,583   277,702   284,285   33 
Total consumer  4,114   3,848   7,962   452,925   460,887   266 
Real estate:                        
Construction  640   703   1,343   784,734   786,077   -- 
Single family residential  6,937   6,163   13,100   1,180,364   1,193,464   71 
Other commercial  4,796   9,488   14,284   2,597,074   2,611,358   -- 
Total real estate  12,373   16,354   28,727   4,562,172   4,590,899   71 
Commercial:                        
Commercial  3,674   4,134   7,808   963,896   971,704   -- 
Agricultural  107   2,075   2,182   126,065   128,247   -- 
Total commercial  3,781   6,209   9,990   1,089,961   1,099,951   -- 
Other  --   --   --   138,646   138,646   -- 
Total $20,268  $26,411  $46,679  $6,243,704  $6,290,383  $337 
                         
December 31, 2017                        
Consumer:                        
Credit cards $707  $672  $1,379  $184,043  $185,422  $332 
Other consumer  5,009   3,298   8,307   271,787   280,094   10 
Total consumer  5,716   3,970   9,686   455,830   465,516   342 
Real estate:                        
Construction  411   1,210   1,621   612,534   614,155   -- 
Single family residential  8,071   6,460   14,531   1,080,102   1,094,633   1 
Other commercial  2,388   8,031   10,419   2,520,405   2,530,824   -- 
Total real estate  10,870   15,701   26,571   4,213,041   4,239,612   1 
Commercial:                        
Commercial  1,523   6,125   7,648   817,569   825,217   -- 
Agricultural  50   2,120   2,170   146,132   148,302   -- 
Total commercial  1,573   8,245   9,818   963,701   973,519   -- 
Other  --   --   --   26,962   26,962   -- 
Total $18,159  $27,916  $46,075  $5,659,534  $5,705,609  $343 

(In thousands)
Gross
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 Current 
Total
Loans
 
90 Days
Past Due &
Accruing
March 31, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$733
 $561
 $1,294
 $180,255
 $181,549
 $222
Other consumer3,018
 489
 3,507
 210,152
 213,659
 52
Total consumer3,751

1,050

4,801

390,407

395,208

274
Real estate:           
Construction961
 909
 1,870
 1,374,292
 1,376,162
 
Single family residential10,226
 5,491
 15,717
 1,415,690
 1,431,407
 7
Other commercial4,384
 4,652
 9,036
 3,346,073
 3,355,109
 
Total real estate15,571

11,052

26,623

6,136,055

6,162,678

7
Commercial:           
Commercial6,845
 8,611
 15,456
 1,785,966
 1,801,422
 
Agricultural202
 954
 1,156
 146,060
 147,216
 
Total commercial7,047

9,565

16,612

1,932,026

1,948,638


Other
 
 
 178,026
 178,026
 
Total$26,369

$21,667

$48,036

$8,636,514

$8,684,550

$281
            
December 31, 2018           
Consumer:           
Credit cards$1,033
 $506
 $1,539
 $202,634
 $204,173
 $209
Other consumer4,264
 896
 5,160
 196,137
 201,297
 4
Total consumer5,297

1,402

6,699

398,771

405,470

213
Real estate:           
Construction533
 308
 841
 1,299,882
 1,300,723
 
Single family residential7,769
 4,127
 11,896
 1,428,547
 1,440,443
 
Other commercial3,379
 2,773
 6,152
 3,219,135
 3,225,287
 
Total real estate11,681

7,208

18,889

5,947,564

5,966,453


Commercial:           
Commercial4,472
 5,105
 9,577
 1,765,332
 1,774,909
 11
Agricultural467
 1,055
 1,522
 162,992
 164,514
 
Total commercial4,939

6,160

11,099

1,928,324

1,939,423

11
Other
 
 
 119,042
 119,042
 
Total$21,917

$14,770

$36,687

$8,393,701

$8,430,388

$224
Impaired Loans – A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loans, including scheduled principal and interest payments. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of the collateral if the loan is collateral dependent.

Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

23


16





Impaired loans, net of government guarantees and excluding loans acquired, segregated by class of loans, are as follows:

(In thousands) Unpaid
Contractual
Principal
Balance
 Recorded Investment
With No
Allowance
 Recorded
Investment
With Allowance
 Total
Recorded
Investment
 Related
Allowance
 Average
Investment in
Impaired
Loans
 Interest
Income
Recognized
             
March 31, 2018           Three Months Ended
March 31, 2018
Consumer:              
Credit cards $298  $298  $--  $298  $--  $234  $15 
Other consumer  4,849   4,711   --   4,711   --   4,658   34 
Total consumer  5,147   5,009   --   5,009   --   4,892   49 
Real estate:                            
Construction  2,392   1,220   702   1,922   249   2,082   16 
Single family residential  14,605   13,057   559   13,616   32   13,523   100 
Other commercial  22,500   8,135   8,573   16,708   145   16,287   120 
Total real estate  39,497   22,412   9,834   32,246   426   31,892   236 
Commercial:                            
Commercial  8,480   7,119   758   7,877   18   7,226   53 
Agricultural  3,256   2,137   --   2,137   --   1,586   12 
Total commercial  11,736   9,256   758   10,014   18   8,812   65 
Total $56,380  $36,677  $10,592  $47,269  $444  $45,596  $350 
                             
December 31, 2017           Three Months Ended
March 31, 2017
Consumer:              
Credit cards $170  $170  $--  $170  $--  $302  $5 
Other consumer  4,755   4,605   --   4,605   --   2,107   13 
Total consumer  4,925   4,775   --   4,775   --   2,409   18 
Real estate:                            
Construction  2,522   1,347   895   2,242   249   3,074   20 
Single family residential  14,347   12,725   706   13,431   53   12,667   81 
Other commercial  22,308   6,732   9,133   15,865   36   19,321   123 
Total real estate  39,177   20,804   10,734   31,538   338   35,062   224 
Commercial:                            
Commercial  9,954   4,306   2,269   6,575   --   11,344   72 
Agricultural  3,278   1,035   --   1,035   --   1,726   11 
Total commercial  13,232   5,341   2,269   7,610   --   13,070   83 
Total $57,334  $30,920  $13,003  $43,923  $338  $50,541  $325 

(In thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded Investment
With No
Allowance
 
Recorded
Investment
With Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Investment in
Impaired
Loans
 
Interest
Income
Recognized
March 31, 2019 
  
  
  
  
 Three Months Ended
March 31, 2019
Consumer:             
Credit cards$338
 $338
 $
 $338
 $
 $317
 $30
Other consumer1,699
 1,555
 
 1,555
 
 1,857
 13
Total consumer2,037

1,893



1,893


 2,174
 43
Real estate:             
Construction2,648
 2,090
 480
 2,570
 237
 1,920
 14
Single family residential16,379
 11,891
 3,432
 15,323
 38
 13,703
 98
Other commercial14,279
 3,882
 3,201
 7,083
 137
 8,992
 64
Total real estate33,306

17,863

7,113

24,976

412
 24,615
 176
Commercial:             
Commercial38,420
 6,268
 23,327
 29,595
 108
 20,739
 148
Agricultural2,215
 583
 532
 1,115
 1
 1,147
 8
Total commercial40,635

6,851

23,859

30,710

109
 21,886
 156
Total$75,978

$26,607

$30,972

$57,579

$521
 $48,675
 $375
December 31, 2018  
  
  
  
 Three Months Ended
March 31, 2018
Consumer: 
  
  
  
  
    
Credit cards$296
 $296
 $
 $296
 $
 $234
 $15
Other consumer2,311
 2,159
 
 2,159
 
 4,658
 34
Total consumer2,607
 2,455
 
 2,455
 
 4,892
 49
Real estate:             
Construction1,344
 784
 485
 1,269
 211
 2,082
 16
Single family residential12,906
 11,468
 616
 12,084
 36
 13,523
 100
Other commercial8,434
 5,442
 5,458
 10,900
 
 16,287
 120
Total real estate22,684
 17,694
 6,559
 24,253
 247
 31,892
 236
Commercial:             
Commercial10,361
 7,254
 4,628
 11,882
 437
 7,226
 53
Agricultural2,419
 1,180
 
 1,180
 
 1,586
 12
Total commercial12,780
 8,434
 4,628
 13,062
 437
 8,812
 65
Total$38,071
 $28,583
 $11,187
 $39,770
 $684
 $45,596
 $350

At March 31, 2018,2019 and December 31, 2017,2018, impaired loans, net of government guarantees and excluding loans acquired, totaled $47.3$57.6 million and $43.9$39.8 million, respectively. Allocations of the allowance for loan losses relative to impaired loans were $444,000$521,000 and $338,000$684,000 at March 31, 20182019 and December 31, 2017,2018, respectively. Approximately $350,000$375,000 of interest income was recognized on average impaired loans of $45.6$48.7 million for the three months ended March 31, 2018.2019. Interest income recognized on impaired loans on a cash basis during the three months ended March 31, 20182019 and 20172018 was not material.

Included in certain impaired loan categories are troubled debt restructurings (“TDRs”). When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

Under ASC Topic 310-10-35 – Subsequent Measurement, a TDR is considered to be impaired, and an impairment analysis must be performed. The Company assesses the exposure for each modification, either by collateral discounting or by calculation of the present value of future cash flows, and determines if a specific allocation to the allowance for loan losses is needed.


17





Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

24


The following table presents a summary of troubled debt restructurings, excluding loans acquired, segregated by class of loans.

  Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans
(Dollars in thousands) Number Balance Number Balance Number Balance
             
March 31, 2018            
Consumer:                        
Other consumer  1  $91   --  $--   1  $91 
Total consumer  1   91   --   --   1   91 
Real estate:                        
Construction  --   --   1   408   1   408 
Single-family residential  5   201   13   802   18   1,003 
Other commercial  4   4,270   4   3,350   8   7,620 
Total real estate  9   4,471   18   4,560   27   9,031 
Commercial:                        
Commercial  4   1,897   6   738   10   2,635 
Total commercial  4   1,897   6   738   10   2,635 
Total  14  $6,459   24  $5,298   38  $11,757 
                         
December 31, 2017                        
Real estate:                        
Construction  --  $--   1  $420   1  $420 
Single-family residential  4   141   15   954   19   1,095 
Other commercial  4   4,322   5   3,712   9   8,034 
Total real estate  8   4,463   21   5,086   29   9,549 
Commercial:                        
Commercial  5   2,644   6   745   11   3,389 
Total commercial  5   2,644   6   745   11   3,389 
Total  13  $7,107   27  $5,831   40  $12,938 

25

 Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans
(Dollars in thousands)Number Balance Number Balance Number Balance
March 31, 2019           
Real estate:           
Construction
 $
 3
 $480
 3
 $480
Single-family residential6
 227
 9
 593
 15
 820
Other commercial2
 3,250
 2
 1,003
 4
 4,253
Total real estate8

3,477

14

2,076

22

5,553
Commercial:           
Commercial4
 2,820
 5
 427
 9
 3,247
Total commercial4

2,820

5

427

9

3,247
Total12

$6,297

19

$2,503

31

$8,800
            
December 31, 2018           
Real estate:           
Construction
 $
 3
 $485
 3
 $485
Single-family residential6
 230
 10
 616
 16
 846
Other commercial2
 3,306
 2
 1,027
 4
 4,333
Total real estate8

3,536

15

2,128

23

5,664
Commercial:           
Commercial4
 2,833
 6
 718
 10
 3,551
Total commercial4

2,833

6

718

10

3,551
Total12

$6,369

21

$2,846

33

$9,215

There were no loans restructured as TDRs during the three months ended March 31, 2019. The following table presents loans that were restructured as TDRs during the three months ended March 31, 2018, and 2017, excluding loans acquired, segregated by class of loans.

        Modification Type  
(Dollars in thousands) Number of
Loans
 Balance Prior
to TDR
 Balance at
March 31
 Change in
Maturity
Date
 Change in
Rate
 Financial Impact
on Date of
Restructure
             
Three Months Ended March 31, 2018            
Consumer:                        
Other consumer  1  $91  $91  $91  $--  $-- 
Total consumer  1   91   91   91   --   -- 
Real estate:                        
Single-family residential  1   61   62   62   --   -- 
Total real estate  1   61   62   62   --   -- 
Total  2  $152  $153  $153  $--  $-- 
                         
Three Months Ended March 31, 2017                        
Real estate:                        
Construction  1  $456  $456  $456  $--  $-- 
Other commercial  2   7,362   7,362   7,362   --   33 
Total real estate  3   7,818   7,818   7,818   --   33 
Commercial:                        
Commercial  5   770   760   760   --   -- 
Total commercial  5   770   760   760   --   -- 
Total  8  $8,588  $8,578  $8,578  $--  $33 

       Modification Type  
(Dollars in thousands)
Number of
Loans
 
Balance Prior
to TDR
 Balance at March 31, 
Change in
Maturity
Date
 
Change in
Rate
 
Financial Impact
on Date of
Restructure
Three Months Ended March 31, 2018           
Consumer:           
Other consumer1
 $91
 $91
 $91
 $
 $
Total consumer1
 91
 91
 91
 
 
Real estate:           
Single-family residential1
 61
 62
 62
 
 
Total real estate1
 61
 62
 62
 
 
Total2
 $152
 $153
 $153
 $
 $

18





During the three months ended March 31, 2018, the Company modified 2 loans with a recorded investment of $152,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. A specific reserve was not considered necessary for these loans based upon the fair value of the collateral. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During

There was one commercial loan considered a TDR for which a payment default occurred during the three months ended March 31, 2017, the Company modified 8 loans with a2019. A charge-off of approximately $138,000 was recorded investment of $8.6 million prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments and requiring interest only payments for a period of up to 12 months. Based on the fair value of the collateral, a specific reserve of $26,000 was determined necessary for these loans. Also, the financial impact from the restructuring of these loans was $33,000 from the charge-off interest on the date of restructure.

this loan. There was one commercial real estate loan for which a payment default occurred during the three months ended March 31, 2018. A charge-off of $66,300 was recorded for this loan and $294,300 was transferred to OREO. There was one commercial real estate loan for which a payment default occurred during the three months ended March 31, 2017. The Company defines a payment default as a payment received more than 90 days after its due date.

In addition to the TDRs that occurred during the periodperiods provided in the preceding tables, the Company had TDRs with pre-modification loan balances, specifically in commercial real estate, of $294,300 and $242,300 at March 31, 2018, and 2017, respectively, for which OREO was received in full or partial satisfaction of the loans. The majorityThere were no TDRs with pre-modification loan balance for which OREO was received in full or partial satisfaction of such TDRs were in commercial real estate and residential real estate.the loans during the three month period ended March 31, 2019. At March 31, 20182019 and December 31, 2017,2018, the Company had $6,809,000$3,498,000 and $5,057,000,$3,899,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At March 31, 20182019 and December 31, 2017,2018, the Company had $3,767,000$4,716,000 and $3,828,000,$3,530,000, respectively, of OREO secured by residential real estate properties.

Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions in the States of Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas.

26


The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. A description of the general characteristics of the 8 risk ratings is as follows:

·Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength.

·Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”).

·Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters.

·Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability.

·Risk Rate 5 – Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices.

·Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan.

·Risk Rate 7 – Doubtful – A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.

·Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.

27

Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength.
Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”).
Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters.
Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability.
Risk Rate 5 – Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices.
Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan.

19





Risk Rate 7 – Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.
Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.
Loans acquired are evaluated using this internal grading system. Loans acquired are evaluated individually and include purchased credit impaired loans of $17.6$3.7 million and $17.1$4.1 million that are accounted for under ASC Topic 310-30 and are classified as substandard (Risk Rating 6) as of March 31, 20182019 and December 31, 2017,2018, respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $78.7$77.2 million and $76.3$50.4 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at March 31, 20182019 and December 31, 2017,2018, respectively.

Purchased credit impaired loans are loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their fair value was initially based on the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the undiscounted cash flows expected at acquisition and the fair value at acquisition is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment.

Classified loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1)The Company has established minimum dollar amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested for impairment and therefore are not included in impaired loans. (2) Of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans. Total classified loans, excluding loans accounted for under ASC Topic 310-30, were $177.8$177.4 million and $175.6$119.0 million, as of March 31, 20182019 and December 31, 2017,2018, respectively.


20





The following table presents a summary of loans by credit risk rating as of March 31, 20182019 and December 31, 2017,2018, segregated by class of loans. Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.

(In thousands) Risk Rate
1-4
 Risk Rate
5
 Risk Rate
6
 Risk Rate
7
 Risk Rate
8
 Total
             
March 31, 2018                        
Consumer:                        
Credit cards $176,071  $--  $531  $--  $--  $176,602 
Other consumer  279,414   --   4,871   --   --   284,285 
Total consumer  455,485   --   5,402   --   --   460,887 
Real estate:                        
Construction  778,757   2,344   4,960   16   --   786,077 
Single family residential  1,168,255   1,790   23,197   222   --   1,193,464 
Other commercial  2,572,032   7,076   32,250   --   --   2,611,358 
Total real estate  4,519,044   11,210   60,407   238   --   4,590,899 
Commercial:                        
Commercial  953,138   6,140   12,426   --   --   971,704 
Agricultural  124,938   325   2,961   23   --   128,247 
Total commercial  1,078,076   6,465   15,387   23   --   1,099,951 
Other  138,646   --   --   --   --   138,646 
Loans acquired  4,545,941   54,664   95,842   498   --   4,696,945 
Total $10,737,192  $72,339  $177,038  $759  $--  $10,987,328 

28

(In thousands) Risk Rate
1-4
 Risk Rate
5
 Risk Rate
6
 Risk Rate
7
 Risk Rate
8
 Total
             
December 31, 2017                        
Consumer:                        
Credit cards $184,920  $--  $502  $--  $--  $185,422 
Other consumer  275,160   --   4,934   --   --   280,094 
Total consumer  460,080   --   5,436   --   --   465,516 
Real estate:                        
Construction  603,126   5,795   5,218   16   --   614,155 
Single family residential  1,066,902   3,954   23,490   287   --   1,094,633 
Other commercial  2,480,293   19,581   30,950   --   --   2,530,824 
Total real estate  4,150,321   29,330   59,658   303   --   4,239,612 
Commercial:                        
Commercial  736,377   74,254   14,402   50   134   825,217 
Agricultural  146,065   24   2,190   23   --   148,302 
Total commercial  882,442   74,278   16,592   73   134   973,519 
Other  26,962   --   --   --   --   26,962 
Loans acquired  4,782,384   198,314   93,378   --   --   5,074,076 
Total $10,302,189  $301,922  $175,064  $376  $134  $10,779,685 

(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
March 31, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$180,988
 $
 $561
 $
 $
 $181,549
Other consumer211,642
 
 2,017
 
 
 213,659
Total consumer392,630



2,578





395,208
Real estate:           
Construction1,372,113
 443
 3,606
 
 
 1,376,162
Single family residential1,407,554
 1,784
 21,839
 230
 
 1,431,407
Other commercial3,313,139
 21,629
 20,341
 
 
 3,355,109
Total real estate6,092,806

23,856

45,786

230



6,162,678
Commercial:           
Commercial1,745,162
 9,671
 46,589
 
 
 1,801,422
Agricultural145,828
 67
 1,321
 
 
 147,216
Total commercial1,890,990

9,738

47,910





1,948,638
Other178,026
 
 
 
 
 178,026
Loans acquired2,930,179
 45,157
 80,515
 336
 
 3,056,187
Total$11,484,631

$78,751

$176,789

$566

$

$11,740,737
(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
December 31, 2018 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$203,667
 $
 $506
 $
 $
 $204,173
Other consumer198,840
 
 2,457
 
 
 201,297
Total consumer402,507



2,963





405,470
Real estate:           
Construction1,296,988
 1,910
 1,825
 
 
 1,300,723
Single family residential1,420,052
 1,628
 18,528
 235
 
 1,440,443
Other commercial3,193,289
 17,169
 14,829
 
 
 3,225,287
Total real estate5,910,329

20,707

35,182

235



5,966,453
Commercial:           
Commercial1,742,002
 8,357
 24,550
 
 
 1,774,909
Agricultural162,824
 75
 1,615
 
 
 164,514
Total commercial1,904,826

8,432

26,165





1,939,423
Other119,042
 
 
 
 
 119,042
Loans acquired3,187,083
 51,255
 54,097
 348
 
 3,292,783
Total$11,523,787

$80,394

$118,407

$583

$

$11,723,171

21





Allowance for Loan Losses

Allowance for Loan Losses – The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310-10, Receivables, and allowance allocations calculated in accordance with ASC Topic 450-20, Loss Contingencies. Accordingly, the methodology is based on the Company’s internal grading system, specific impairment analysis, qualitative and quantitative factors.

As mentioned above, allocations to the allowance for loan losses are categorized as either specific allocations or general allocations.

A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

The general allocation is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. The Company establishes general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.

29


The following table details activity in the allowance for loan losses by portfolio segment for legacy loans for the three months ended March 31, 2018.2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(In thousands) Commercial Real
Estate
 Credit
Card
 Other
Consumer
and Other
 Total
Three Months Ended March 31, 2018                    
Balance, beginning of period $7,007  $27,281  $3,784  $3,596  $41,668 
Provision for loan losses (1)  4,286   3,286   751   759   9,082 
Charge-offs  (1,761)  (455)  (999)  (1,056)  (4,271)
Recoveries  69   302   263   94   728 
Net charge-offs  (1,692)  (153)  (736)  (962)  (3,543)
Balance, March 31, 2018(2) $9,601  $30,414  $3,799  $3,393  $47,207 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $18  $426  $--  $--  $444 
Loans collectively evaluated for impairment  9,583   29,988   3,799   3,393   46,763 
Balance, March 31, 2018 (2) $9,601  $30,414  $3,799  $3,393  $47,207 

(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
Three Months Ended March 31, 2019         
Balance, beginning of period (2)
$20,514
 $29,743
 $3,923
 $2,419
 $56,599
Provision for loan losses (1)
1,874
 2,843
 898
 1,206
 6,821
Charge-offs(1,968) (374) (1,142) (1,533) (5,017)
Recoveries158
 142
 240
 300
 840
Net charge-offs(1,810) (232) (902) (1,233) (4,177)
Balance, March 31, 2019 (2)
$20,578
 $32,354
 $3,919
 $2,392
 $59,243
          
Period-end amount allocated to:         
Loans individually evaluated for impairment$109
 $412
 $
 $
 $521
Loans collectively evaluated for impairment20,469
 31,942
 3,919
 2,392
 58,722
Balance, March 31, 2019 (2)
$20,578

$32,354

$3,919

$2,392

$59,243


22





Activity in the allowance for loan losses for the three months ended March 31, 20172018 was as follows:

(In thousands) Commercial Real
Estate
 Credit
Card
 Other
Consumer
and Other
 Total
           
Three Months Ended March 31, 2017                    
Balance, beginning of period $7,739  $21,817  $3,779  $2,951  $36,286 
Provision for loan losses (1)  696   860   758   1,243   3,557 
Charge-offs  (292)  (656)  (1,044)  (1,174)  (3,166)
Recoveries  30   232   236   690   1,188 
Net charge-offs  (262)  (424)  (808)  (484)  (1,978)
Balance, March 31, 2017 (2) $8,173  $22,253  $3,729  $3,710  $37,865 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $708  $837  $--  $1  $1,546 
Loans collectively evaluated for impairment  7,465   21,416   3,729   3,709   36,319 
Balance, March 31, 2017 (2) $8,173  $22,253  $3,729  $3,710  $37,865 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $--  $338  $--  $--  $338 
Loans collectively evaluated for impairment  7,007   26,943   3,784   3,596   41,330 
Balance, December 31, 2017 (2) $7,007  $27,281  $3,784  $3,596  $41,668 

(1)Provision for loan losses of $68,000 attributable to loans acquired was excluded from this table for the three months ended March 31, 2018 (total provision for loan losses for the three months ended March 31, 2018 was $9,150,000). There were $79,000 in charge-offs for loans acquired during the three months ended March 31, 2018, resulting in an ending balance in the allowance related to loans acquired of $407,000. Provision for loan losses of $750,000 attributable to loans acquired was excluded from this table for the three months ended March 31, 2017 (total provision for loan losses for the three months ended March 31, 2017 was $4,307,000). There were $1.3 million in charge-offs for loans acquired during the first three months of 2017, resulting in an ending balance in the allowance related to loans acquired of $435,000.
(2)Allowance for loan losses at March 31, 2018 includes $407,000 allowance for loans acquired (not shown in the table above). Allowance for loan losses at December 31, 2017 and March 31, 2017 includes $418,000 and $435,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at March 31, 2018 was $47,614,000 and total allowance for loan losses at December 31, 2017 and March 31, 2017 was $42,086,000 and $38,300,000, respectively.

30

(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
Three Months Ended March 31, 2018         
Balance, beginning of period (3)
$7,007
 $27,281
 $3,784
 $3,596
 $41,668
Provision for loan losses (1)
4,286
 3,286
 751
 759
 9,082
Charge-offs(1,761) (455) (999) (1,056) (4,271)
Recoveries69
 302
 263
 94
 728
Net charge-offs(1,692) (153) (736) (962) (3,543)
Balance, March 31, 2018 (2)
$9,601
 $30,414
 $3,799
 $3,393
 $47,207
          
Period-end amount allocated to:         
Loans individually evaluated for impairment$18
 $426
 $
 $
 $444
Loans collectively evaluated for impairment9,583
 29,988
 3,799
 3,393
 46,763
Balance, March 31, 2018 (2)
$9,601

$30,414

$3,799

$3,393

$47,207
          
Period-end amount allocated to:         
Loans individually evaluated for impairment$437
 $247
 $
 $
 $684
Loans collectively evaluated for impairment20,077
 29,496
 3,923
 2,419
 55,915
Balance, December 31, 2018 (2)
$20,514

$29,743

$3,923

$2,419

$56,599
______________________
(1)    Provision for loan losses of $2,464,000 attributable to loans acquired was excluded from this table for the three months ended March 31, 2019 (total provision for loan losses for the three months ended March 31, 2019 was $9,285,000). There were $1,247,000 in charge-offs for loans acquired during the three months ended March 31, 2019, resulting in an ending balance in the allowance related to loans acquired of $1,312,000. Provision for loan losses of $68,000 attributable to loans acquired was excluded from this table for the three months ended March 31, 2018 (total provision for loan losses for the three months ended March 31, 2018 was $9,150,000). There were $79,000 in charge-offs for loans acquired during the three months ended March 31, 2018, resulting in an ending balance in the allowance related to loans acquired of $407,000.
(2)    Allowance for loan losses at March 31, 2019 includes $1,312,000 allowance for loans acquired (not shown in the table above). Allowance for loan losses at December 31, 2018 and March 31, 2018 includes $95,000 and $407,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at March 31, 2019 was $60,555,000 and total allowance for loan losses at December 31, 2018 and March 31, 2018 was $56,694,000 and $47,614,000, respectively.
(3)    Allowance for loan losses at December 31, 2017 includes $418,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses at December 31, 2017 was $42,086,000.

The Company’s recorded investment in loans, excluding loans acquired, related to each balance in the allowance for loan losses by portfolio segment on the basis of the Company’s impairment methodology was as follows:

(In thousands) Commercial Real
Estate
 Credit
Card
 Other
Consumer
and Other
 Total
           
March 31, 2018                    
Loans individually evaluated for impairment $10,014  $32,246  $298  $4,711  $47,269 
Loans collectively evaluated for impairment  1,089,937   4,558,653   176,304   418,220   6,243,114 
Balance, end of period $1,099,951  $4,590,899  $176,602  $422,931  $6,290,383 
                     
December 31, 2017                    
Loans individually evaluated for impairment $7,610  $31,538  $170  $4,605  $43,923 
Loans collectively evaluated for impairment  965,909   4,208,074   185,252   302,451   5,661,686 
Balance, end of period $973,519  $4,239,612  $185,422  $307,056  $5,705,609 

(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
March 31, 2019 
  
  
  
  
Loans individually evaluated for impairment$30,710
 $24,976
 $338
 $1,555
 $57,579
Loans collectively evaluated for impairment1,917,928
 6,137,702
 181,211
 390,130
 8,626,971
Balance, end of period$1,948,638

$6,162,678

$181,549

$391,685

$8,684,550
          
December 31, 2018         
Loans individually evaluated for impairment$13,062
 $24,253
 $296
 $2,159
 $39,770
Loans collectively evaluated for impairment1,926,361
 5,942,200
 203,877
 318,180
 8,390,618
Balance, end of period$1,939,423

$5,966,453

$204,173

$320,339

$8,430,388


23





NOTE 6:5: LOANS ACQUIRED

During

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the fourth quarteruse of 2017, the Company evaluated $1.985 billionacquisition method of netaccounting. All identifiable assets acquired, including loans, ($2.021 billion grossare recorded at fair value. No allowance for loan losses related to the loans less $36.3 million discount) purchasedacquired is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in conjunctionaccordance with the acquisitionfair value methodology prescribed in ASC Topic 820, Fair Value Measurement. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of OKSB, described in Note 2, Acquisitions,undiscounted expected principal, interest and other cash flows.

The Company evaluates non-impaired loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount on these loans is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. The Company evaluated the remaining $11.4 million of netevaluates purchased impaired loans ($18.1 million gross loans less $6.7 million discount) purchased in conjunction with the acquisition of OKSB for impairment in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

Also during the fourth quarter of 2017,

For impaired loans accounted for under ASC Topic 310-30, the Company evaluated $2.208 billion of net loans ($2.246 billion gross loans less $37.8 million discount) purchased in conjunction with the acquisition of First Texas, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not consideredcontinues to estimate cash flows expected to be impaired loans.

During the second quarter of 2017, the Company evaluated $249.2 million of net loans ($254.2 million gross loans less $5.0 million discount)collected on purchased in conjunction with the acquisition of Hardeman, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to becredit impaired loans. The Company evaluatedevaluates, at each balance sheet date, whether the present value of the purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in the consolidated statement of income. For any significant increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the remaining $2.4 millionlife of net loans ($3.4 million gross loans less $990,000 discount)the purchased in conjunction with the acquisition of Hardeman for impairment in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.

See Note 2, Acquisitions, for further discussion of loans acquired.

31
credit impaired loan.

The following table reflects the carrying value of all loans acquired as of March 31, 20182019 and December 31, 2017:

2018: 
  Loans Acquired
(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Other consumer $43,090  $51,467 
Real estate:        
Construction  591,533   637,032 
Single family residential  747,597   793,228 
Other commercial  2,420,121   2,387,777 
Total real estate  3,759,251   3,818,037 
Commercial:        
Commercial  891,261   995,587 
Agricultural  3,343   66,576 
Total commercial  894,604   1,062,163 
Other  --   142,409 
Total loans acquired (1) $4,696,945  $5,074,076 

(1)Loans acquired are reported net of a $407,000 and $418,000 allowance at March 31, 2018 and December 31, 2017, respectively.

 Loans Acquired
(In thousands)March 31, 2019 December 31, 2018
Consumer: 
  
Other consumer$11,979
 $15,658
Real estate:   
Construction404,512
 429,605
Single family residential533,917
 566,188
Other commercial1,730,472
 1,848,679
Total real estate2,668,901
 2,844,472
Commercial:   
Commercial374,033
 430,914
Agricultural1,274
 1,739
Total commercial375,307
 432,653
Total loans acquired (1)
$3,056,187
 $3,292,783
________________________
(1)    Loans acquired are reported net of a $1,312,000 and $95,000 allowance at March 31, 2019 and December 31, 2018, respectively.


24





Nonaccrual loans acquired, excluding purchased credit impaired loans accounted for under ASC Topic 310-30, segregated by class of loans, are as follows (see Note 5,4, Loans and Allowance for Loan Losses, for discussion of nonaccrual loans):

(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Other consumer $570  $334 
Real estate:        
Construction  241   1,767 
Single family residential  8,072   12,151 
Other commercial  19,626   7,401 
Total real estate  27,939   21,319 
Commercial:        
Commercial  1,518   1,748 
Agricultural  152   84 
Total commercial  1,670   1,832 
Total $30,179  $23,485 

32


(In thousands)March 31, 2019 December 31, 2018
    
Consumer: 
  
Other consumer$149
 $140
Real estate:   
Construction130
 114
Single family residential6,342
 6,603
Other commercial8,973
 1,167
Total real estate15,445

7,884
Commercial:   
Commercial3,117
 13,578
Agricultural20
 38
Total commercial3,137

13,616
Total$18,731

$21,640

An age analysis of past due loans acquired segregated by class of loans, is as follows (see Note 5,4, Loans and Allowance for Loan Losses, for discussion of past due loans):

(In thousands) Gross
30-89 Days
Past Due
 90 Days
or More
Past Due
 Total
Past Due
 Current Total
Loans
 90 Days
Past Due &
Accruing
             
March 31, 2018                        
Consumer:                        
Other consumer $444  $152  $596  $42,494  $43,090  $-- 
Real estate:                        
Construction  162   1,504   1,666   589,867   591,533   -- 
Single family residential  7,938   5,353   13,291   734,306   747,597   -- 
Other commercial  1,480   3,940   5,420   2,414,701   2,420,121   -- 
Total real estate  9,580   10,797   20,377   3,738,874   3,759,251   -- 
Commercial:                        
Commercial  1,697   569   2,266   888,995   891,261   -- 
Agricultural  43   119   162   3,181   3,343   -- 
Total commercial  1,740   688   2,428   892,176   894,604   -- 
                         
Total $11,764  $11,637  $23,401  $4,673,544  $4,696,945  $-- 
                         
December 31, 2017                        
Consumer:                        
Other consumer $889  $260  $1,149  $50,318  $51,467  $108 
Real estate:                        
Construction  2,577   1,448   4,025   633,007   637,032   279 
Single family residential  12,936   3,302   16,238   776,990   793,228   126 
Other commercial  17,176   5,647   22,823   2,364,954   2,387,777   2,565 
Total real estate  32,689   10,397   43,086   3,774,951   3,818,037   2,970 
Commercial:                        
Commercial  2,344   1,039   3,383   992,204   995,587   67 
Agricultural  51   --   51   66,525   66,576   -- 
Total commercial  2,395   1,039   3,434   1,058,729   1,062,163   67 
                         
Other  15   --   15   142,394   142,409   -- 
Total $35,988  $11,696  $47,684  $5,026,392  $5,074,076  $3,145 

33


(In thousands)
Gross
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 Current 
Total
Loans
 
90 Days
Past Due &
Accruing
            
March 31, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Other consumer$94
 $77
 $171
 $11,808
 $11,979
 $
Real estate:           
Construction5
 8,122
 8,127
 396,385
 404,512
 
Single family residential5,058
 2,583
 7,641
 526,276
 533,917
 24
Other commercial305
 8,267
 8,572
 1,721,900
 1,730,472
 
Total real estate5,368

18,972

24,340

2,644,561

2,668,901
 24
Commercial:           
Commercial7,265
 6,673
 13,938
 360,095
 374,033
 
Agricultural
 
 
 1,274
 1,274
 
Total commercial7,265

6,673

13,938

361,369

375,307
 
            
Total$12,727

$25,722

$38,449

$3,017,738

$3,056,187
 $24

25





(In thousands)
Gross
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 Current 
Total
Loans
 
90 Days
Past Due &
Accruing
            
December 31, 2018           
Consumer:           
Other consumer$337
 $49
 $386
 $15,272
 $15,658
 $2
Real estate:           
Construction8,283
 27
 8,310
 421,295
 429,605
 
Single family residential4,706
 3,049
 7,755
 558,433
 566,188
 
Other commercial168
 577
 745
 1,847,934
 1,848,679
 
Total real estate13,157
 3,653
 16,810
 2,827,662
 2,844,472
 
Commercial:           
Commercial1,302
 9,542
 10,844
 420,070
 430,914
 
Agricultural31
 5
 36
 1,703
 1,739
 
Total commercial1,333
 9,547
 10,880
 421,773
 432,653
 
            
Total$14,827
 $13,249
 $28,076
 $3,264,707
 $3,292,783
 $2

The following table presents a summary of loans acquired by credit risk rating, segregated by class of loans (see Note 5,4, Loans and Allowance for Loan Losses, for discussion of loan risk rating). Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.

(In thousands) Risk Rate
1-4
 Risk Rate
5
 Risk Rate
6
 Risk Rate
7
 Risk Rate
8
 Total
             
March 31, 2018                        
Consumer:                        
Other consumer $41,995  $14  $1,081  $--  $--  $43,090 
Real estate:                        
Construction  570,334   19,624   1,575   --   --   591,533 
Single family residential  726,224   1,917   18,958   498   --   747,597 
Other commercial  2,374,014   12,663   33,444   --   --   2,420,121 
Total real estate  3,670,572   34,204   53,977   498   --   3,759,251 
Commercial:                        
Commercial  830,225   20,446   40,590   --   --   891,261 
Agricultural  3,149   --   194   --   --   3,343 
Total commercial  833,374   20,446   40,784   --   --   894,604 
                         
Total $4,545,941  $54,664  $95,842  $498  $--  $4,696,945 
                         
December 31, 2017                        
Consumer:                        
Other consumer $50,625  $21  $821  $--  $--  $51,467 
Real estate:                        
Construction  604,796   30,524   1,712   --   --   637,032 
Single family residential  770,954   2,618   19,656   --   --   793,228 
Other commercial  2,337,097   15,064   35,616   --   --   2,387,777 
Total real estate  3,712,847   48,206   56,984   --   --   3,818,037 
Commercial:                        
Commercial  946,322   13,901   35,364   --   --   995,587 
Agricultural  66,367   --   209   --   --   66,576 
Total commercial  1,012,689   13,901   35,573   --   --   1,062,163 
                         
Other  142,409   --   --   --   --   142,409 
Total $4,918,570  $62,128  $93,378  $--  $--  $5,074,076 

(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
            
March 31, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Other consumer$11,715
 $
 $264
 $
 $
 $11,979
Real estate:           
Construction369,267
 27,475
 7,770
 
 
 404,512
Single family residential520,159
 2,049
 11,373
 336
 
 533,917
Other commercial1,675,051
 11,894
 43,527
 
 
 1,730,472
Total real estate2,564,477

41,418

62,670

336



2,668,901
Commercial:           
Commercial352,779
 3,739
 17,515
 
 
 374,033
Agricultural1,208
 
 66
 
 
 1,274
Total commercial353,987

3,739

17,581





375,307
            
Total$2,930,179

$45,157

$80,515

$336

$

$3,056,187

26





(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
            
December 31, 2018           
Consumer:           
Other consumer$15,380
 $
 $278
 $
 $
 $15,658
Real estate:           
Construction393,122
 27,621
 8,862
 
 
 429,605
Single family residential553,460
 2,081
 10,299
 348
 
 566,188
Other commercial1,822,179
 9,137
 17,363
 
 
 1,848,679
Total real estate2,768,761
 38,839
 36,524
 348
 
 2,844,472
Commercial:           
Commercial401,300
 12,416
 17,198
 
 
 430,914
Agricultural1,642
 
 97
 
 
 1,739
Total commercial402,942
 12,416
 17,295
 
 
 432,653
            
Total$3,187,083
 $51,255
 $54,097
 $348
 $
 $3,292,783

Loans acquired were individually evaluated and recorded at estimated fair value, including estimated credit losses, at the time of acquisition. These loans are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Company’s legacy loan portfolio, with most focus being placed on those loans which include the larger loan relationships and those loans which exhibit higher risk characteristics.


In addition to the accretable yield on loans acquired not considered to be impaired, the amount of the estimated cash flows expected to be received from the purchased credit impaired loans in excess of the fair values recorded for the purchased credit impaired loans is referred to as the accretable yield. The accretable yield is recognized as interest income over the estimated lives of the loans. Each quarter, the Company estimates the cash flows expected to be collected from the acquired purchased credit impaired loans, and adjustments may or may not be required. This has resulted in an increase in interest income that is spread on a level-yield basis over the remaining expected lives of the loans.

34

The impact of these adjustments on the Company’s financial results for the three months ended March 31, 2018 and 2017 is shown below:

  Three Months Ended
March 31,
(In thousands) 2018 2017
     
Impact on net interest income and pre-tax income $450  $1,184 
         
Impact, net of taxes $331  $720 

These adjustments will be recognized over the remaining lives of the purchased credit impaired loans. The accretable yield adjustments recorded in future periods will change as the Company continues to evaluate expected cash flows from the purchased credit impaired loans.


Changes in the carrying amount of the accretable yield for all purchased impaired loans were as follows for the three months ended March 31, 20182019 and 2017.

2018.
  Three Months Ended
March 31, 2018
 Three Months Ended
March 31, 2017
(In thousands) Accretable
Yield
 Carrying
Amount of
Loans
 Accretable
Yield
 Carrying
Amount of
Loans
         
Beginning balance $620  $17,116  $1,655  $17,802 
Additions  --   --   --   -- 
Accretable yield adjustments  1,134   --   1,228   -- 
Accretion  (385)  385   (1,666)  1,666 
Payments and other reductions, net  --   104   --   (10,773)
Balance, ending $1,369  $17,605  $1,217  $8,695 

 Three Months Ended
March 31, 2019
 Three Months Ended
March 31, 2018
(In thousands)
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
Beginning balance$1,460
 $4,050
 $620
 $17,116
Additions
 
 
 
Accretable yield adjustments17
 
 1,134
 
Accretion(9) 9
 (385) 385
Payments and other reductions, net
 (408) 
 104
Balance, ending$1,468
 $3,651
 $1,369
 $17,605

Purchased impaired loans are evaluated on an individual borrower basis. Because some loans evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows, the Company recorded a provision and established an allowance for loan loss for loans acquired resulting in a total allowance on loans acquired of $407,000$1,312,000 at March 31, 20182019 and $418,000$95,000 at December 31, 2017.2018. The provision on loans acquired for the three months ended March 31, 2019 and 2018 was $2,464,000 and 2017$68,000, respectively.

27





NOTE 6: RIGHT-OF-USE LEASE ASSETS AND LEASE LIABILITIES

As of the first quarter 2019, the Company accounts for its leases in accordance with ASC Topic 842, Leases, which requires recognition of most leases, including operating leases, with a term greater than 12 months, on the balance sheet. At lease commencement, the lease contract is reviewed to determine whether the contract is a finance lease or an operating lease; a lease liability is recognized on a discounted basis, related to the Company’s obligation to make lease payments; and a right-of-use asset is also recognized related to the Company’s right to use, or control the use of, a specified asset for the lease term. The Company accounts for lease and non-lease components (such as taxes, insurance and common area maintenance costs) separately as such amounts are generally readily determinable under the lease contracts. Lease payments over the expected term are discounted using the Company’s Federal Home Loan Bank advance rates for borrowings of similar term. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company’s leases are classified as operating leases with a term, including expected renewal or termination options, greater than one year, and are related to certain office facilities and office equipment. As of March 31, 2019, right-of-use lease assets included in premises and equipment are $30.5 million and lease liabilities included in other liabilities are $30.4 million. During the three months ended March 31, 2019, the Company recognized lease expense of $2.6 million and the weighted average discount rate was $68,000 and $750,000, respectively.

35
3.46%. At March 31, 2019, the weighted average remaining lease term was 9.29 years.


See Note 1, in the Recently Adopted Accounting Standards section, for additional information related to the adoption of ASC Topic 842.

NOTE 7: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is tested annually, or more often than annually, if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $845.7 million at both March 31, 20182019 and $842.7 million at December 31, 2017.

The Company recorded $229.1 million, $240.8 million and $29.4 million of goodwill as a result of its acquisitions of OKSB, First Texas and Hardeman, respectively.2018. Goodwill impairment was neither indicated nor recorded during the three months ended March 31, 20182019 or the year ended December 31, 2017.

2018.

Core deposit premiums are amortized over periods ranging from 10 to 15 years and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiums of $42.1 million, $7.3 million, and $7.8 million were recorded during 2017 as part of the OKSB, First Texas and Hardeman acquisitions, respectively.

IntangibleAdditionally, intangible assets are being amortized over various periods ranging from 10 to 15 years. The Company recorded $830,000 of intangible assets during 2017 related to the insurance operations in the Hardeman acquisition. The Company recorded $3.8 million of other intangible assets during 2017 as part of the OKSB acquisition which were subsequently sold in first quarter 2018.

The Company’s goodwill and other intangibles (carrying basis and accumulated amortization) at March 31, 20182019 and December 31, 2017,2018, were as follows: 

(In thousands) March 31,
2018
 December 31,
2017
     
Goodwill $845,687  $842,651 
Core deposit premiums:        
Gross carrying amount  105,984   105,984 
Accumulated amortization  (19,009)  (16,659)
Core deposit premiums, net  86,975   89,325 
Books of business intangible:        
Gross carrying amount  15,234   15,414 
Accumulated amortization  (2,912)  (2,827)
Books of business intangible, net  12,322   12,587 
Other intangibles:        
Gross carrying amount  2,068   6,037 
Accumulated amortization  (1,861)  (1,878)
Other intangibles, net  207   4,159 
Other intangible assets, net  99,504   106,071 
Total goodwill and other intangible assets $945,191  $948,722 

(In thousands)March 31, 2019 December 31, 2018
Goodwill$845,687
 $845,687
Core deposit premiums:   
Gross carrying amount105,984
 105,984
Accumulated amortization(28,552) (26,177)
Core deposit premiums, net77,432

79,807
Books of business intangible:   
Gross carrying amount15,234
 15,234
Accumulated amortization(3,972) (3,707)
Books of business intangible, net11,262

11,527
Other intangible assets, net88,694
 91,334
Total goodwill and other intangible assets$934,381

$937,021

28





The Company’s estimated remaining amortization expense on intangibles as of March 31, 20182019 is as follows:

(In thousands) Year Amortization
Expense
  Remainder of 2018 $8,171 
  2019  10,565 
  2020  10,552 
  2021  10,490 
  2022  10,438 
  Thereafter  49,288 
  Total $99,504 

36

(In thousands)Year 
Amortization
Expense
 Remainder of 2019 $7,924
 2020 10,552
 2021 10,490
 2022 10,438
 2023 10,156
 Thereafter 39,134
 Total $88,694

NOTE 8: TIME DEPOSITS

Time deposits include approximately $1.035$1.507 billion and $736.0 million$1.443 billion of certificates of deposit of $100,000 or more at March 31, 2018,2019, and December 31, 2017,2018, respectively. Of this total approximately $664,732,000$770.1 million and $396,771,000$753.2 million of certificates of deposit were over $250,000 at March 31, 20182019 and December 31, 2017,2018, respectively.

NOTE 9: INCOME TAXES

The provision for income taxes is comprised of the following components:

components for the periods indicated below:
(In thousands) March 31,
2018
 March 31,
2017
Income taxes currently payable $10,045  $6,601 
Deferred income taxes  3,921   3,090 
Provision for income taxes $13,966  $9,691 

   Three Months Ended
March 31,
(In thousands)    2019 2018
Income taxes currently payable    $10,317
 $10,045
Deferred income taxes    2,081
 3,921
Provision for income taxes    $12,398
 $13,966
The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their appropriate tax effects, are as follows:

(In thousands) March 31,
2018
 December 31,
2017
     
Deferred tax assets:        
Loans acquired $18,418  $19,885 
Allowance for loan losses  12,294   10,773 
Valuation of foreclosed assets  2,852   2,852 
Tax NOLs from acquisition  7,727   7,821 
Deferred compensation payable  2,534   2,433 
Accrued equity and other compensation  4,472   5,302 
Acquired securities  578   578 
Unrealized loss on available-for-sale securities  12,217   6,107 
Other  7,279   8,813 
Gross deferred tax assets  68,371   64,564 
         
Deferred tax liabilities:        
Goodwill and other intangible amortization  (32,579)  (32,572)
Accumulated depreciation  (9,317)  (8,945)
Other  (4,103)  (4,413)
Gross deferred tax liabilities  (45,999)  (45,930)
         
Net deferred tax asset, included in other assets $22,372  $18,634 

37

(In thousands)March 31, 2019 December 31, 2018
Deferred tax assets: 
  
Loans acquired$11,052
 $12,536
Allowance for loan losses14,885
 13,947
Valuation of foreclosed assets1,474
 1,474
Tax NOLs from acquisition6,969
 7,242
Deferred compensation payable2,793
 2,707
Accrued equity and other compensation6,304
 8,182
Acquired securities397
 397
Unrealized loss on available-for-sale securities2,718
 9,196
Other7,130
 7,042
Gross deferred tax assets53,722

62,723


29





(In thousands)March 31, 2019 December 31, 2018
Deferred tax liabilities:   
Goodwill and other intangible amortization$(30,273) $(30,471)
Accumulated depreciation(13,361) (13,361)
Other(5,115) (5,360)
Gross deferred tax liabilities(48,749) (49,192)
    
Net deferred tax asset, included in other assets$4,973
 $13,531

A reconciliation of income tax expense at the statutory rate to the Company'sCompany’s actual income tax expense is shown for the periods indicated below:

(In thousands) March 31,
2018
 March 31,
2017
     
Computed at the statutory rate (1) $13,708  $11,134 
Increase (decrease) in taxes resulting from:        
State income taxes, net of federal tax benefit  1,822   539 
Discrete items related to ASU 2016-09  (273)  (1,082)
Tax exempt interest income  (677)  (1,071)
Tax exempt earnings on BOLI  (186)  (218)
Other differences, net  (428)  389 
Actual tax provision $13,966  $9,691 

________________________

(1)The statutory rate was 21% for the three months ended March 31, 2018, compared to 35% for the three months ended March 31, 2017.

   Three Months Ended
March 31,
(In thousands)    2019 2018
Computed at the statutory rate (21%)
    $12,620
 $13,708
Increase (decrease) in taxes resulting from:       
State income taxes, net of federal tax benefit    1,345
 1,822
Discrete items related to ASU 2016-09    (26) (273)
Tax exempt interest income    (961) (677)
Tax exempt earnings on BOLI    (179) (186)
Federal tax credits    (729) 
Other differences, net    328
 (428)
Actual tax provision    $12,398
 $13,966

The Company follows ASC Topic 740, Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in 20182019 and in future years. The Company expects to fully realize its deferred tax assets in the future.

On December 22, 2017, the President signed tax reform legislation (the “2017 Act”) which includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. The 2017 Act reduces the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. Under US GAAP, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled and the effect of a change in tax law is recorded discretely as a component of the income tax provision related to continuing operations in the period of enactment. As a result, the Company was required to remeasure its deferred taxes as of December 22, 2017 based upon the new 21% tax rate and the change was recorded in the 2017 income tax provision.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the 2017 Act. SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. As such, the company’s 2017 financial results reflect the income tax effects for the 2017 Act for which the accounting under ASC 740 is complete and provisional amounts for those specific income tax effects of the 2017 Act for which the accounting under ASC 740 is incomplete but a reasonable estimate could be determined. The company did not identify items for which the income tax effects of the 2017 Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017. The tax expense recorded in 2017 is a reasonable estimate based on published guidance available at this time and is considered provisional. The ultimate impact of the 2017 Act may differ from these estimates due to changes in interpretations and assumptions made by the Company, as well as additional regulatory guidance. Any adjustments will be reflected in the Company’s financial statements in future periods.


The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.


Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company closed a stock acquisition in a prior year that invoked the Section 382 annual limitation. Approximately $35.6$33.8 million of federal net operating losses subject to the IRC Sec 382 annual limitation are expected to be utilized by the Company. The net operating loss carryforwards expire between 2028 and 2035.

38


The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 20142015 tax year and forward. The Company’s various state income tax returns are generally open from the 20142015 and later tax return years based on individual state statute of limitations.



30





NOTE 10: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company utilizes securities sold under agreements to repurchase to facilitate the needs of its customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents.

The gross amount of recognized liabilities for repurchase agreements was $114.6$117.0 million and $122.0$95.5 million at March 31, 20182019 and December 31, 2017,2018, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of March 31, 20182019 and December 31, 20172018 is presented in the following tables.

  Remaining Contractual Maturity of the Agreements
(In thousands) Overnight and
Continuous
 Up to 30 Days 30-90 Days Greater than
90 Days
 Total
March 31, 2018          
Repurchase agreements:                    
U.S. Government agencies $114,634  $--  $--  $--  $114,634 
                     
December 31, 2017                    
Repurchase agreements:                    
U.S. Government agencies $122,019  $--  $--  $--  $122,019 

39

 Remaining Contractual Maturity of the Agreements
(In thousands)
Overnight and
Continuous
 Up to 30 Days 30-90 Days 
Greater than
90 Days
 Total
March 31, 2019         
Repurchase agreements:         
U.S. Government agencies$116,963
 $
 $
 $
 $116,963
          
December 31, 2018         
Repurchase agreements:         
U.S. Government agencies$95,542
 $
 $
 $
 $95,542

NOTE 11: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Debt at March 31, 20182019 and December 31, 20172018 consisted of the following components:

(In thousands) March 31,
2018
 December 31,
2017
     
Other Borrowings        
FHLB advances, net of discount, due 2018 to 2033, 1.33% to 7.37% secured by residential real estate loans $1,140,986  $1,261,642 
Revolving credit agreement, due 10/5/2018, floating rate of 1.50% above the one month LIBOR rate, unsecured  --   75,000 
Notes payable, due 10/15/2020, 3.85%, fixed rate, unsecured  --   43,382 
Total other borrowings  1,140,986   1,380,024 
         
Subordinated Notes and Debentures        
Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00% through 3/31/2023, floating rate of 2.15% above the three month LIBOR rate, reset quarterly)  330,000   -- 
Trust preferred securities, due 12/30/2033, floating rate of 2.80% above the three month LIBOR rate, reset quarterly, callable without penalty  20,620   20,620 
Trust preferred securities, net of discount, due 6/30/2035, floating rate of 1.75% above the three month LIBOR rate, reset quarterly, callable without penalty  9,344   9,327 
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly  10,310   10,284 
Trust preferred securities, net of discount, due 12/5/2033, floating rate of 2.88% above the three month LIBOR rate, reset quarterly, callable without penalty  5,155   5,156 
Trust preferred securities, net of discount, due 10/18/2034, floating rate of 2.00% above the three month LIBOR rate, reset quarterly, callable without penalty  5,155   5,148 
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty  10,310   10,288 
Trust preferred securities, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty  6,702   6,702 
Trust preferred securities, due 6/26/2033, floating rate of 3.10% above the three month LIBOR rate, reset quarterly, callable without penalty  20,619   20,619 
Trust preferred securities, due 10/7/2033, floating rate of 2.85% above the three month LIBOR rate, reset quarterly, callable without penalty  25,774   25,774 
Trust preferred securities, due 9/15/2037, floating rate of 2.00% above the three month LIBOR rate, reset quarterly, callable without penalty  8,248   8,248 
Other subordinated debentures, net of discount, due 9/30/2023, floating rate equal to daily average of prime rate, reset quarterly  19,517   18,399 
Unamortized debt issuance costs  (3,289)  -- 
Total subordinated notes and debentures  468,465   140,565 
Total other borrowings and subordinated debt $1,609,451  $1,520,589 

(In thousands)March 31, 2019 December 31, 2018
Other Borrowings 
  
FHLB advances, net of discount, due 2019 to 2033, 1.38% to 7.37% secured by real estate loans$1,169,989
 $1,345,450
Revolving credit agreement, due 10/4/2019, floating rate of 1.50% above the one month LIBOR rate, unsecured
 
Total other borrowings1,169,989

1,345,450
    
Subordinated Notes and Debentures   
Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00% through 3/31/2023, floating rate of 2.15% above the three month LIBOR rate, reset quarterly)330,000
 330,000
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly10,310
 10,310
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty10,310
 10,310
Trust preferred securities, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty6,702
 6,702
Unamortized debt issuance costs(3,281) (3,372)
Total subordinated notes and debentures354,041

353,950
Total other borrowings and subordinated debt$1,524,030

$1,699,400

31





In March 2018, the Company issued $330.0 million in aggregate principal amount, of 5.00% Fixed-to-Floating Rate Subordinated Notes (“the Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The Company incurred $3.3$3.6 million in debt issuance costs related to the offering during March. The Notes will mature on April 1, 2028 and will bear interest at an initial fixed rate of 5.00% per annum, payable semi-annually in arrears. From and including April 1, 2023 to, but excluding, the maturity date or the date of earlier redemption, the interest rate will reset quarterly to an annual interest rate equal to the then-current three month LIBOR rate plus 215 basis points, payable quarterly in arrears. The Notes will be subordinated in right of payment to the payment of the Company’s other existing and future senior indebtedness, including all of its general creditors. The Notes are obligations of Simmons First National Corporation only and are not obligations of, and are not guaranteed by, any of its subsidiaries. During the first quarter of 2018, the Company used a portion of the net proceeds from the sale of the Notes to repay certain outstanding indebtedness, including the amounts borrowed under the Revolving Credit Agreement (the “Credit Agreement”), certain trust preferred securities, both discussed below, and the unsecured debt from correspondent banks. The subordinated notesNotes qualify for Tier 2 capital treatment.

40

In October 2017, the Company entered into the Credit Agreement with U.S. Bank National Association and executed an unsecured Revolving Credit Note pursuant to which the Company may borrow, prepay and re-borrow up to $75.0 million, the proceeds of which were primarily used to pay off amounts outstanding under a term note assumed with the First Texas acquisition. The Credit Agreement containscontained customary representations, warranties, and covenants of the Company, including, among other things, covenants that impose various financial ratio requirements. The line of credit available toIn October 2018, the Company underand U.S. Bank National Association entered into a First Amendment to the Credit Agreement, expires onwhich extended the expiration date from October 5, 2018 at which timeto October 4, 2019, reduced the $75.0 million to $50.0 million, and increased the commitment fee on the unused portion from an annual rate of 0.25% to 0.30%. In December 2018, the Company entered into a Second Amendment to the Credit Agreement that clarified the financial metrics contained in certain affirmative covenants are evaluated on a consolidated basis. In October 2019, all amounts borrowed, together with applicable interest, fees, and other amounts owed by the Company shall beare due and payable.

The balance due under the Credit Agreement at March 31, 2019 was zero.


At March 31, 2018,2019, the Company had $653.0 million$1.2 billion of Federal Home Loan Bank (“FHLB”) advances outstanding with original or expected maturities of one year or less.

less, of which $775.0 million are FHLB Owns the Option (“FOTO”) advances. FOTO advances are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Typically, FOTO exercise dates follow a specified lockout period at the beginning of the term when FHLB cannot terminate the FOTO advance. If FHLB exercises its option to terminate the FOTO advance at one of the specified option exercise dates, there is no termination or prepayment fee, and replacement funding will be available at then-prevailing market rates, subject to FHLB’s credit and collateral requirements. The Company’s FOTO advances outstanding at the end of the first quarter have ten to fifteen year maturity dates with lockout periods that vary but do not exceed one year. These FOTO advances are considered and monitored by the Company as short-term advances due to the likelihood of FHLB exercising the options within a year of the settlement dates based upon the rising rate environment and the short lockout periods.


The Company had total FHLB advances of $1.1$1.2 billion at March 31, 2018,2019, with approximately $2.2 billion of additional advances available from the FHLB. The FHLB advances are secured by mortgage loans and investment securities totaling approximately $3.7$4.7 billion at March 31, 2018.

2019.

The trust preferred securities are tax-advantaged issues that qualified for Tier 1 capital treatment until December 31, 2017, when the Company reached $15 billion in assets. They still qualify for inclusion as Tier 2 capital at March 31, 2018.2019. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payments on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.



32





The Company’s long-term debt includes subordinated debt, notes payable and long-term FHLB advances with an original maturity of greater than one year. Aggregate annual maturities of long-term debt at March 31, 2018,2019, are as follows:

(In thousands) Year Annual
Maturities
       
  2018 $102,899 
  2019  2,577 
  2020  2,474 
  2021  2,165 
  2022  1,314 
  Thereafter  845,022 
  Total $956,451 

(In thousands)Year 
Annual
Maturities
 2019 $1,775
 2020 2,099
 2021 1,801
 2022 948
 2023 925
 Thereafter 361,482
 Total $369,030

NOTE 12: CONTINGENT LIABILITIES

The Company and/or its subsidiaries have various unrelated legal proceedings, which, in the aggregate, are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries.

NOTE 13: COMMON STOCK

On January 18, 2018, the board of directors of the Company approved a two-for-one stock split of the Corporation’s outstanding Class A common stock (“Common Stock”) in the form of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018 (“Record Date”). The new shares were distributed by the Company’s transfer agent, Computershare, and the Company’s common stock began trading on a split-adjusted basis on the NASDAQ Global Select Market on February 9, 2018. All previously reported share and per share data included in filings subsequent to February 8, 2018 are restated to reflect the retroactive effect of this two-for-one stock split.


On March 19, 2018, the Company filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that the Company is required to file with the SEC at the time of the specific offering.
On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,000.

41


On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares (split adjusted) of Class A common stock, or approximately 2% of the shares outstanding. Under the current plan, the Company can repurchase an additional 308,272 shares. The shares are to be purchased from time to time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon market conditions. Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number of shares that the Company intends to repurchase. The Company may discontinue purchases at any time that management determines additional purchases are not warranted. The Company intends to use the repurchased shares to satisfy stock option exercises, payment of future stock awards and dividends and general corporate purposes.


The Company had no repurchases of its common stock during the three month period ended March 31, 2019.


33





NOTE 14: UNDIVIDED PROFITS

The Company’s subsidiary banks arebank is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. For the lead subsidiary bank, Simmons Bank, theThe approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent (75%) of the total of its net profits, as defined, for that year combined with seventy-five percent (75%) of its retained net profits of the preceding year. Bank SNB is limited by the regulations of the state of Oklahoma. Under these regulations, the total amount of dividends that may be paid by Bank SNB without regulatory approval is limited to the current year net profits, combined with the retained earnings of the preceding two years. At March 31, 2018,2019, the Company’s subsidiary banksbank had approximately $1.6$57.7 million available for payment of dividends to the Company, without prior regulatory approval.

The risk-based capital guidelines of the Federal Reserve Board and the Arkansas State Bank Department include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under the Basel III Rules effective January 1, 2015, the criteria for a well-capitalized institution are: a 5% “Tier l leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, 10% “total risk-based capital” ratio; and a 6.50% “common equity Tier 1 (CET1)” ratio.

The Company and BanksBank must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and will phasewas phased in over a four-year period (increasing by that amount on each subsequent January 1 until it reachesreached 2.5% on January 1, 2019). As of March 31, 2018,2019, the Company and its subsidiary banksbank met all capital adequacy requirements under the Basel III Capital Rules, and management believes the Company and subsidiary banks would meet all Capital Rules on a fully phased-in basis if such requirements were currently effective.Rules. The Company'sCompany’s CET1 ratio was 9.64%10.46% at March 31, 2018.

2019.

NOTE 15: STOCK BASED COMPENSATION

The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding of performance or bonus shares granted to directors, officers and other key employees.

42


Share and per share information regarding Stock-Based Compensation Plans has been adjusted to reflect the effects of the Company’s two-for-one stock split which became effective on February 8, 2018.

The table below summarizes the transactions under the Company’s active stock compensation plans for the three months ended March 31, 2018:

2019:
  Stock Options
Outstanding
 Non-vested
Stock Awards
Outstanding
 Non-vested
Stock Units
Outstanding
  Number
of Shares
(000)
 Weighted
Average
Exercise
Price
 Number
of Shares
(000)
 Weighted
Average
Exercise
Price
 Number
of Shares
(000)
 Weighted
Average
Exercise
Price
             
Balance, January 1, 2018  812  $21.98   162  $20.86   652  $27.92 
Granted  --   --   --   --   280   29.16 
Stock Options Exercised  (83)  20.67   --   --   --   -- 
Stock Awards/Units Vested  --   --   (40)  17.89   (144)  27.87 
Forfeited/Expired  (3)  23.51   (9)  19.67   (46)  28.22 
                         
Balance, March 31, 2018  726  $22.12   113  $22.01   742  $28.38 
                         
Exercisable, March 31, 2018  693  $22.06                 

 
Stock Options
Outstanding
 
Non-vested
Stock Awards
Outstanding
 
Non-vested
Stock Units
Outstanding
 
Number
of Shares
(000)
 
Weighted
Average
Exercise
Price
 
Number
of Shares
(000)
 
Weighted
Average
Grant-Date
Fair Value
 
Number
of Shares
(000)
 
Weighted
Average
Grant-Date
Fair Value
Balance, January 1, 2019695
 $22.42
 72
 $21.45
 817
 $27.65
Granted
 
 
 
 399
 26.57
Stock options exercised(1) 10.65
 
 
 
 
Stock awards/units vested (earned)
 
 (21) 18.65
 (266) 26.55
Forfeited/expired
 
 (1) 18.92
 (57) 28.45
            
Balance, March 31, 2019694
 $22.43
 50
 $22.68
 893
 $27.49
            
Exercisable, March 31, 2019694
 $22.43
        

34





The following table summarizes information about stock options under the plans outstanding at March 31, 2018:

2019:
   Options Outstanding  Options Exercisable 

Range of

Exercise Prices

 

Number

of Shares

(000)

  

Weighted

Average

Remaining

Contractual

Life (Years)

  

Weighted

Average

Exercise

Price

  

Number

of Shares

(000)

  

Weighted

Average

Exercise

Price

 
$8.78-$9.46  3   1.97  $9.22   3  $9.22 
10.65-10.65  5   3.90   10.65   5   10.65 
10.76-10.76  2   1.80   10.76   2   10.76 
15.16-15.16  25   0.16   15.16   25   15.16 
20.29-20.29  70   6.75   20.29   70   20.29 
20.36-20.36  3   6.63   20.36   2   20.36 
22.20-22.20  76   6.98   22.20   76   22.20 
22.75-22.75  436   7.36   22.75   436   22.75 
23.51-23.51  99   7.66   23.51   67   23.51 
24.07-24.07  7   7.46   24.07   7   24.07 
$8.78 $24.07  726   6.99  $22.12   693  $22.06 

    Options Outstanding Options Exercisable
Range of
Exercise Prices
 
Number
of Shares
(000)
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Weighted
Average
Exercise
Price
 
Number
of Shares
(000)
 
Weighted
Average
Exercise
Price
$9.46
  $9.46
 1 2.80 $9.46 1 $9.46
10.65
  10.65
 3 3.83 10.65 3 10.65
10.76
  10.76
 2 0.80 10.76 2 10.76
20.29
  20.29
 71 5.75 20.29 71 20.29
20.36
  20.36
 3 5.63 20.36 3 20.36
22.20
  22.20
 74 5.98 22.20 74 22.20
22.75
  22.75
 436 6.36 22.75 436 22.75
23.51
  23.51
 97 6.81 23.51 97 23.51
24.07
  24.07
 7 6.46 24.07 7 24.07
$9.46
  $24.07
 694 6.28 $22.43 694 $22.43

The table below summarizes the Company’s restricted performance stock unit activity for the three months ended March 31, 2019:

(In thousands)Performance Stock Units
Non-vested, January 1, 2019177
Granted83
Vested (earned)(54)
Forfeited(17)
Non-vested, March 31, 2019189

Stock-based compensation expense was $2,621,000$3,084,000 and $2,599,000$2,621,000 during the three months ended March 31, 20182019 and 2017,2018, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was $169,000zero of unrecognized stock-based compensation expense related to stock options at March 31, 2018.2019. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $24,932,000$20,533,000 at March 31, 2018.2019. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 2.42.0 years.

The intrinsic value of stock options outstanding and stock options exercisable at March 31, 20182019 was $4,600,000$1,425,000 and $4,430,000.$1,423,000, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $28.45$24.48 as of March 31, 2018,2019, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the three months ended March 31, 20182019 and March 31, 2017,2018, was $6,000 and $646,000, and $414,000, respectively.

43


The fair value of the Company’s employee stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. There were no stock options granted during the three months ended March 31, 20182019 and 2017.

2018.



35





NOTE 16: EARNINGS PER SHARE (“EPS”)

Basic EPS is computed based on the weighted average number of shares outstanding during each period. Diluted EPS is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period.
The share and per share amounts for 2017 have been restated to reflect the effect of the two-for-one stock split during February 2018.

Following is the computation of earnings per share for the three months ended March 31, 2018 and 2017:

is as follows:
(In thousands, except per share data) 2018 2017
     
Net income $51,312  $22,120 
         
Average common shares outstanding  92,182   62,702 
Average potential dilutive common shares  457   524 
Average diluted common shares  92,639   63,226 
         
Basic earnings per share $0.56  $0.35 
Diluted earnings per share $0.55  $0.35 

   Three Months Ended
March 31,
(In thousands, except per share data)    2019 2018
Net income    $47,695
 $51,312
        
Average common shares outstanding    92,520
 92,182
Average potential dilutive common shares    351
 457
Average diluted common shares    92,871

92,639
        
Basic earnings per share    $0.52
 $0.56
Diluted earnings per share    $0.51
 $0.55

There were no stock options excluded from the earnings per share calculation due to the related exercise price exceeding the average market price for the three months ended March 31, 20182019 and 2017.

2018.

NOTE 17: ADDITIONAL CASH FLOW INFORMATION

The following is a summary of the Company’s additional cash flow information during the three months ended:

  Three Months Ended
March 31,
(In thousands) 2018 2017
     
Interest paid $22,863  $6,160 
Income taxes (refunded) paid  (7,375)  23 
Transfers of loans to foreclosed assets held for sale  1,316   2,044 
Transfers of premises to foreclosed assets and other real estate owned  106   -- 

44
information:

 Three Months Ended
March 31,
(In thousands)2019 2018
Interest paid$38,047
 $22,863
Income taxes (refunded) paid(54) (7,375)
Transfers of loans to foreclosed assets held for sale569
 1,316
Transfers of premises to foreclosed assets and other real estate owned
 106
Right-of use lease assets obtained in exchange for lessee operating lease liabilities32,757
 


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NOTE 18: OTHER OPERATING EXPENSES

Other operating expenses consist of the following:

  Three Months Ended
March 31,
(In thousands) 2018 2017
     
Professional services $4,330  $5,169 
Postage  1,399   1,131 
Telephone  1,486   1,078 
Credit card expense  3,228   2,837 
Marketing  1,660   1,364 
Operating supplies  749   355 
Amortization of intangibles  2,837   1,550 
Branch right sizing expense  61   118 
Other expense  9,744   6,285 
Total other operating expenses $25,494  $19,887 

   Three Months Ended
March 31,
(In thousands)    2019 2018
Professional services    $4,323
 $4,330
Postage    1,726
 1,399
Telephone    1,619
 1,486
Credit card expense    3,860
 3,228
Marketing    3,057
 1,660
Software and technology    4,496
 2,648
Operating supplies    618
 749
Amortization of intangibles    2,641
 2,837
Branch right sizing expense    45
 61
Other expense    7,677
 7,096
Total other operating expenses    $30,062

$25,494

NOTE 19: CERTAIN TRANSACTIONS

From time to time, the Company and its subsidiaries have made loans, and other extensions of credit, and vendor contracts to directors, officers, their associates and members of their immediate families. From time to timeAdditionally, some directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary banks,bank, Simmons Bank and Bank SNB.Bank. Such loans and other extensions of credit, deposits and depositsvendor contracts (which were not material) were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons not related to the lender andor through a competitive bid process. Further, in management’s opinion, these extensions of credit did not involve more than normal risk of collectability or present other unfavorable features.

NOTE 20: COMMITMENTS AND CREDIT RISK

The Company grants agri-business, commercial and residential loans to customers primarily throughout Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas, along with credit card loans to customers throughout the United States. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer'scustomer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management'smanagement’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

At March 31, 2019, the Company had outstanding commitments to extend credit aggregating approximately $573,779,000 and $3,384,471,000 for credit card commitments and other loan commitments. At December 31, 2018, the Company had outstanding commitments to extend credit aggregating approximately $567,620,000$560,863,000 and $3,288,010,000 for credit card commitments and other loan commitments. At December 31, 2017, the Company had outstanding commitments to extend credit aggregating approximately $564,592,000 and $3,086,696,000$3,455,471,000 for credit card commitments and other loan commitments, respectively.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $39,372,000$36,929,000 and $47,621,000$39,101,000 at March 31, 2018,2019, and December 31, 2017,2018, respectively, with terms ranging from 9 months to 15 years. At March 31, 20182019 and December 31, 2017,2018, the Company had no deferred revenue under standby letter of credit agreements.




37





NOTE 21: FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurementsdefines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

45

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value:

·Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.

·Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities– Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. Other securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. In order to ensure the fair values are consistent with ASC Topic 820, the Company periodically checks the fair values by comparing them to another pricing source, such as Bloomberg. The availability of pricing confirms Level 2 classification in the fair value hierarchy. The third-party pricing service is subject to an annual review of internal controls (SSAE 16), which is made available for the Company’s review. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company’s investment in U.S. Treasury securities, if any, is reported at fair value utilizing Level 1 inputs. The remainder of the Company'sCompany’s available-for-sale securities are reported at fair value utilizing Level 2 inputs.

Derivative instruments – The Company’s derivative instruments are reported at fair value utilizing Level 2 inputs. The Company obtains fair value measurements from dealer quotes.

46



38





The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis as of March 31, 20182019 and December 31, 2017.

2018.
    Fair Value Measurements Using
(In thousands) Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable Inputs
(Level 3)
         
March 31, 2018                
Available-for-sale securities                
U.S. Government agencies $149,804  $--  $149,804  $-- 
Mortgage-backed securities  1,356,179   --   1,356,179   -- 
State and political subdivisions  185,888   --   185,888   -- 
Other securities  138,242   --   138,242   -- 
Other assets held for sale  24,784   --   --   24,784 
Derivative asset  6,381   --   6,381   -- 
Other liabilities held for sale  (2,781)  --   --   (2,781)
Derivative liability  (6,326)  --   (6,326)  -- 
                 
December 31, 2017                
Available-for-sale securities                
U.S. Government agencies $139,724  $--  $139,724  $-- 
Mortgage-backed securities  1,187,317   --   1,187,317   -- 
States and political subdivisions  143,165   --   143,165   -- 
Other securities  119,311   --   119,311   -- 
Other assets held for sale  165,780   --   --   165,780 
Derivative asset  3,634   --   3,634   -- 
Other liabilities held for sale  (157,366)  --   --   (157,366)
Derivative liability  (3,068)  --   (3,068)  -- 

   Fair Value Measurements Using
(In thousands)Fair Value 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
March 31, 2019 
  
  
  
Available-for-sale securities 
  
  
  
U.S. Government agencies$161,577
 $
 $161,577
 $
Mortgage-backed securities1,345,677
 
 1,345,677
 
State and political subdivisions580,790
 
 580,790
 
Other securities152,067
 
 152,067
 
Derivative asset6,306
 
 6,306
 
Derivative liability(5,861) 
 (5,861) 
        
December 31, 2018       
Available-for-sale securities       
U.S. Government agencies$154,301
 $
 $154,301
 $
Mortgage-backed securities1,522,900
 
 1,522,900
 
States and political subdivisions314,843
 
 314,843
 
Other securities159,708
 
 159,708
 
Derivative asset6,242
 
 6,242
 
Derivative liability(5,283) 
 (5,283) 
Certain financial assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and liabilities measured at fair value on a nonrecurring basis include the following:

Impaired loans (collateral dependent) – Loan impairment is reported when full payment under the loan terms is not expected. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan is confirmed. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Appraisals are updated at renewal, if not more frequently, for all collateral dependent loans that are deemed impaired by way of impairment testing. Impairment testing is performed on all loans over $1.5 million rated Substandard or worse, all existing impaired loans regardless of size and all TDRs. All collateral dependent impaired loans meeting these thresholds have had updated appraisals or internally prepared evaluations within the last one to two years and these updated valuations are considered in the quarterly review and discussion of the corporate Special Asset Committee. On targeted CRE loans, appraisals/internally prepared valuations may be updated before the typical 1-3 year balloon/maturity period. If an updated valuation results in decreased value, a specific (ASC 310) impairment is placed against the loan, or a partial charge-down is initiated, depending on the circumstances and anticipation of the loan’s ability to remain a going concern, possibility of foreclosure, certain market factors, etc.

47


Foreclosed assets and other real estate owned – Foreclosed assets and other real estate owned are reported at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the

39





Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets and other real estate owned is estimated using Level 3 inputs based on unobservable market data. As of March 31, 20182019 and December 31, 2017,2018, the fair value of foreclosed assets and other real estate owned less estimated costs to sell was $29.1$19.0 million and $32.1$25.6 million, respectively.

The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to the specialized discounting criteria applied to the borrower’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the collateral, as well as other factors which may affect the collectability of the loan. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for instruments measured using Level 3 inputs could occur in the future. As the Company’s primary objective in the event of default would be to liquidate the collateral to settle the outstanding balance of the loan, collateral that is less marketable would receive a larger discount. During the reported periods, collateral discounts ranged from 10% to 40% for commercial and residential real estate collateral.

Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value if, on an aggregate basis, the fair value of the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments, discounted cash flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Such loans are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3. At March 31, 20182019 and December 31, 2017,2018, the aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value.

The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a nonrecurring basis as of March 31, 20182019 and December 31, 2017.

2018.
    Fair Value Measurements Using
(In thousands) Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 Significant
Unobservable Inputs
(Level 3)
         
March 31, 2018                
Impaired loans (1) (2) (collateral dependent) $12,358  $--  $--  $12,358 
Foreclosed assets and other real estate owned (1)  23,983   --   --   23,983 
                 
December 31, 2017                
Impaired loans (1) (2) (collateral dependent) $11,229  $--  $--  $11,229 
Foreclosed assets and other real estate owned (1)  24,093   --   --   24,093 

   Fair Value Measurements Using
(In thousands)Fair Value 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
March 31, 2019 
  
  
  
Impaired loans (1) (2) (collateral dependent)
$2,101
 $
 $
 $2,101
Foreclosed assets and other real estate owned (1)
302
 
 
 302
        
December 31, 2018       
Impaired loans (1) (2) (collateral dependent)
$17,789
 $
 $
 $17,789
Foreclosed assets and other real estate owned (1)
23,714
 
 
 23,714
________________________

(1)These amounts represent the resulting carrying amounts on the Consolidated Balance Sheets for impaired collateral dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period.
(2)Specific allocations of $243,000 and $2,195,000 were related to the impaired collateral dependent loans for which fair value re-measurements took place during the periods ended March 31, 2018 and December 31, 2017, respectively.

(1)These amounts represent the resulting carrying amounts on the Consolidated Balance Sheets for impaired collateral dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period.
(2)Specific allocations of zero and $2,738,000 were related to the impaired collateral dependent loans for which fair value re-measurements took place during the periods ended March 31, 2019 and December 31, 2018, respectively.

ASC Topic 825, Financial Instruments, requires disclosure in annual and interim financial statements of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments not previously disclosed.

Cash and cash equivalents – The carrying amount for cash and cash equivalents approximates fair value (Level 1).

48


Interest bearing balances due from banks – The fair value of interest bearing balances due from banks – time is estimated using a discounted cash flow calculation that applies the rates currently offered on deposits of similar remaining maturities (Level 2).


40





Held-to-maturity securities – Fair values for held-to-maturity securities equal quoted market prices, if available, such as for highly liquid government bonds (Level 1). If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things (Level 2). In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Loans– The fair value of loans is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Additional factors considered include the type of loan and related collateral, variable or fixed rate, classification status, remaining term, interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans. The fair value of loans is estimated on an exit price basis incorporating the above factors (Level 3).

Deposits – The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities (Level 3).

Federal Funds purchased, securities sold under agreement to repurchase and short-term debt – The carrying amount for Federal funds purchased, securities sold under agreement to repurchase and short-term debt are a reasonable estimate of fair value (Level 2).

Other borrowings– For short-term instruments, the carrying amount is a reasonable estimate of fair value. For long-term debt, rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value (Level 2).

Subordinated debentures– The fair value of subordinated debentures is estimated using the rates that would be charged for subordinated debentures of similar remaining maturities (Level 2).

Accrued interest receivable/payable – The carrying amounts of accrued interest approximated fair value (Level 2).

Commitments to extend credit, letters of credit and lines of credit– The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

49



41





The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

  Carrying Fair Value Measurements  
(In thousands) Amount Level 1 Level 2 Level 3 Total
           
March 31, 2018                    
Financial assets:                    
Cash and cash equivalents $859,664  $859,664  $--  $--  $859,664 
Interest bearing balances due from banks - time  3,069   --   3,069   --   3,069 
Held-to-maturity securities  352,756   --   354,649   --   354,649 
Mortgage loans held for sale  17,708   --   --   17,708   17,708 
Interest receivable  42,129   --   42,129   --   42,129 
Legacy loans, net  6,243,176   --   --   6,214,776   6,214,776 
Loans acquired, net  4,696,945   --   --   4,675,579   4,675,579 
                     
Financial liabilities:                    
Non-interest bearing transaction accounts  2,734,287   --   2,734,287   --   2,734,287 
Interest bearing transaction accounts and savings deposits  6,720,754   --   6,720,754   --   6,720,754 
Time deposits  2,201,874   --   --   2,179,221   2,179,221 
Federal funds purchased and securities sold under agreements to repurchase  120,909   --   120,909   --   120,909 
Other borrowings  1,140,986   --   1,145,193   --   1,145,193 
Subordinated notes and debentures  468,465   --   413,968   --   413,968 
Interest payable  3,874   --   3,874   --   3,874 
                     
December 31, 2017                    
Financial assets:                    
Cash and cash equivalents $598,042  $598,042  $--  $--  $598,042 
Interest bearing balances due from banks - time  3,314   --   3,314   --   3,314 
Held-to-maturity securities  368,058   --   373,298   --   373,298 
Mortgage loans held for sale  24,038   --   --   24,038   24,038 
Interest receivable  43,528   --   43,528   --   43,528 
Legacy loans, net  5,663,941   --   --   5,646,505   5,646,505 
Loans acquired, net  5,074,076   --   --   5,058,455   5,058,455 
                     
Financial liabilities:                    
Non-interest bearing transaction accounts  2,665,249   --   2,665,249   --   2,665,249 
Interest bearing transaction accounts and savings deposits  6,494,896   --   6,494,896   --   6,494,896 
Time deposits  1,932,730   --   --   1,915,539   1,915,539 
Federal funds purchased and securities sold under agreements to repurchase  122,444   --   122,444   --   122,444 
Other borrowings  1,380,024   --   1,381,365   --   1,381,365 
Subordinated debentures  140,565   --   136,474   --   136,474 
Interest payable  4,564   --   4,564   --   4,564 

 Carrying Fair Value Measurements  
(In thousands)Amount Level 1 Level 2 Level 3 Total
March 31, 2019 
  
  
  
  
Financial assets: 
  
  
  
  
Cash and cash equivalents$491,161
 $491,161
 $
 $
 $491,161
Interest bearing balances due from banks - time4,684
 
 4,684
 
 4,684
Held-to-maturity securities61,435
 
 61,956
 
 61,956
Mortgage loans held for sale18,480
 
 
 18,480
 18,480
Interest receivable51,796
 
 51,796
 
 51,796
Legacy loans, net8,625,307
 
 
 8,539,036
 8,539,036
Loans acquired, net3,056,187
 
 
 3,025,619
 3,025,619
          
Financial liabilities:         
Non-interest bearing transaction accounts2,674,034
 
 2,674,034
 
 2,674,034
Interest bearing transaction accounts and savings deposits6,666,823
 
 6,666,823
 
 6,666,823
Time deposits2,648,674
 
 
 2,632,615
 2,632,615
Federal funds purchased and securities sold under agreements to repurchase120,213
 
 120,213
 
 120,213
Other borrowings1,169,989
 
 1,168,914
 
 1,168,914
Subordinated notes and debentures354,041
 
 359,090
 
 359,090
Interest payable13,941
 
 13,941
 
 13,941
          
December 31, 2018         
Financial assets:         
Cash and cash equivalents$833,458
 $833,458
 $
 $
 $833,458
Interest bearing balances due from banks - time4,934
 
 4,934
 
 4,934
Held-to-maturity securities289,194
 
 290,830
 
 290,830
Mortgage loans held for sale26,799
 
 
 26,799
 26,799
Interest receivable49,938
 
 49,938
 
 49,938
Legacy loans, net8,373,789
 
 
 8,280,690
 8,280,690
Loans acquired, net3,292,783
 
 
 3,256,174
 3,256,174
          
Financial liabilities:         
Non-interest bearing transaction accounts2,672,405
 
 2,672,405
 
 2,672,405
Interest bearing transaction accounts and savings deposits6,830,191
 
 6,830,191
 
 6,830,191
Time deposits2,896,156
 
 
 2,872,342
 2,872,342
Federal funds purchased and securities sold under agreements to repurchase95,792
 
 95,792
 
 95,792
Other borrowings1,345,450
 
 1,342,868
 
 1,342,868
Subordinated debentures353,950
 
 355,812
 
 355,812
Interest payable9,897
 
 9,897
 
 9,897
The fair value of commitments to extend credit, letters of credit and lines of credit is not presented since management believes the fair value to be insignificant.

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42





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee, Board of Directors and Stockholders

Simmons First National Corporation

Pine Bluff, Arkansas

Results of Review of Interim Financial Statements

We have reviewed the condensed consolidated balance sheet of Simmons First National Corporation (“the Company”) as of March 31, 2018,2019, and the related condensed consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2019 and 2018, and stockholders’ equity and cash flows for the three-month periods ended March 31, 20182019 and 2017,2018, and the related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2017,2018, and the related consolidated statements of income, comprehensive income, stockholders'stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2018,27, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017,2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company'sCompany’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ BKD, LLP



 /s/ BKD, LLP
Little Rock, Arkansas

May 8, 2018

51
2019



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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our net

Net income for the three months ended March 31, 20182019 was $51.3$47.7 million and diluted earnings per share were $0.55,$0.51, a decrease of $3.6 million and $0.04, compared to net income of $22.1 million and $0.35 diluted earnings per share (split adjusted) for the same period in 2017.

2018.

Net income for the first quarterthree months in both 20182019 and 20172018 included non-core items mostly related to our acquisitions.acquisitions and branch right sizing initiatives. Excluding all non-core items, core earnings for the three months ended March 31, 20182019 were $49.1 million, or $0.53 diluted core earnings per share compared to $52.6 million, or $0.57 diluted core earnings per share compared to $22.5 million, or $0.36 diluted core earnings per share (split adjusted) for the same period in 2017.2018. See Reconciliation“Reconciliation of Non-GAAP MeasuresMeasures” below for additional discussion of non-GAAP measures.

We had solid operating results during the first quarter 2019. Revenue was affected by three significant items compared to the first quarter 2018. Accretion income was down $4.6 million; debit card interchange income, primarily as a result of the Durbin rate cap, was down $2.8 million; and the gain on sale of securities was up $2.7 million, resulting in a net decrease of $4.7 million from the previous year.
In addition to producing record financial results,April, we managed through other significant events.

We completed the acquisitionsacquisition of Southwest Bancorp,Reliance Bancshares, Inc., including its wholly-owned bank subsidiary, Bank SNB, (“Reliance”) and First Texas BHC, Inc., including its wholly-owned bank subsidiary, Southwest Bank,performed the associated systems conversion. We are excited about our merger with Reliance and the opportunities we now have in October 2017. The systems conversion of Southwest Bank was completed during February 2018 while the systems conversion for Bank SNB is anticipatedSt. Louis market due to be complete in May 2018.our increased presence. See Note 2, Pending Acquisition, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report, for additional information related to these acquisitions.

this acquisition.


In March, we completed an offering of $330 million aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes due 2028 (the “Notes”). The Notes will bear a fixed interest rate of 5.00% per year in years one through five, payable semi-annually in arrears, and a floating rate equal to three-month LIBOR plus 215 basis points in years six through ten, payable quarterly in arrears. The Notes were offered to the public at 100% of their face amount. We expect to use approximately $222 million of the net proceeds from the sale of the Notes to repay outstanding indebtedness and the remainder for general corporate purposes. See Note 11 for additional information related to the Notes.

Also during the first quarter of 2018, we completedannounced our Next Generation Banking (“NGB”) strategic initiative that we believe positions us to provide competitive banking services well into the sale of certain deposits, loansfuture. Through this program, we will evaluate the primary information technology systems and branch facilities relatedfunctions that support our operations and improve or replace them with updated and/or enhanced banking technologies. This initiative will, among other things, assist us in our efforts to the Heartland Bank heldcreate a differentiated experience for sale assets and liabilities and we continue to explore liquidating options for the few remaining assets.

Lastly, we completed a 2-for-1 stock split in the form of a 100% stock dividend effective February 8, 2018.

our customers across all channels, including digital.

Stockholders’ equity as of March 31, 20182019 was $2.1$2.3 billion, book value per share was $22.86$24.87 and tangible book value per share was $12.62 (split adjusted).$14.78. Our ratio of stockholders’ equity to total assets was 13.5%14.3% and the ratio of tangible stockholders’ equity to tangible assets was 7.9%9.0% at March 31, 2018.2019. See Reconciliation“Reconciliation of Non-GAAP MeasuresMeasures” below for additional discussion of non-GAAP measures. The Company’s Tier I leverage ratio of 8.6%9.1%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levels (see Table 12 in the Capital section of this Item).

Total loans, including loans acquired, were $11.0$11.741 billion at March 31, 2018,2019, compared to $10.8$11.723 billion at December 31, 20172018 and $5.8$10.987 billion at March 31, 2017.2018. Total loans increased $208approximately $17.6 million during the quarter, which included $126 million net increasequarter. We experienced seasonal decreases in loans at Simmons Bankthe credit card and $82 million net increase in loans at Bank SNB. This increase was partially offset by the seasonal decrease of $24 million in agricultural payoffs and $25 million decrease in our liquidating portfolios of indirect lending and consumer finance. Our markets in Dallas/Ft. Worth, Denver, Nashville, Northwest Arkansas, Oklahoma City and St. Louis are experiencing good loan growth. Due to our increased size and scale we are benefiting from access to new lending opportunities in these growth markets as well as in our historical legacy markets.

portfolios.


We continue to have stronggood asset quality. At March 31, 2018,2019, the allowance for loan losses for legacy loans was $47.2$59.2 million. The allowance for loan losses for loans acquired was $407,000$1.3 million and the acquired loan discount credit mark was $79.1$42.4 million. The allowances for loan losses and credit marks provide a total of $126.7$103.0 million of coverage, which equates to a total coverage ratio of 1.1%0.9% of gross loans. The ratio of credit mark and related allowance to loans acquired was 1.7%1.4%.

Simmons First National Corporation is a $15.6 billion Arkansas basedan Arkansas-based financial holding company conductingthat, as of March 31, 2019, has approximately $16.1 billion in consolidated assets and conducts financial operations throughout Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas.

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CRITICAL ACCOUNTING POLICIES

Overview

We follow accounting and reporting policies that conform, in all material respects, to generally accepted accounting principles and to general practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used

44





for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.


The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the determination of the adequacy of the allowance for loan losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes.

Allowance for Loan Losses on Loans Not Acquired

The allowance for loan losses is management’s estimate of probable losses in the loan portfolio. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. We establish general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral.

Our evaluation of the allowance for loan losses is inherently subjective as it requires material estimates. The actual amounts of loan losses realized in the near term could differ from the amounts estimated in arriving at the allowance for loan losses reported in the financial statements.

Acquisition Accounting, Loans Acquired

We account for our acquisitions under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the loans acquired is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

We evaluate loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. We evaluate purchased impaired loans in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. All loans acquired are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

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For impaired loans accounted for under ASC Topic 310-30, we continue to estimate cash flows expected to be collected on purchased credit impaired loans. We evaluate at each balance sheet date whether the present value of our purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased credit impaired loan.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles – Goodwill and Other, as amended by ASU 2011-08 – Testing Goodwill for

45





Impairment. ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.


Stock-based Compensation Plans

We have adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awarding of performance or bonus shares granted to directors, officers and other key employees.

In accordance with ASC Topic 718, Compensation – Stock Compensation, the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Stock Based Compensation, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report.

Income Taxes

We are subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities.

The adoption of ASU 2016-09 – Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, decreased the effective tax rate during first quarter 2017 and 2018 as the new standard impacted how the income tax effects associated with stock-based compensation are recognized.

On December 22, 2017, the President signed tax reform legislation (the “2017 Act”) which includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. The 2017 Act reduces the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. Under US GAAP, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled and the effect of a change in tax law is recorded discretely as a component of the income tax provision related to continuing operations in the period of enactment. As a result, the Company was required to remeasure its deferred taxes as of December 22, 2017 based upon the new 21% tax rate and the change was recorded in the 2017 income tax provision.

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IMPACTS OF GROWTH

During 2017, through both internal growth and through acquisitions, the assets of the Company exceeded the $10 billion threshold.

The Dodd-Frank Act and associated Federal Reserve regulations cap the interchange rate on debit card transactions that can be charged by banks that, together with their affiliates, have at least $10 billion in assets at $0.21 per transaction plus five basis points multiplied by the value of the transaction. The cap goes into effect July 1st1st of the year following the year in which a bank reaches the $10 billion asset threshold. Simmons Bank, when viewed together with its affiliates, had assets in excess of $10 billion at December 31, 2017, and therefore, will bebecame subject to the interchange rate cap effective July 1, 2018. Because of the cap, Simmons Bank estimates that it will receivereceived approximately $7.0$5.9 million less in debit card fees on a pre-tax basis in 2018 and $14.02018. The interchange rate cap resulted in a $2.8 million less on a pre-tax basisreduction in 2019.

debit card fees for the first quarter of 2019 when compared to the first quarter of 2018.

As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply, and trust preferred securities are no longer included as tierTier 1 capital. Trust preferred securities and qualifying subordinated debt is included as total Tier 2 capital.

The Dodd-Frank Act also requirespreviously required banks and bank holding companies with more than $10 billion in assets to conduct annual stress tests.tests, report the results to regulators and publicly disclose such results. As a result of regulatory reform signed into law during the second quarter of 2018, the Company and Simmons Bank are no longer required to conduct an annual stress test of capital under the Dodd-Frank Act. In anticipation of becoming subject to this requirement, the Company and Simmons Bank havehad begun the necessary preparations, including undertaking a gap analysis, implementing enhancements to the audit and compliance departments, and investing in various information technology systems. However, the Company believes that significant, additional expenditures will be required to fully comply with the stress testing requirements. The Company and Simmons Bank are expected to report the first stress test in July 2019 for the fiscal year 2018.

Additionally, the Dodd-Frank Act established the Bureau of Consumer Financial Protection (the “CFPB”) and granted it supervisory authority over banks with total assets of more than $10 billion. Simmons Bank, with assets now exceeding $10 billion, will becomeis subject to CFPB oversight with respect to its compliance with federal consumer financial laws. Simmons Bank will continue to be subject to the oversight of its other regulators with respect to matters outside the scope of the CFPB’s jurisdiction. While theThe CFPB has broad rule-making, supervisory and examination authority, as well as expanded data collecting and enforcement powers, its ultimateall of which is expected to impact on the operations of Simmons Bank remains uncertain.

Bank.


46





It is also important to note that the Dodd-Frank Act changed how the FDIC calculates deposit insurance premiums payable by insured depository institutions. The Dodd-Frank Act directed the FDIC to amend its assessment regulations so that assessments are generally based upon a depository institution’s average total consolidated assets less the average tangible equity of the insured depository institution during the assessment period. Assessments were previously based on the amount of an institution’s insured deposits. Now that Simmons Bank exceeds $10 billion in total assets, it will becomeis subject to the assessment rates assigned to larger banks which may result in higher deposit insurance premiums.


NET INTEREST INCOME

Overview

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135% for periods beginning January 1, 2018 or 39.225% for periods prior to 2018.

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. Historically, approximately 70%65% of our loan portfolio and approximately 80%75% of our time deposits have repriced in one year or less. Through acquisitions our loans acquired tended to have longer maturities. In addition, due to market pressures the duration of our legacy loan portfolio has also extended over the past several years. Our current interest rate sensitivity shows that approximately 63%60% of our loans and 77%80% of our time deposits will reprice in the next year.

55


Net Interest Income


For the three month period ended March 31, 2018,2019, net interest income on a fully taxable equivalent basis was $136.1$138.6 million, an increase of $61.8$2.5 million, or 83.1%1.9%, over the same period in 2017.2018. The increase in net interest income was the result of a $77.9$22.4 million increase in interest income partially offset by a $16.1$19.9 million increase in interest expense.


The increase in interest income primarily resulted from an incremental $74.6a $16.1 million ofincrease in interest income on loans consisting of legacy loans and loans acquired, and a netan increase of $2.3$5.1 million ofin interest income on investment securities. An increaseIncreases in loan volume resulting primarily from our acquisitions completed inof $12.1 million due to increased average loan balances during the second and fourth quartersfirst three months of 2017, generated $67.52019 as well as $4.1 million of additional interest income. Furthermore,due to an increase in yield of 4715 basis points also contributed to the increase in interest income on loans during 2018.

2019.


Included in interest income is the additional yield accretion recognized as a result of updated estimates of the cash flows of our loans acquired, as discussed in Note 6,5, Loans Acquired, in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate has increased based on payment histories and reduced loss expectations of the loans. This resulted in increased interest income that is spread on a level-yield basis over the remaining expected lives of the loans.

For the quartersthree months ended March 201831, 2019 and 2017,2018, interest income included $11.3$6.7 million and $4.4$11.3 million, respectively, for the yield accretion recognized on loans acquired. We expect accretion income to gradually decline during 2018.


The $16.1$19.9 million increase in interest expense is primarily fromdue to the higher cost of deposits, growth in types of deposit accounts, higher cost of deposits due to the rising-rate environment and the additional subordinated and other debt. Interest expense increased $2.7 million due to deposit growth, $12.5 million due to the increase in yield of 57 basis points on deposit accounts and other$4.7 million due to increases in subordinated debt primarily from the 2017 acquisitions.

and increased FHLB borrowings.


Net Interest Margin

Our net interest margin increased 13decreased 32 basis points to 4.17%3.85% for the three month period ended March 31, 2018,2019, when compared to 4.04%4.17% for the same period in 2017.2018. Normalized for all accretion, our core net interest margin at March 31, 2019 and 2018 was 3.67% and 3.82%, respectively.


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Since the first quarter of 2018, loan yield has increased 15 basis points and core loan yield has increased 34 basis points while cost of interest bearing deposits has risen 57 basis points and the cost of borrowed funds has increased 103 basis points. The most significant factordecrease in both the increasingnet interest margin duringand the core net interest margin for the three month period ended March 31, 2018 was2019 is a direct result of the higher accretable yield adjustments on loans acquired discussed above. Normalized for all accretion on loans acquired, our net interest margin at March 31, 2018 and 2017 was 3.82% and 3.80%, respectively.

rising rate environment.


Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 20182019 and 2017,2018, respectively, as well as changes in fully taxable equivalent net interest margin for the three months ended March 31, 2018,2019, versus March 31, 2017.

2018.

Table 1: Analysis of Net Interest Margin

(FTE = Fully Taxable Equivalent)

 

 Three Months Ended
March 31,
(In thousands) 2018 2017
     
Interest income $157,139  $78,427 
FTE adjustment  1,130   1,965 
Interest income – FTE  158,269   80,392 
Interest expense  22,173   6,047 
Net interest income – FTE $136,096  $74,345 
         
Yield on earning assets – FTE  4.84%  4.36%
Cost of interest bearing liabilities  0.89%  0.43%
Net interest spread – FTE  3.95%  3.93%
Net interest margin – FTE  4.17%  4.04%

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(FTE = Fully Taxable Equivalent)



 
  Three Months Ended
March 31,
(In thousands)    2019 2018
Interest income    $179,116
 $157,139
FTE adjustment    1,601
 1,130
Interest income – FTE    180,717

158,269
Interest expense    42,090
 22,173
Net interest income – FTE    $138,627

$136,096
        
Yield on earning assets – FTE    5.02% 4.84%
Cost of interest bearing liabilities    1.52% 0.89%
Net interest spread – FTE    3.50% 3.95%
Net interest margin – FTE    3.85% 4.17%

Table 2:  Changes in Fully Taxable Equivalent Net Interest Margin

(In thousands) Three Months Ended
March 31,
2018 vs. 2017
   
Increase due to change in earning assets $69,733 
Increase due to change in earning asset yields  8,144 
Decrease due to change in interest bearing liabilities  (8,263)
Decrease due to change in interest rates paid on interest bearing liabilities  (7,863)
Increase in net interest income $61,751 

   Three Months Ended
March 31,
(In thousands)  2019 vs. 2018
Increase due to change in earning assets  $15,209
Increase due to change in earning asset yields  7,239
Decrease due to change in interest bearing liabilities  (4,535)
Decrease due to change in interest rates paid on interest bearing liabilities  (15,382)
Increase in net interest income  $2,531
Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed daily)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, 20182019 and 2017.2018. 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.


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Table 3:  Average Balance Sheets and Net Interest Income Analysis

  Three Months Ended March 31,
  2018 2017
  Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate (%) Balance Expense Rate (%)
             
ASSETS                        
                         
Earning assets:                        
Interest bearing balances due from banks and federal funds sold $338,505  $1,009   1.21  $131,328  $122   0.38 
Investment securities - taxable  1,785,874   9,599   2.18   1,292,441   6,477   2.03 
Investment securities - non-taxable  293,071   4,083   5.65   348,834   4,884   5.68 
Mortgage loans held for sale  14,775   158   4.34   11,473   126   4.45 
Assets held in trading accounts  --   --   --   48   --   -- 
Loans  10,819,324   143,420   5.38   5,685,585   68,783   4.91 
Total interest earning assets  13,251,549   158,269   4.84   7,469,709   80,392   4.36 
Non-earning assets  1,836,661           944,761         
Total assets $15,088,210          $8,414,470         

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LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Liabilities:            
Interest bearing liabilities:                        
Interest bearing transaction and savings deposits $6,579,295  $10,755   0.66  $3,950,169  $2,189   0.22 
Time deposits  2,003,668   4,842   0.98   1,262,430   2,015   0.65 
Total interest bearing deposits  8,582,963   15,597   0.74   5,212,599   4,204   0.33 
Federal funds purchased and securities sold under agreements to repurchase  120,443   110   0.37   111,474   75   0.27 
Other borrowings  1,282,527   5,139   1.63   345,664   1,194   1.40 
Subordinated debt and debentures  162,813   1,327   3.31   60,452   574   3.85 
Total interest bearing liabilities  10,148,746   22,173   0.89   5,730,189   6,047   0.43 
                         
Non-interest bearing liabilities:                        
Non-interest bearing deposits  2,632,182           1,466,501         
Other liabilities  204,230           51,307         
Total liabilities  12,985,158           7,247,997         
Stockholders’ equity  2,103,052           1,166,473         
Total liabilities and stockholders’ equity $15,088,210          $8,414,470         
Net interest spread          3.95           3.93 
Net interest margin     $136,096   4.17      $74,345   4.04 

 Three Months Ended March 31,
 2019 2018
 Average Income/ Yield/ Average Income/ Yield/
(In thousands)Balance Expense Rate (%) Balance Expense Rate (%)
ASSETS           
Earning assets:           
Interest bearing balances due from banks and federal funds sold$394,462
 $2,154
 2.21 $338,505
 $1,009
 1.21
Investment securities - taxable1,880,694
 12,989
 2.80 1,618,270
 9,599
 2.41
Investment securities - non-taxable590,941
 5,834
 4.00 460,675
 4,083
 3.59
Mortgage loans held for sale17,733
 210
 4.80 14,775
 158
 4.34
Loans11,710,075
 159,530
 5.53 10,819,324
 143,420
 5.38
Total interest earning assets14,593,905
 180,717
 5.02 13,251,549
 158,269
 4.84
Non-earning assets1,708,292
     1,836,661
    
Total assets$16,302,197
     $15,088,210
    
            
LIABILITIES AND STOCKHOLDERS’ EQUITY
            
Liabilities: 
  
    
  
  
Interest bearing liabilities: 
  
    
  
  
Interest bearing transaction and savings deposits$6,749,032
 $18,430
 1.11 $6,579,295
 $10,755
 0.66
Time deposits2,781,592
 12,320
 1.80 2,003,668
 4,842
 0.98
Total interest bearing deposits9,530,624
 30,750
 1.31 8,582,963
 15,597
 0.74
Federal funds purchased and securities sold under agreements to repurchase109,302
 136
 0.50 120,443
 110
 0.37
Other borrowings1,224,255
 6,793
 2.25 1,282,527
 5,139
 1.63
Subordinated debt and debentures353,996
 4,411
 5.05 162,813
 1,327
 3.31
Total interest bearing liabilities11,218,177
 42,090
 1.52 10,148,746
 22,173
 0.89
            
Non-interest bearing liabilities:           
Non-interest bearing deposits2,707,715
     2,632,182
    
Other liabilities127,407
     204,230
    
Total liabilities14,053,299
     12,985,158
    
Stockholders’ equity2,248,898
     2,103,052
    
Total liabilities and stockholders’ equity$16,302,197
     $15,088,210
    
Net interest spread    3.50     3.95
Net interest margin  $138,627
 3.85   $136,096
 4.17


49





Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three month period ended March 31, 2018,2019, as compared to the same period of the prior year. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 4:  Volume/Rate Analysis

  Three Months Ended
March 31,
  2018 over 2017
(In thousands, on a fully   Yield/  
taxable equivalent basis) Volume Rate Total
       
Increase (decrease) in:            
Interest income:            
Interest bearing balances due from banks and federal funds sold $369  $518  $887 
Investment securities - taxable  2,623   499   3,122 
Investment securities - non-taxable  (777)  (24)  (801)
Mortgage loans held for sale  35   (3)  32 
Loans  67,483   7,154   74,637 
Total  69,733   8,144   77,877 
             
Interest expense:            
Interest bearing transaction and savings accounts  2,180   6,386   8,566 
Time deposits  1,507   1,320   2,827 
Federal funds purchased and securities sold under agreements to repurchase  6   29   35 
Other borrowings  3,725   220   3,945 
Subordinated notes and debentures  845   (92)  753 
Total  8,263   7,863   16,126 
Increase in net interest income $61,470  $281  $61,751 

58


 Three Months Ended
March 31,
 2019 vs. 2018
(In thousands, on a fully taxable equivalent basis)Volume 
Yield/
Rate
 Total
Increase (decrease) in: 
  
  
Interest income: 
  
  
Interest bearing balances due from banks and federal funds sold$190
 $955
 $1,145
Investment securities - taxable1,684
 1,706
 3,390
Investment securities - non-taxable1,248
 503
 1,751
Mortgage loans held for sale34
 18
 52
Loans12,053
 4,057
 16,110
Total15,209

7,239

22,448
      
Interest expense:     
Interest bearing transaction and savings accounts284
 7,391
 7,675
Time deposits2,378
 5,100
 7,478
Federal funds purchased and securities sold under agreements to repurchase(11) 37
 26
Other borrowings(242) 1,896
 1,654
Subordinated notes and debentures2,126
 958
 3,084
Total4,535

15,382

19,917
Increase (decrease) in net interest income$10,674

$(8,143)
$2,531

PROVISION FOR LOAN LOSSES

The provision for loan losses represents management'smanagement’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated risk inherent in the loan portfolio. The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, historical loan loss experience, assessment of current economic conditions, past due and non-performing loans and historical net loan loss experience. It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance.

The provision for loan losses for the three month period ended March 31, 2018,2019, was $9.2$9.3 million, compared to $4.3$9.2 million for the three month period ended March 31, 2017,2018, an increase of $4.9 million.$135,000. See Allowance for Loan Losses section for additional information.

The provision increase was necessary to maintain an appropriate allowance for loan losses for the company’s growing legacy portfolio. Significant loan growth in our markets, both from new loans and from loans acquired migrating to legacy, required an allowance to be established for those loans through a provision.

Additionally, a $68,000 and $750,000the provision was recorded on loans acquired duringfor the three months ended March 31, 2019 was $2,464,000 and was primarily the result of identifying certain loans specific to an acquired portfolio in our Dallas market which were poorly structured or were poorly managed post-funding. We have carefully reviewed these loans for potential losses and believe we have adequately identified any risk associated with the loans. The provision on loans acquired for the three month period ended March 31, 2018 was $68,000 and 2017, respectively, as awas the result of a decrease in expected cash flows from our required ongoing evaluation of credit marks on certain purchased credit impaired loans.



50





NON-INTEREST INCOME

Total non-interest income was $37.5$33.8 million for the three month period ended March 31, 2018, an increase2019, a decrease of approximately $7.5$3.8 million, or 24.9%10.1%, compared to $30.1$37.5 million for the same period in 2017.

2018.


During the first quarter 2019, we had decreases in total service charges and fees, mortgage and SBA lending income, and debit and credit card fees that were partially offset by additional trust income and gains on the sale of securities. Total service charges and fees decreased $1.7 million, or 13.3%, mortgage and SBA lending income decreased $1.1 million, or 25.3%, and debit and credit card fees decreased $2.7 million, or 30.7%. Service charges and fees decreased due to less NSF revenue and ATM interchange income. Mortgage and SBA lending income decreased due to less mortgage lending transactions as a result of the rising rate environment and remaining selective in our decisions regarding loan sales as premium rates continue to be lower, respectively. The interchange rate cap as established by the Durbin amendment became effective for us July 1, 2018, resulting in a $2.8 million reduction in debit card fees when compared to the first quarter of last year. The additional gains on the sale of securities was a result of selling approximately $197 million of securities during the first quarter, which resulted in a gain of $2.7 million, as part of a bond portfolio analysis of expected cash flow changes.
Non-interest income is principally derived from recurring fee income, which includes service charges, trust fees and debit and credit card fees. Non-interest income also includes income on the sale of mortgage and SBA loans, investment banking income, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities.

Table 5 shows non-interest income for the three month periods ended March 31, 20182019 and 2017,2018, respectively, as well as changes in 20182019 from 2017.

2018.

Table 5:  Non-Interest Income

  Three Months 2018
  Ended March 31 Change from
(In thousands) 2018 2017 2017
Trust income $5,249  $4,212  $1,037   24.62%
Service charges on deposit accounts  10,345   8,102   2,243   27.68 
Other service charges and fees  2,750   2,197   553   25.17 
Mortgage and SBA lending income  4,445   2,423   2,022   83.45 
Investment banking income  834   690   144   20.87 
Credit card fees  8,796   7,934   862   10.86 
Bank owned life insurance income  1,103   818   285   34.84 
Gain on sale of securities, net  6   63   (57)  -90.48 
Net gain (loss) on sale of premises held for sale  4   (43)  47   -109.30 
Other income  4,003   3,664   339   9.25 
       Total non-interest income $37,535  $30,060  $7,475   24.87%

     Three Months Ended
March 31,
 
2019
Change from
(In thousands)      2019 2018 2018
Trust income        $5,708
 $5,249
 $459
 8.7 %
Service charges on deposit accounts        10,068
 10,345
 (277) (2.7)
Other service charges and fees        1,289
 2,750
 (1,461) (53.1)
Mortgage lending income        2,823
 3,472
 (649) (18.7)
SBA lending income        497
 973
 (476) (48.9)
Investment banking income        618
 834
 (216) (25.9)
Debit and credit card fees        6,098
 8,796
 (2,698) (30.7)
Bank owned life insurance income        795
 1,103
 (308) (27.9)
Gain on sale of securities, net        2,740
 6
 2,734
 *
Gain on sale of premises held for sale, net        
 4
 (4) (100.0)
Other income        3,125
 4,003
 (878) (21.9)
Total non-interest income        $33,761

$37,535

$(3,774) (10.1)%
_____________________________
*    Not meaningful
Recurring fee income (service(total service charges, trust fees, debit and credit card fees) for the three month period ended March 31, 2018,2019, was $27.1$23.2 million, an increasea decrease of $4.7$4.0 million from the three month period ended March 31, 2017. Trust income increased by $1.0 million or 24.6%,2018. The majority of the decrease is in total service charges increased by $2.8 million, or 27.1% and debit and credit card fees increased $862,000, or 10.9%. The increases in service charges and debit and credit card fees, were due to additional accounts acquired from OKSB, First Texas and Hardeman. The increase in trust income is from continued positive growth in our existing personal trust and investor management client base as well as from the recent acquisitions.

59
previously discussed.


Mortgage and SBA lending income increased by $2.0 million for the three months ended March 31, 2018 compared to last year, primarily due to the timing of the 2017 acquisitions.


51





NON-INTEREST EXPENSE

Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for the operation of the Company. Management remains committed to controlling the level of non-interest expense, through the continued use of expense control measures. We utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements.

Non-interest expense for the three months ended March 31, 20182019 was $98.1$101.4 million, an increase of $31.8$3.3 million, or 47.9%3.4%, from the same period in 2017.2018. Normalizing for the non-core costs, such as the early retirement program costs, merger related costs and branch right sizing expenses, non-interest expense for the three months ended March 31, 20182019 increased $30.6$3.2 million, or 46.6%3.4%, from the same period in 2017,2018.

As previously mentioned, our NGB technology initiative is well underway and the incremental software and technology expenditures of $1.8 million during the first quarter 2019 were primarily related to this initiative. Marketing costs increased over prior year due to the incremental operating expenses of the acquired franchises, with the largest increase being in salaries and employee benefits expense.

incorporating a comprehensive community banking marketing philosophy over our expanded footprint.

Table 6 below shows non-interest expense for the three month periods ended March 31, 20182019 and 2017,2018, respectively, as well as changes in 20182019 from 2017.

2018.

Table 6:  Non-Interest Expense

  Three Months 2018
  Ended March 31 Change from
(In thousands) 2018 2017 2017
Salaries and employee benefits $56,357  $35,536  $20,821   58.59%
Occupancy expense, net  6,960   4,663   2,297   49.26 
Furniture and equipment expense  4,403   4,443   (40)  -0.90 
Other real estate and foreclosure expense  1,020   589   431   73.17 
Deposit insurance  2,128   680   1,448   212.94 
Merger related costs  1,711   524   1,187   226.53 
Other operating expenses:                
Professional services  4,330   5,169   (839)  -16.23 
Postage  1,399   1,131   268   23.70 
Telephone  1,486   1,078   408   37.85 
Credit card expenses  3,228   2,837   391   13.78 
Marketing  1,660   1,364   296   21.70 
Operating supplies  749   355   394   110.99 
Amortization of intangibles  2,837   1,550   1,287   83.03 
Branch right sizing expense  61   118   (57)  -48.31 
Other expense  9,744   6,285   3,459   55.04 
                 
Total non-interest expense $98,073  $66,322  $31,751   47.87%

     Three Months Ended
March 31,
 
2019
Change from
(In thousands)      2019 2018 2018
Salaries and employee benefits        $56,012
 $56,357
 $(345) (0.6)%
Early retirement program        355
 
 355
 *
Occupancy expense, net        7,475
 6,960
 515
 7.4
Furniture and equipment expense        3,358
 4,403
 (1,045) (23.7)
Other real estate and foreclosure expense        637
 1,020
 (383) (37.6)
Deposit insurance        2,040
 2,128
 (88) (4.1)
Merger related costs        1,470
 1,711
 (241) (14.1)
Other operating expenses:               
Professional services        4,323
 4,330
 (7) (0.2)
Postage        1,726
 1,399
 327
 23.3
Telephone        1,619
 1,486
 133
 8.9
Credit card expenses        3,860
 3,228
 632
 19.6
Marketing        3,057
 1,660
 1,397
 84.2
Software and technology        4,496
 2,648
 1,848
 69.8
Operating supplies        618
 749
 (131) (17.5)
Amortization of intangibles        2,641
 2,837
 (196) (6.9)
Branch right sizing expense        45
 61
 (16) (26.2)
Other expense        7,677
 7,096
 581
 8.2
Total non-interest expense        $101,409

$98,073

$3,336
 3.4 %
_____________________________
*    Not meaningful

52





LOAN PORTFOLIO

Our legacy loan portfolio, excluding loans acquired, averaged $5.934$8.536 billion and $4.461$5.934 billion during the first three months of 20182019 and 2017,2018, respectively. As of March 31, 2018,2019, total loans, excluding loans acquired, were $6.290$8.68 billion, an increase of $584.8$254.2 million from December 31, 2017.2018. 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).

60


When we make a credit decision on an acquired loan as a result of the loan maturing or renewing, the outstanding balance of that loan migrates from loans acquired to legacy loans. Our legacy loan growth from December 31, 20172018 to March 31, 20182019 included $210.8$81.2 million in balances that migrated from loans acquired during the period. These migrated loan balances are included in the legacy loan balances as of March 31, 2018.

2019.


We seek to manage our credit risk by diversifying our loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an appropriate allowance for loan losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose, and industry and in the case of credit card loans, which are unsecured, by geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for loan losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits.


The balances of loans outstanding, excluding loans acquired, at the indicated dates are reflected in Table 7, according to type of loan.


Table 7:  Loan Portfolio

(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Credit cards $176,602  $185,422 
Other consumer  284,285   280,094 
Total consumer  460,887   465,516 
Real estate:        
Construction  786,077   614,155 
Single family residential  1,193,464   1,094,633 
Other commercial  2,611,358   2,530,824 
Total real estate  4,590,899   4,239,612 
Commercial:        
Commercial  971,704   825,217 
Agricultural  128,247   148,302 
Total commercial  1,099,951   973,519 
Other  138,646   26,962 
Total loans, excluding loans acquired, before allowance for loan losses $6,290,383  $5,705,609 

(In thousands)March 31, 2019 December 31, 2018
Consumer: 
  
Credit cards$181,549
 $204,173
Other consumer213,659
 201,297
Total consumer395,208

405,470
Real estate:   
Construction1,376,162
 1,300,723
Single family residential1,431,407
 1,440,443
Other commercial3,355,109
 3,225,287
Total real estate6,162,678

5,966,453
Commercial:   
Commercial1,801,422
 1,774,909
Agricultural147,216
 164,514
Total commercial1,948,638

1,939,423
Other178,026
 119,042
Total loans, excluding loans acquired, before allowance for loan losses$8,684,550

$8,430,388

Consumer loans consist of credit card loans and other consumer loans.  Consumer loans were $460.9$395.2 million at March 31, 2018,2019, or 7.3%4.6% of total loans, compared to $465.5$405.5 million, or 8.2%4.8% of total loans at December 31, 2017.2018. The decrease in consumer loans from December 31, 2017,2018, to March 31, 2018,2019, was primarily due to the expected seasonal decline in our credit card portfolio partially offset by growth in direct consumer loans.


Real estate loans consist of construction loans, single-family residential loans and commercial real estate loans. Real estate loans were $4.591$6.163 billion at March 31, 2018,2019, or 73.0%71.0% of total loans, compared to $4.240$5.966 billion, or 74.3%70.8%, of total loans at December 31, 2017,2018, an increase of $351.3 million.

$196.2 million, or 3.3%. Our construction and development (“C&D”) loans increased by $75.4 million, or 5.8%, single family residential loans decreased by $9.0 million, or 0.6%, and commercial real estate (“CRE”) loans increased by


53





$129.8 million, or 4.0%. The construction portfolio is continuing to fund loans that were closed in prior quarters, however, the overall commitments have trended down in the first quarter of 2019.

Commercial loans consist of non-real estate loans related to business and agricultural loans. CommercialTotal commercial loans were $1.1$1.949 billion at March 31, 2018,2019, or 17.5%22.4% of total loans, compared to $973.5 million,$1.939 billion, or 17.1%23.0% of total loans at December 31, 2017,2018, an increase of $126.4 million.$9.2 million, or 0.5%. Non-agricultural commercial loans increased to $971.7$1.801 billion, a $26.5 million a $146.5 million,increase, or 17.8%1.5%, growth from December 31, 2017.2018. Agricultural loans decreased to $128.2$147.2 million, a $20.1$17.3 million decrease, or 13.5%(10.5)%, decline primarily due to seasonality of the portfolio, which normally peaks in the third quarter and is at its lowest point at the end of the first quarter.

61


LOANS ACQUIRED

On October 19, 2017,

As previously discussed, loans acquired are initially recorded at fair value in accordance with the fair value methodology. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. When we completed the acquisition of OKSB and issued 14,488,604 sharesmake a credit decision on an acquired loan as a result of the Company’s common stock valued at approximately $431.4 million asloan maturing or renewing, the outstanding balance of October 19, 2017 plus $94.9 million in cash in exchange for all outstanding shares of OKSB common stock. Included in the acquisition werethat loan migrates from loans with a fair value of $2.0 billion.

On October 19, 2017, we completed the acquisition of First Texas and issued 12,999,840 shares of the Company’s common stock valued at approximately $387.1 million as of October 19, 2017 plus $70.0 million in cash in exchange for all outstanding shares of First Texas common stock. Included in the acquisition were loans with a fair value of $2.2 billion.

On May 15, 2017, we completed the acquisition of Hardeman and issued 1,599,940 shares of the Company’s common stock valued at approximately $42.6 million as of May 15, 2017 plus $30.0 million in cash in exchange for all outstanding shares of Hardeman common stock. Included in the acquisition were loans with a fair value of $251.6 million.

acquired to legacy loans.


Table 8 reflects the carrying value of all loans acquired as of March 31, 20182019 and December 31, 2017.

2018.

Table 8:  Loans Acquired

(In thousands) March 31,
2018
 December 31,
2017
     
Consumer:        
Other consumer $43,090  $51,467 
Real estate:        
Construction  591,533   637,032 
Single family residential  747,597   793,228 
Other commercial  2,420,121   2,387,777 
Total real estate  3,759,251   3,818,037 
Commercial:        
Commercial  891,261   995,587 
Agricultural  3,343   66,576 
Total commercial  894,604   1,062,163 
Other  --   142,409 
Total loans acquired (1) $4,696,945  $5,074,076 
(In thousands)March 31, 2019 December 31, 2018
Consumer: 
  
Other consumer$11,979
 $15,658
Real estate:   
Construction404,512
 429,605
Single family residential533,917
 566,188
Other commercial1,730,472
 1,848,679
Total real estate2,668,901

2,844,472
Commercial:   
Commercial374,033
 430,914
Agricultural1,274
 1,739
Total commercial375,307

432,653
Total loans acquired (1)
$3,056,187
 $3,292,783

(1)Loans acquired are reported net of a $407,000 and $418,000 allowance at March 31, 2018 and December 31, 2017, respectively.

(1)    Loans acquired are reported net of a $1.3 million and $95,000 allowance at March 31, 2019 and December 31, 2018, respectively.

The majority of the loans originally acquired in the OKSB, First Texas, and Hardeman acquisitions were evaluated and are being accounted for in accordance with ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans.

We evaluated the remaining loans purchased in conjunction with the acquisitions of OKSB, First Texas, and Hardeman for impairment in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

Some purchased impaired loans were determined to have experienced additional impairment upon disposition or foreclosurecredit deterioration in the first quarter 2018.three months of 2019. During the three months ended March 31, 2018,2019, we recorded $68,000approximately $2.5 million in a provision for these loans and charge-offs of $79,000,$1,247,000, resulting in an allowance for loan losses for purchased impairedon loans acquired at March 31, 20182019 of $407,000.$1.3 million. The large provision recorded during the first quarter 2019 was due to our credit risk management practices identifying loans specific to an acquired portfolio in our Dallas market which were poorly structured or were poorly managed post-funding. We have carefully reviewed these loans for potential losses and believe we have adequately identified any risk associated with the loans. See Note 2 and Note 6 of5, Loans Acquired, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for further discussion and analysis of loans acquired.

62


54





ASSET QUALITY

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contractual terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and nonaccrual loans) and certain other loans identified by management that are still performing.

Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. The subsidiary banks recognizebank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses.


Credit card loans are classified as impaired when payment of interest or principal is 90 days past due. When accounts reach 90 days past due and there are attachable assets, the accounts are considered for litigation. Credit card loans are generally charged off when payment of interest or principal exceeds 150 days past due. The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible.


Total non-performing assets, excluding all loans acquired, decreased by $1.3increased $20.1 million from December 31, 20172018 to March 31, 2018. Foreclosed assets held for sale decreased by $3.0 million.2019. Nonaccrual loans increased by $1.8$26.7 million during the period, primarily commercial loans.loans, partially offset by a decrease in foreclosed assets held for sale of $6.6 million. The nonaccrual loan increase was primarily due to one loan in the Southwest Market. Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired non-covered foreclosed assets, as a percent of total assets were 0.54% at March 31, 2018,2019, compared to 0.57%0.40% at December 31, 2017.

In February 2017, we executed a sale of eleven substandard loans, which were primarily loans acquired, with a net principal balance of $11 million. We recognized a loss of $676,000 on this sale.

2018.

From time to time, certain borrowers are experiencing declines in income and cash flow. As a result, manythese borrowers are seeking to reduce contractual cash outlays, the most prominent being debt payments. In an effort to preserve our net interest margin and earning assets, we are open to working with existing customers in order to maximize the collectability of the debt.

When we restructure a loan to a borrower that is experiencing financial difficulty and grant a concession that we would not otherwise consider, a “troubled debt restructuring” results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

Under ASC Topic 310-10-35 – Subsequent Measurement, a TDR is considered to be impaired, and an impairment analysis must be performed. We assess the exposure for each modification, either by collateral discounting or by calculation of the present value of future cash flows, and determine if a specific allocation to the allowance for loan losses is needed.

Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. Our TDR balance decreased to $11.8$8.8 million at March 31, 2018,2019, compared to $12.9$9.2 million at December 31, 2017.2018. The majority of our TDR balances remainbalance remains in the CRE portfolio with the largest balance comprised of fourthree relationships.

We return TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

We continue to maintain good asset quality, compared to the industry. Strong asset quality remains a primary focus of our strategy. The allowance for loan losses as a percent of total legacy loans was 0.75%0.68% as of March 31, 2018.2019. Non-performing loans equaled 0.76%0.70% of total loans. Non-performing assets were 0.50% of total assets, a 213 basis point decreaseincrease from December 31, 2017.2018. The allowance for loan losses was 99%97% of non-performing loans. Our annualized net charge-offs to total loans for the first three months of 20182019 was 0.24%0.20%. Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.20%0.16%. Annualized net credit card charge-offs to total credit card loans were 1.63%1.92%, compared to 1.61%1.64% during the full year 2017,2018, and 200165 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

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Table 9 presents information concerning non-performing assets, including nonaccrual loans and foreclosed assets held for sale (excluding all loans acquired).

Table 9:  Non-performing Assets

(Dollars in thousands) March 31,
2018
 December 31,
2017
     
Nonaccrual loans (1) $47,395  $45,642 
Loans past due 90 days or more (principal or interest payments)  336   520 
Total non-performing loans  47,731   46,162 
Other non-performing assets:        
Foreclosed assets held for sale  29,140   32,118 
Other non-performing assets  794   675 
Total other non-performing assets  29,934   32,793 
Total non-performing assets $77,665  $78,955 
         
Performing TDRs $6,459  $7,107 
Allowance for loan losses to non-performing loans  99%  90%
Non-performing loans to total loans  0.76%  0.81%
Non-performing assets to total assets (2)  0.50%  0.52%
(Dollars in thousands)March 31, 2019 December 31, 2018
Nonaccrual loans (1)
$60,925
 $34,201
Loans past due 90 days or more (principal or interest payments)281
 224
Total non-performing loans61,206

34,425
Other non-performing assets:   
Foreclosed assets held for sale18,952
 25,565
Other non-performing assets505
 553
Total other non-performing assets19,457

26,118
Total non-performing assets$80,663

$60,543
    
Performing TDRs$6,297
 $6,369
Allowance for loan losses to non-performing loans97% 164%
Non-performing loans to total loans0.70% 0.41%
Non-performing assets (including performing TDRs) to total assets (2)
0.54% 0.40%
Non-performing assets to total assets (2)
0.50% 0.37%

(1)Includes nonaccrual TDRs of approximately $5.3$2.5 million at March 31, 20182019 and $5.8$2.8 million at December 31, 2017.2018.
(2)Excludes all loans acquired, except for their inclusion in total assets.


There was no interest income on nonaccrual loans recorded for the three month periods ended March 31, 20182019 and 2017.

2018.

At March 31, 2018,2019, impaired loans, net of government guarantees and loans acquired, were $47.3$57.6 million compared to $43.9$39.8 million at December 31, 2017.2018. On an ongoing basis, management evaluates the underlying collateral on all impaired loans and allocates specific reserves, where appropriate, in order to absorb potential losses if the collateral were ultimately foreclosed.

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ALLOWANCE FOR LOAN LOSSES

Overview

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310-10, Receivables, and allowance allocations calculated in accordance with ASC Topic 450-20, Loss Contingencies. Accordingly, the methodology is based on our internal grading system, specific impairment analysis, qualitative and quantitative factors.

As mentioned above, allocations to the allowance for loan losses are categorized as either specific allocations or general allocations.

Specific Allocations

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent loan, our evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.


General Allocations


The general allocation is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. We established general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.

Reserve for Unfunded Commitments

In addition to the allowance for loan losses, we have established a reserve for unfunded commitments, classified in other liabilities. This reserve is maintained at a level sufficient to absorb losses arising from unfunded loan commitments. The adequacy of the reserve for unfunded commitments is determined monthly based on methodology similar to our methodology for determining the allowance for loan losses. Net adjustments to the reserve for unfunded commitments are included in other non-interest expense.

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An analysis of the allowance for loan losses for legacy loans is shown in Table 10.

Table 10:  Allowance for Loan Losses

(In thousands) 2018 2017
     
Balance, beginning of year $41,668  $36,286 
Loans charged off:        
Credit card  999   1,044 
Other consumer  1,056   1,174 
Real estate  455   656 
Commercial  1,761   292 
Total loans charged off  4,271   3,166 
Recoveries of loans previously charged off:        
Credit card  263   236 
Other consumer  94   690 
Real estate  302   232 
Commercial  69   30 
Total recoveries  728   1,188 
Net loans charged off  3,543   1,978 
Provision for loan losses (1)  9,082   3,557 
Balance, March 31(3) $47,207   37,865 
         
Loans charged off:        
Credit card      2,861 
Other consumer      2,593 
Real estate      7,333 
Commercial      7,545 
Total loans charged off      20,332 
Recoveries of loans previously charged off:        
Credit card      785 
Other consumer      1,549 
Real estate      758 
Commercial      73 
Total recoveries      3,165 
Net loans charged off      17,167 
Provision for loan losses (2)      20,970 
Balance, end of year (3)     $41,668 
(In thousands)2019 2018
Balance, beginning of year$56,599
 $41,668
Loans charged off:   
Credit card1,142
 999
Other consumer1,533
 1,056
Real estate374
 455
Commercial1,968
 1,761
Total loans charged off5,017

4,271
Recoveries of loans previously charged off:   
Credit card240
 263
Other consumer300
 94
Real estate142
 302
Commercial158
 69
Total recoveries840

728
Net loans charged off4,177
 3,543
Provision for loan losses (1)
6,821
 9,082
Balance, March 31 (3)
$59,243

$47,207
    
Loans charged off:   
Credit card  3,052
Other consumer  5,581
Real estate  5,450
Commercial  4,862
Total loans charged off  18,945
Recoveries of loans previously charged off:   
Credit card  742
Other consumer  463
Real estate  689
Commercial  676
Total recoveries  2,570
Net loans charged off  16,375
Provision for loan losses (2)
  25,767
Balance, end of year (3)
  $56,599

(1)Provision for loan losses of $2,464,000 attributable to loans acquired, was excluded from this table for 2019 (total year-to-date provision for loan losses was $9,285,000) and $68,000 was excluded from this table for 2018 (total year-to-date 2018 provision for loan losses was $9,150,000). Charge offs of $1,247,000 on loans acquired were excluded from this table for 2019 and $79,000 for 2018.
(2)Provision for loan losses of $3,299,000 attributable to loans acquired, was excluded from this table for 2018 (total year-to-date2018 provision for loan losses was $9,150,000) and $750,000 was excluded from this table for 2017 (total 2017 provision for loan losses was $4,307,000)$38,148,000). Charge offs of $79,000 on loans acquired were excluded from this table for 2018 and $1.3 million for 2017.
(2)Provision for loan losses of $1,866,000 attributable to loans acquired, was excluded from this table for 2017 (total 2017 provision for loan losses was $26,393,000).
(3)Allowance for loan losses at March 31, 20182019 includes $407,000$1,312,000 allowance for loans acquired (not shown in the table above). Allowance for loan losses at December 31, 20172018 and March 31, 20172018 includes $418,000$95,000 and $435,000,$407,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at March 31, 20182019 was $47,614,000$60,555,000 and total allowance for loan losses at December 31, 20172018 and March 31, 20172018 was $42,086,000$56,694,000 and $38,300,000,$47,614,000, respectively.



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Provision for Loan Losses

The amount of provision added to the allowance during the three months ended March 31, 20182019 and 2017,2018, and for the year ended December 31, 2017,2018, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic conditions, past due and non-performing loans and net loss experience. It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance.

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Allowance for Loan Losses Allocation

As of March 31, 2018,2019, the allowance for loan losses reflects an increase of approximately $5.5$2.6 million from December 31, 2017,2018, while total loans, excluding loans acquired, increased by $584.8$254.2 million over the same three month period. The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix.

The following table sets forth the sum of the amounts of the allowance for loan losses attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of loans in each category to the total loan portfolio, excluding loans acquired, for each of the periods indicated. These allowance amounts have been computed using the Company’s internal grading system, specific impairment analysis, qualitative and quantitative factor allocations. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories.

Table 11:  Allocation of Allowance for Loan Losses

  March 31, 2018 December 31, 2017
  Allowance % of Allowance % of
(Dollars in thousands) Amount loans (1) Amount loans (1)
         
Credit cards $3,799   8.1% $3,784   9.1%
Other consumer  3,191   6.8%  3,489   8.4%
Real estate  30,414   64.4%  27,281   65.4%
Commercial  9,601   20.3%  7,007   16.8%
Other  202   0.4%  107   0.3%
Total (2) $47,207   100% $41,668   100.0%

 March 31, 2019 December 31, 2018
(Dollars in thousands)
Allowance
Amount
 
% of
loans (1)
 
Allowance
Amount
 
% of
loans (1)
Credit cards$3,919
 2.1% $3,923
 2.4%
Other consumer2,344
 2.5% 2,380
 2.4%
Real estate32,354
 71.0% 29,743
 70.8%
Commercial20,578
 22.4% 20,514
 23.0%
Other48
 2.0% 39
 1.4%
Total (2)
$59,243

100.0%
$56,599

100.0%

(1)Percentage of loans in each category to total loans, excluding loans acquired.
(2)Allowance for loan losses at March 31, 20182019 and December 31, 20172018 includes $407,000$1,312,000 and $418,000,$95,000, respectively, allowance for loans acquired (not shown in the table above). The total allowance for loan losses at March 31, 20182019 and December 31, 20172018 was $47,614,000$60,555,000 and $42,086,000,$56,694,000, respectively.


DEPOSITS

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 200191 financial centers. 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 $100,000 or more and brokered deposits. As of March 31, 2018,2019, core deposits comprised 91.1%78.6% of our total deposits.

We continually monitor the funding requirements along with competitive interest rates in the markets we serve. Because of our community banking philosophy, our executives in the local markets, with oversight by the Asset Liability Committee and the Bank’s Treasury Management, establish the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe we are paying a competitive rate when compared with pricing in those markets.

We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. We do expect costs of funding with deposits to increase with the continued rise in interest rates and increased competition for deposits across all our markets.


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Our total deposits as of March 31, 2018,2019, were $11.7$12.0 billion, an increasea decrease of $564.0$409.2 million from December 31, 2017.2018. We have also continuedare managing our strategybalance sheet and our net interest margin by continuing to move more volatile timeeliminate several high-cost deposits related to less expensive, revenue enhancing transaction accounts.public funds and brokered deposits. We are very pleased with our growth in core deposits during the quarter of $148.0 million as we continue to emphasize relationship banking. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $9.5$9.3 billion at March 31, 2018,2019, compared to $9.2$9.5 billion at December 31, 2017,2018, a $294.9$161.7 million increase.decrease. Total time deposits increased $269.1decreased $247.5 million to $2.2$2.6 billion at March 31, 2018,2019, from $1.9$2.9 billion at December 31, 2017.2018. We had $164.8 million$1.1 billion and $159.6 million$1.4 billion of brokered deposits at March 31, 2018,2019, and December 31, 2017,2018, respectively.

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OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.6$1.5 billion and $1.5$1.7 billion at March 31, 20182019 and December 31, 2017,2018, respectively. The decrease from year end was due to the Company using a portion of excess cash to repay FHLB advances. The outstanding balance for March 31, 20182019 includes $653.0 million$1.2 billion in FHLB short-term advances, $488.0$15.0 million in FHLB long-term advances, $330.0 million in subordinated notes and $138.5$24.0 million of trust preferred securities and other subordinated debt.

FHLB short-term advances mostly consist of FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. The Company’s FOTO advances outstanding at the end of the first quarter have ten to fifteen year maturity dates with lockout periods that vary but do not exceed one year. These FOTO advances are considered and monitored by the Company as short-term advances due to the likelihood of FHLB exercising the options within a year of the settlement dates based upon the rising rate environment and the short lockout periods.

In March 2018, we issued $330.0$330 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“the Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The Company incurred $3.3$3.6 million in debt issuance costs related to the offering during March.offering. The Notes will mature on April 1, 2028 and will bear interest at an initial fixed rate of 5.00% per annum, payable semi-annually in arrears. From and including April 1, 2023 to, but excluding, the maturity date or the date of earlier redemption, the interest will reset quarterly to an annual interest rate equal to the then-current three month LIBOR rate plus 125 basis points, payable quarterly in arrears. The notes will be subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of Simmons First National Corporation only and are not obligations of, and are not guaranteed by, any of its subsidiaries.

During 2017, we entered into a Revolving Credit Agreement with U.S. Bank National Association and executed an unsecured Revolving Credit Agreement (the “Credit Agreement”) pursuant to which we may borrow, prepay and reborrow up to $75.0 million, the proceeds of which were primarily used to pay off amounts outstanding under a term note assumed in an acquisition. In October 2018, we entered into a First Amendment to the Credit Agreement with U.S. Bank National Association, which primarily extended the First Texas acquisition.

Duringexpiration date to October 2019 and reduced the first quarter of$75.0 million to $50.0 million. In December 2018, we entered into a Second Amendment to the Credit Agreement that clarified the financial metrics contained in certain affirmative covenants are evaluated on a consolidated basis. In October 2019, all amounts borrowed, together with applicable interest, fees, and other amounts owed by the Company are due and payable. The balance due under the Credit Agreement at March 31, 2019 was zero.


During 2018, the Company used a portion of the net proceeds from the sale of the Notes to repay certain outstanding indebtedness, including the amounts borrowed under$75.0 million outstanding balance on the Credit Agreement, $43.3 million in notes payable, $94.9 million in trust preferred securities and the unsecured debt from correspondent banks.

$19.1 million in subordinated debt.


CAPITAL

Overview

At March 31, 2018,2019, total capital was $2.109$2.302 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At March 31, 2018,2019, our common equity to assets ratio was 13.5%14.31% compared to 13.9%13.58% at year-end 2017.

2018.

Capital Stock

On February 27, 2009, at a special meeting, our shareholders approved an amendment to the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. The aggregate liquidation preference of all shares of preferred stock cannot exceed $80,000,000.

On January 18, 2018, the board of directors of the Company approved a two-for-one stock split of the Corporation’s outstanding Class A common stock (“Common Stock”) in the form of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018 (“Record Date”). The new shares were distributed by the Company’s transfer agent, Computershare,

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and the Company’s common stock began trading on a split-adjusted basis on the NASDAQ Global Select Market on February 9, 2018. All previously reported share and per share data included in filings subsequent to February 8, 2018 are restated to reflect the retroactive effect of this two-for-one stock split.


On March 19, 2018, the Company filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that the Company is required to file with the SEC at the time of the specific offering.
On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,00

175,000,000.

Stock Repurchase

On July 23, 2012, we announced the adoption by our Board of Directors of a stock repurchase program which authorized the repurchase of up to 1,700,000 (split adjusted) of Class A common stock, or approximately 2% of the shares outstanding. The shares are to be purchased from time to time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon market conditions. Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number of shares that we intend to repurchase. We may discontinue purchases at any time that management determines additional purchases are not warranted. We intend to use the repurchased shares to satisfy stock option exercises, payment of future stock awards and dividends and general corporate purposes. We had no stock repurchases during the first quarterthree months of 20182019 or 2017.

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2018.


Cash Dividends

We declared cash dividends on our common stock of $0.16 per share for the first three months of 2019 compared to $0.15 per share for the first calendar quarterthree months of 2018, compared to $0.125 per share (split adjusted) for the first calendar quarter of 2017, an increase of $0.025,$0.01, or 20%7%. The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all.

Parent Company Liquidity

The primary liquidity needs of the Parent Company are the payment of dividends to shareholders and the funding of debt obligations. The primary sources for meeting these liquidity needs are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends by the bank subsidiary bank is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative Disclosure About Market Risk for additional information regarding the parent company’s liquidity.

Risk Based Capital

Our bank subsidiaries aresubsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of March 31, 2018,2019, we meet all capital adequacy requirements to which we are subject.

As of the most recent notification from regulatory agencies, eachthe bank subsidiary was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Banks must maintain minimum total

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risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions’institution’s categories.

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Our risk-based capital ratios at March 31, 20182019 and December 31, 20172018 are presented in Table 12 below:

Table 12:  Risk-Based Capital

  March 31, December 31,
(Dollars in thousands) 2018 2017
     
Tier 1 capital:        
Stockholders’ equity $2,109,051  $2,084,564 
Goodwill and other intangible assets  (918,161)  (902,371)
Unrealized loss on available-for-sale securities, net of income taxes  34,062   17,264 
Total Tier 1 capital  1,224,952   1,199,457 
Tier 2 capital:        
Qualifying unrealized gain on available-for-sale equity securities  8   1 
Trust preferred securities and subordinated debt  468,466   140,565 
Qualifying allowance for loan losses  54,436   48,947 
Total Tier 2 capital  522,910   189,513 
Total risk-based capital $1,747,862  $1,388,970 
         
Risk weighted assets $12,417,233  $12,234,160 
         
Assets for leverage ratio $14,179,390  $13,016,478 
         
Ratios at end of period:        
Common equity Tier 1 ratio (CET1)  9.86%  9.80%
Tier 1 leverage ratio  8.64%  9.21%
Tier 1 risk-based capital ratio  9.86%  9.80%
Total risk-based capital ratio  14.08%  11.35%
Minimum guidelines:        
Common equity Tier 1 ratio  4.50%  4.50%
Tier 1 leverage ratio  4.00%  4.00%
Tier 1 risk-based capital ratio  6.00%  6.00%
Total risk-based capital ratio  8.00%  8.00%


(Dollars in thousands)March 31, 2019 December 31, 2018
Tier 1 capital: 
  
Stockholders’ equity$2,302,321
 $2,246,434
Goodwill and other intangible assets(910,122) (912,428)
Unrealized loss on available-for-sale securities, net of income taxes6,000
 27,374
Total Tier 1 capital1,398,199

1,361,380
Tier 2 capital:   
Trust preferred securities and subordinated debt354,041
 353,950
Qualifying allowance for loan losses67,771
 63,608
Total Tier 2 capital421,812

417,558
Total risk-based capital$1,820,011

$1,778,938
    
Risk weighted assets$13,364,636
 $13,326,832
    
Assets for leverage ratio$15,423,961
 $15,512,042
    
Ratios at end of period:   
Common equity Tier 1 ratio (CET1)10.46% 10.22%
Tier 1 leverage ratio9.07% 8.78%
Tier 1 risk-based capital ratio10.46% 10.22%
Total risk-based capital ratio13.62% 13.35%
Minimum guidelines:   
Common equity Tier 1 ratio4.50% 4.50%
Tier 1 leverage ratio4.00% 4.00%
Tier 1 risk-based capital ratio6.00% 6.00%
Total risk-based capital ratio8.00% 8.00%
Regulatory Capital Changes

In July 2013, the Company’s primary federal regulator, the Federal Reserve, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banks. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards. The Basel III Capital Rules substantially reviseintroduced substantial revisions to the risk-based capital requirements applicable to bank holding companies and depository institutions compared to the current U.S. risk-based capital rules.

institutions.

The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach.

The Basel III Capital Rules expanded the risk-weighting categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories, including many residential mortgages and certain commercial real estate.


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The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The Basel III Capital Rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Management believes that, as of March 31, 2018, the Company and its bank subsidiaries would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective.

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January 1, 2019.


Prior to December 31, 2017, tierTier 1 capital included common equity tierTier 1 capital and certain additional tierTier 1 items as provided under the Basel III Rules. The tierTier 1 capital for the Company consisted of common equity tierTier 1 capital and trust preferred securities. The Basel III Rules include certain provisions that require trust preferred securities to be phased out of qualifying tierTier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as tierTier 1 capital. Trust preferred securities and qualifying subordinated debt of $468.5$354.0 million is included as tierTier 2 and total capital as of March 31, 2018.

2019.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See the section titled Recently Issued Accounting PronouncementsStandards in Note 1, Preparation of Interim Financial Statements, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on the Company’s ongoing financial position and results of operation.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,“believe,“estimate,“budget,” “expect,” “foresee,” “believe,“anticipate,“may,“intend,“might,“indicate, “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,” “prospects,” “predict,” or “potential,” by future conditional verbs such as “will,” “would,” “could”“should,” “could,” “might” or “intend,“may,future or conditional verb tenses, andby variations or negatives of such terms.words or by similar expressions. These forward-looking statements include, without limitation, those relating to the Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase program, allowance for loan losses, the effect of certain new accounting standards on the Company’s financial statements, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of pending litigation, acquisition strategy, legal and regulatory limitations and compliance and competition.

These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation: changes in the Company’s operating or expansion and acquisition strategy, the effects of future economic conditions, governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates and their effects on the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities; the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; the failure of assumptions underlying the establishment of reserves for possible loan losses, fair value for loans and other real estate owned; and those factors set forth under Item 1A. Risk-Factors of this report and other cautionary statements set forth elsewhere in this report.  Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of future performance.

We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations and you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this section.

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RECONCILIATION OF NON-GAAP MEASURES

The tables below present computations of core earnings (net income excluding non-core items {merger related costs, early retirement program costs and the one-time costs of branch right sizing}) and diluted core earnings per share (non-GAAP) as well as a reconciliation of tangible book value per share (non-GAAP), tangible common equity to tangible equity (non-GAAP) and the core net interest margin (non-GAAP). Non-core items are included in financial results presented in accordance with generally accepted accounting principles (GAAP).

We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business because management does not consider these non-core items to be relevant to ongoing financial performance. Management and the Board of Directors utilize “core earnings” (non-GAAP) for the following purposes:

•   Preparation of the Company’s operating budgets

•   Monthly financial performance reporting

•   Monthly “flash” reporting of consolidated results (management only)

•   Investor presentations of Company performance

We believe the presentation of “core earnings” on a diluted per share basis, “diluted core earnings per share” (non-GAAP) and core net interest margin (non-GAAP), provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business, because management does not consider these non-core items to be relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize “diluted core earnings per share” (non-GAAP) for the following purposes:

•   Calculation of annual performance-based incentives for certain executives

•   Calculation of long-term performance-based incentives for certain executives

•   Investor presentations of Company performance

We have $945.2$934.4 million and $948.7$937.0 million total goodwill and other intangible assets for the periods ended March 31, 20182019 and December 31, 2017,2018, respectively. Because of our high level of intangible assets, management believes a useful calculation is return on tangible equity (non-GAAP).

We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that is applied by management and the Board of Directors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, we have procedures in place to identify and approve each item that qualifies as non-core to ensure that the Company’s “core” results are properly reflected for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings that excludes non-core items does not represent the amount that effectively accrues directly to stockholders (i.e., non-core items are included in earnings and stockholders’ equity).

All per share data has been restated to reflect the retroactive effect of the two-for-one stock split which occurred during February 2018.

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See Table 13 below for the reconciliation of non-GAAP financial measures, which exclude non-core items for the periods presented.

Table 13:  Reconciliation of Core Earnings (non-GAAP)

  Three Months Ended
March 31,
(Dollars in thousands) 2018 2017
     
Net income $51,312  $22,120 
Non-core items:        
Merger related costs  1,711   524 
Branch right sizing  57   154 
Tax effect (1)  (462)  (266)
Net non-core items  1,306   412 
Core earnings (non-GAAP) $52,618  $22,532 
         
Diluted earnings per share $0.55  $0.35 
Non-core items:        
Merger related costs  0.02   0.01 
Branch right sizing  --   -- 
Tax effect (1)  --   -- 
Net non-core items  0.02   0.01 
Diluted core earnings per share (non-GAAP) $0.57  $0.36 
   Three Months Ended
March 31,
(Dollars in thousands)    2019 2018
Net income    $47,695
 $51,312
Non-core items:       
Merger related costs    1,470
 1,711
Early retirement program    355
 
Branch right sizing    45
 57
Tax effect (1)
    (489) (462)
Net non-core items    1,381
 1,306
Core earnings (non-GAAP)    $49,076

$52,618
        
Diluted earnings per share    $0.51
 $0.55
Non-core items:       
Merger related costs    0.02
 0.02
Early retirement program    0.01 
Branch right sizing    
 
Tax effect (1)
    (0.01) 
Net non-core items    0.02
 0.02
Diluted core earnings per share (non-GAAP)    $0.53

$0.57

(1)Effective tax rate of 26.135% for 2018 and 39.225% for 2017, adjusted for non-deductible merger-related and branch right sizing costs..


See Table 14 below for the reconciliation of tangible book value per share.

Table 14: Reconciliation of Tangible Book Value per Share (non-GAAP)

(In thousands, except per share data) March 31,
2018
 December 31,
2017
     
Total common stockholders’ equity $2,109,051  $2,084,564 
Intangible assets:        
Goodwill  (845,687)  (842,651)
Other intangible assets  (99,504)  (106,071)
Total intangibles  (945,191)  (948,722)
Tangible common stockholders’ equity $1,163,860  $1,135,842 
Shares of common stock outstanding  92,242,389   92,029,118 
         
Book value per common share $22.86  $22.65 
         
Tangible book value per common share (non-GAAP) $12.62  $12.34 

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(In thousands, except per share data)March 31, 2019 December 31, 2018
Total common stockholders’ equity$2,302,321
 $2,246,434
Intangible assets:   
Goodwill(845,687) (845,687)
Other intangible assets(88,694) (91,334)
Total intangibles(934,381)
(937,021)
Tangible common stockholders’ equity$1,367,940

$1,309,413
Shares of common stock outstanding92,568,361
 92,347,643
    
Book value per common share$24.87
 $24.33
    
Tangible book value per common share (non-GAAP)$14.78
 $14.18


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See Table 15 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets.

Table 15:  Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)

(In thousands, except per share data) March 31,
2018
 December 31,
2017
     
Total common stockholders’ equity $2,109,051  $2,084,564 
Intangible assets:        
Goodwill  (845,687)  (842,651)
Other intangible assets  (99,504)  (106,071)
Total intangibles  (945,191)  (948,722)
Tangible common stockholders’ equity $1,163,860  $1,135,842 
         
Total assets $15,597,309  $15,055,806 
Intangible assets:        
Goodwill  (845,687)  (842,651)
Other intangible assets  (99,504)  (106,071)
Total intangibles  (945,191)  (948,722)
Tangible assets $14,652,118  $14,107,084 
         
Ratio of equity to assets  13.52%  13.85%
Ratio of tangible common equity to tangible assets (non-GAAP)  7.94%  8.05%

(In thousands, except per share data)March 31, 2019 December 31, 2018
Total common stockholders’ equity$2,302,321
 $2,246,434
Intangible assets:   
Goodwill(845,687) (845,687)
Other intangible assets(88,694) (91,334)
Total intangibles(934,381)
(937,021)
Tangible common stockholders’ equity$1,367,940

$1,309,413
    
Total assets$16,091,639
 $16,543,337
Intangible assets:   
Goodwill(845,687) (845,687)
Other intangible assets(88,694) (91,334)
Total intangibles(934,381)
(937,021)
Tangible assets$15,157,258

$15,606,316
    
Ratio of common equity to assets14.31% 13.58%
Ratio of tangible common equity to tangible assets (non-GAAP)9.02% 8.39%
See Table 16 below for the calculation of core net interest margin for the periods presented.

Table 16:  Reconciliation of Core Net Interest Margin (non-GAAP)

  Three Months Ended
  March 31,
(Dollars in thousands) 2018 2017
     
Net interest income $134,966  $72,380 
FTE adjustment  1,130   1,965 
Fully tax equivalent net interest income  136,096   74,345 
Total accretable yield  (11,294)  (4,427)
Core net interest income $124,802  $69,918 
         
Average earning assets – quarter-to-date $13,251,549  $7,469,709 
         
Net interest margin  4.17   4.04 
Core net interest margin (non-GAAP)  3.82   3.80 

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   Three Months Ended
March 31,
(Dollars in thousands)    2019 2018
Net interest income    $137,026
 $134,966
FTE adjustment    1,601
 1,130
Fully tax equivalent net interest income    138,627

136,096
Total accretable yield    (6,660) (11,294)
Core net interest income    $131,967

$124,802
        
Average earning assets – quarter-to-date    $14,593,905
 $13,251,549
        
Net interest margin    3.85% 4.17%
Core net interest margin (non-GAAP)    3.67% 3.82%


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Item 3.Quantitative and Qualitative Disclosure About Market Risk

Parent Company

The Company has leveraged its investment in its subsidiary banksbank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary banks,bank, as a principal source of funds for dividends to shareholders, stock repurchases and debt service requirements. At March 31, 2018,2019, undivided profits of Simmons Bank were approximately $298.6approximately $428.6 million, of which approximately $1.6which approximately $57.7 million was available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds.

Subsidiary Banks

Bank

Generally speaking, the Company'sCompany’s subsidiary banks relybank relies upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in investing activities. Typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The subsidiary banks’bank’s primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment cash flows and maturities.

Liquidity represents an institution'sinstitution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. A major responsibility of management is to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. The management and board of directors of the subsidiary banks monitorbank monitors these same indicators and makemakes adjustments as needed.

Liquidity Management

The objective of our liquidity management is to access adequate sources of funding to ensure that cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of liquidity are managed so that reliance on any one funding source is kept to a minimum. Our liquidity sources are prioritized for both availability and time to activation.

Our liquidity is a primary consideration in determining funding needs and is an integral part of asset/liability management. Pricing of the liability side is a major component of interest margin and spread management. Adequate liquidity is a necessity in addressing this critical task. There are seven primary and secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine the use of these sources.

The first sources of liquidity available to the Company are a $75$50.0 million revolving line of credit with U.S. Bank National Association for purposes of financing distributions, financing certain acquisitions and working capital purposes and Federal funds. Federal funds are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. The Bank has approximately $395approximately $380 million in Federal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure availability of these upstream funds we test these borrowing lines at least annually. Historical monitoring of these funds has made it possible for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis.

Second, the bank subsidiaries havesubsidiary has lines of credit available with the Federal Home Loan Bank. While we use portions of those lines to match off longer-term mortgage loans, we also use those lines to meet liquidity needs. Approximately $2.2 billion of these lines of credit are currently available, if needed, for liquidity.

A third source of liquidity is that we have the ability to access large wholesale deposits from both the public and private sector to fund short-term liquidity needs.

A fourth source of liquidity is the retail deposits available through our network of financial centers throughout Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas. Although this method can be a somewhat more expensive alternative to supplying liquidity, this source can be used to meet intermediate term liquidity needs.

Fifth, we use a laddered investment portfolio that ensures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. Approximately 83.8%97.3% of the investment portfolio is classified as available-for-sale. We also use securities held in the securities portfolio to pledge when obtaining public funds.

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Sixth, we have a network of downstream correspondent banks from which we can access debt to meet liquidity needs.


67





Finally, we have the ability to access funds through the Federal Reserve Bank Discount Window.


We believe the various sources available are ample liquidity for short-term, intermediate-term and long-term liquidity.

Market Risk Management

Market risk arises from changes in interest rates. We have risk management policies to monitor and limit exposure to market risk. In asset and liability management activities, policies designed to minimize structural interest rate risk are in place. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified.

Interest Rate Sensitivity

Interest rate risk represents the potential impact of interest rate changes on net income and capital resulting from mismatches in repricing opportunities of assets and liabilities over a period of time. A number of tools are used to monitor and manage interest rate risk, including simulation models and interest sensitivity gap analysis. Management uses simulation models to estimate the effects of changing interest rates and various balance sheet strategies on the level of the Company’s net income and capital. As a means of limiting interest rate risk to an acceptable level, management may alter the mix of floating and fixed-rate assets and liabilities, change pricing schedules and manage investment maturities during future security purchases.

The simulation model incorporates management’s assumptions regarding the level of interest rates or balance changes for indeterminate maturity deposits for a given level of market rate changes. These assumptions have been developed through anticipated pricing behavior. Key assumptions in the simulation models include the relative timing of prepayments, cash flows and maturities. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net income or capital. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.

As of March 31, 2018,2019, the model simulations projected that 100 and 200 basis point increases in interest rates would result in a positive variance in net interest income of 4.23%2.13% and 7.81%4.02%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of 100 basis points and 200 basis points would result in a negative variance in net interest income of -5.14%(2.03)% and (4.81)%, respectively, relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 100 basis points as of March 31, 2018 is considered remote given current interest rate levels and the recent rate increases by the Federal Reserve. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-endperiod-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.

The table below presents our sensitivity to net interest income at March 31, 2018:  

2019:  

Table 14:Net Interest Income Sensitivity

Interest Rate Scenario% Change from Base
Up 200 basis points7.81%4.02%
Up 100 basis points4.23%2.13%
Down 100 basis points-5.14%(2.03)%
Down 200 basis points76(4.81)%



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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company'sCompany’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company'sCompany’s current disclosure controls and procedures were effective for the period.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2018,2019, which materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II:Other Information


Item 1A.Risk Factors


Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A of our Form 10-K for the year ended December 31, 2017.2018. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our Form 10-K, which could materially and adversely affect the Company’s business, ongoing financial condition and results of operations. The risks described are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management currently believes to be immaterial may also adversely affect our business, ongoing financial condition or results of operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities. The Company made no purchases of its common stock during the three months ended March 31, 2018.

Item 6.Exhibits


Exhibit No.Description

Agreement and Plan of Merger, dated as of March 24, 2014, by and between Simmons First National Corporation and Delta Trust & Banking Corporation (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on July 23, 2014 (File No. 000-06253)).

Agreement and Plan of Merger, dated as of May 6, 2014, by and between Simmons First National Corporation and Community First Bancshares, Inc., as amended on September 11, 2014 (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on October 8, 2014 (File No. 000-06253)).

Agreement and Plan of Merger, dated as of May 27, 2014, by and between Simmons First National Corporation and Liberty Bancshares, Inc., as amended on September 11, 2014 (incorporated by reference to Annex B to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on October 8, 2014 (File No. 000-06253)).

Agreement and Plan of Merger, dated as of April 28, 2015, by and between Simmons First National Corporation and Ozark Trust & Investment Corporation (incorporated by reference to Exhibit 10.1 to Simmons First National Corporation’s Current Report on Form 8-K for April 29, 2015 (File No. 000-06253)).

Stock Purchase Agreement by and among Citizens National Bank, Citizens National Bancorp, Inc. and Simmons First National Corporation, dated as of May 18, 2016 (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for May 18, 2016 (File No. 000-06253)).

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2.6
Agreement and Plan of Merger, dated as of November 17, 2016, by and between Simmons First National Corporation and Hardeman County Investment Company, Inc. (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for November 17, 2016 (File No. 000-06253)).

Agreement and Plan of Merger, dated as of December 14, 2016, by and between Simmons First National Corporation and Southwest Bancorp, Inc., as amended on July 19, 2017 (incorporated by reference to Exhibit 2.11 to Simmons First National Corporation’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2017 (File No. 000-06253)).

Agreement and Plan of Merger, dated as of January 23, 2017, by and between Simmons First National Corporation and First Texas, BHC, Inc., as amended on July 19, 2017 (incorporated by reference to Exhibit 2.12 to Simmons First National Corporation’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2017 (File No. 000-06253)).


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Agreement and Plan of Merger, dated as of November 13, 2018, by and between Simmons First National Corporation and Reliance Bancshares, Inc. (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for November 13, 2018 (File No. 000-06253)).

Amended and Restated Articles of Incorporation of Simmons First National Corporation, as amended on February 12, 2019 (incorporated by reference to Exhibit 3.1 to Simmons First National Corporation’s Current Report on Form 8-K/A on April 23, 2018.*11, 2019 (File No. 000-06253)).

Amended By-Laws of Simmons First National Corporation (incorporated by reference to Exhibit 3.2 to Simmons First National Corporation’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2017 (File No. 000-06253)).

3.3Certificate of Designation of Senior Non-Cumulative Perpetual Preferred Stock, Series A of Simmons First National Corporation, dated February 27, 2015 (incorporated by reference to Exhibit 3.1to Simmons First National Corporation’s Current Report on Form 8-K on October 8, 2014 (File No. 000-06253)).

4.1
Instruments defining the rights of security holders, including indentures. Simmons First National Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of the Corporation and its consolidated subsidiaries to the U.S. Securities and Exchange Commission upon request. No issuance of debt exceeds ten percent of the total assets of the Corporation and its subsidiaries on a consolidated basis.

10.1Deferred Compensation Agreement for Marty D. Casteel dated January 22, 2018
Amended and Restated Simmons First National Corporation Code of Ethics (incorporated by reference to Exhibit 10.314.1 to Simmons First National Corporation’s AnnualCurrent Report on Form 10-K for the Year ended December 31, 20178-K on July 19, 2018 (File No. 000-06253)).

10.2Amendment to Deferred Compensation Agreement for George A. Makris dated January 25, 2018 (incorporated by reference to Exhibit 10.4 to Simmons First National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2017 (File No. 000-06253)).

12.1Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividend.*

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15.1
Awareness Letter of BKD, LLP.*

Rule 13a-15(e) and 15d-15(e) Certification – George A. Makris, Jr., Chairman and Chief Executive Officer.*

Rule 13a-15(e) and 15d-15(e) Certification – Robert A. Fehlman, Senior Executive Vice President, Chief Financial Officer and Treasurer.*

Rule 13a-15(e) and 15d-15(e) Certification – David W. Garner, Executive Vice President, Controller and Chief Accounting Officer.*

Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – George A. Makris, Jr., Chairman and Chief Executive Officer.*

Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Robert A. Fehlman, Senior Executive Vice President, Chief Financial Officer and Treasurer.*

Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – David W. Garner, Executive Vice President, Controller and Chief Accounting Officer.*

101.INS
XBRL Instance Document.**

101.SCH
XBRL Taxonomy Extension Schema.**

101.CAL
XBRL Taxonomy Extension Calculation Linkbase.**

101.DEF
XBRL Taxonomy Extension Definition Linkbase.**

101.LAB
XBRL Taxonomy Extension Labels Linkbase.**

101.PRE
XBRL Taxonomy Extension Presentation Linkbase.**

* Filed herewith

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


SIMMONS FIRST NATIONAL CORPORATION

(Registrant)


Date:May 8, 20182019/s/ George A. Makris, Jr.
 
 George A. Makris, Jr.
 
 Chairman and Chief Executive Officer
   
   
   
Date:May 8, 20182019/s/ Robert A. Fehlman
 
 Robert A. Fehlman
 
 Senior Executive Vice President,
 
 Chief Financial Officer and Treasurer
   
   
   
Date:May 8, 20182019/s/ David W. Garner
 
 David W. Garner
 
 Executive Vice President, Controller
 
 and Chief Accounting Officer



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