SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS

Description of Business and Organizational Structure

Simmons First National Corporation ~~(the “Company”~~(“Company”) is a financial holding company headquartered in Pine Bluff, Arkansas, and the parent company of Simmons Bank, an Arkansas state-chartered bank that ~~began as a community bank~~has been in ~~1903.~~ operation since 1903 (“Simmons ~~Bank is~~Bank” or the ~~parent company of~~“Bank”). Simmons First Insurance Services, Inc. ~~(an insurance agency)~~ and Simmons First Insurance Services of TN, LLC ~~(an~~are wholly-owned subsidiaries of Simmons Bank and are insurance ~~agency).~~agencies that offer various lines of personal and corporate insurance coverage to individual and commercial customers. The Company, through its subsidiaries, conducts banking operations from 212 financial centers conveniently located in communities throughout Arkansas, Colorado, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Company, through its subsidiaries, offers, among other things, consumer, real estate and commercial loans; checking, savings and time deposits; and specialized products and services (such as credit cards, trust and fiduciary services, investments, agricultural finance lending, equipment lending, insurance and ~~small business administration~~Small Business Administration (“SBA”) lending). from approximately 226 financial centers as of September 30, 2020, located throughout market areas in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.

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, ~~2018,~~2019, 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, ~~2018,~~2019, which was filed with the SEC on February 27, ~~2019.~~2020.

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~~credit 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

~~Cloud Computing Arrangements~~Fair Value Measurement Disclosures – In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~ (“ASU 2018-15”), that amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. The internal-use software guidance states that only qualifying costs incurred during the application development stage can be capitalized. The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. 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 the deferred implementation costs were a separate, major depreciable asset class. The Company early adopted ASU 2018-15 in the first quarter 2019 and elected to apply the guidance prospectively to all software implementation costs incurred after the date of adoption. As of September 30, 2019, $1.1 million of applicable software implementation costs have been capitalized and have not had a material impact on our financial position or results of operations.

~~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 was 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.

~~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 early adopted ASU 2017-04 during the second quarter 2019 to coincide with the Company’s formal impairment analysis. See Note 7, Goodwill and Other Intangible Assets, for additional information.

~~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 consolidated balance sheet 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 was 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 consolidated balance sheet 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 consolidated balance sheet but instead will recognize lease payments as an expense over the lease term as appropriate. See Note 6, Right-of-Use Lease Assets and Lease Liabilities, 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 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~~ASU 2018-13 did not have a material impact on the ~~impact this standard will have on its~~Company’s fair value 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 (the current expected credit losses, or “CECL”, methodology) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted each period for changes in expected lifetime credit losses. This methodology replaces the multiple existing impairment methods in current guidance, which generally require that a loss be incurred before it is recognized. Within the life cycle of a loan or other financial asset, this new guidance will generally result in the earlier recognition of the provision for credit losses and the related allowance for credit losses than current practice. For available-for-sale debt securities that the Company intends to hold and where fair value is less than cost, credit-related impairment, if any, will be recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ~~The~~In preparation for implementation of ASU 2016-13, the Company ~~has~~ formed a cross functional team that ~~continues to assess~~assessed its data and system needs and ~~evaluate~~evaluated the potential impact of adopting the new guidance. The Company ~~anticipates~~anticipated 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~~prior accounting practice that ~~utilizes~~utilized the incurred loss model.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed in to law by the President of the United States and allows the option to temporarily defer or suspend the adoption of ASU 2016-13. During the deferral, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company has not elected to temporarily defer the adoption of ASU 2016-13 and adopted the new standard as of January 1, 2020. Upon adoption, the Company recorded an additional allowance for credit losses on loans of approximately $151.4 million and an adjustment to the reserve for unfunded commitments recorded in other liabilities of $24.0 million. The Company also recorded an additional allowance for credit losses on investment securities of $742,000. The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $128.1 million.

The significant impact to the Company’s allowance for credit losses at the date of adoption was driven by the substantial amount of loans acquired held by the Company. The Company had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology. As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank.

In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that ~~provides~~provided an option to phase in over a three year period on a straight line basis the day-one impact on earnings and ~~tier one capital. Due~~Tier 1 capital (the “CECL Transition Provision”).

In March 2020 and in response to ~~this final~~the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory ~~agencies,~~capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision.

In connection with the adoption of ASU 2016-13, the Company revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below:

Allowance for Credit Losses - Held-to-Maturity (“HTM”) Securities - The Company measures expected credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. See Note 3, Investment Securities, for additional information related to the Company’s allowance for credit losses on HTM securities.

Allowance for Credit Losses - Available-for-Sale (“AFS”) Securities - For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is ~~continuing~~required to ~~research~~assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. If the assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and ~~study options~~an allowance for ~~recording~~credit loss is recorded through income as a ~~one-time adjustment or structuring any capital impact over an allowable period~~component of ~~time. The impact will be reflected as an adjustment to beginning retained earnings,~~provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income ~~taxes, at adoption.~~

~~Based~~tax effects. The Company has made the election to exclude accrued interest receivable on ~~a preliminary analysis performed,~~AFS securities from the ~~Company previously disclosed that~~estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses ~~was estimated to increase by approximately 130% to 170% over~~are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance ~~based on June 30, 2019 loan balances. When purchase discounts are considered,~~when management believes the ~~increase~~uncollectibility of an AFS security is expected to be 10% to 30% over the June 30, 2019 total credit coverage ratio. These estimates were based upon the Company’s analysis of current macroeconomic conditions, assumptions and forecasts at the point in time at which the initial guidance was given and did not include the impactconfirmed or when either of the ~~Company’s acquisition of The Landrum Company. When factoring in the Company’s recent acquisition of The Landrum Company (see~~criteria regarding intent or requirement to sell is met. See Note ~~2, Acquisitions,~~3, Investment Securities, for additional information related to the Company’s allowance for credit losses on AFS securities.

Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans, and any direct principal charge-offs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance on the consolidated balance sheets. Further information regarding accounting policies related to past due loans, non-accrual loans, and troubled-debt restructurings is presented in Note 5, Loans and Allowance for Credit Losses.

The Company used the ~~acquisition),~~prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company increased the allowance for credit losses ~~is estimated to increase~~ by approximately ~~165%~~$5.4 million at adoption for the assets previously identified as PCI. In accordance with ASU 2016-13, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

Collateral Dependent Loans - Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to ~~215% over~~be provided substantially through the operation or sale of the collateral, the allowance for credit loss is measured based on the difference between the fair value of the collateral and ~~when purchase discounts are considered,~~ the ~~increase~~amortized cost basis of the asset as of the measurement date. When repayment is expected to be ~~5% to 25% over~~from the ~~total credit coverage ratio.~~

~~These estimates are subject to change based on continuing review and challenge~~operation of the models, methodologies and judgments. The impact at adoption will also be influenced by the loan portfolio composition and quality at the adoption date, as well as, macroeconomic conditions and forecast at that time. The adoption of ASU 2016-13 in 2020 could also impact the Company’s ongoing earnings, perhaps materially.

Implementation efforts for the adoption of CECL have been underway, including model development and validation, fulfillment of additional data needs for new disclosures and reporting requirements, and drafting of accounting policies. Model validations and user acceptance testing commenced in the first quarter of 2019, with loss forecast modeling taking place in the third quarter of 2019. The Company intends to utilize a single macroeconomic scenario in estimating expected credit losses. Reasonable and supportable forecast periods and methods to revert to historical averages to arrive at lifetimecollateral, expected credit losses ~~vary~~are calculated as the amount by ~~product.~~which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures - The allowance for credit losses on off-balance-sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance for credit loss is recognized if the Company has ~~completed decisions around model methodologies,~~the unconditional right to cancel the obligation. The allowance for credit loss is reported as a component of accrued interest and ~~relevant elections~~other liabilities in the consolidated balance sheets. Adjustments to the allowance are ~~being finalized.~~reported in the income statement as a component of other operating expenses.

Recently Issued Accounting Standards

Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. After 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be available for a limited time (generally through December 31, 2022). As of September 30, 2020, the Company has not made any modifications to hedges or other instruments that reference an interest rate that is expected to be discontinued.

Income Taxes – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), that removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 introduces the following new guidance: i) guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction and ii) a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax. Additionally, ASU 2019-12 changes the following current guidance: i) making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations, ii) determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting, iii) accounting for tax law changes and year-to-date losses in interim periods, and iv) determining how to apply the income tax guidance to franchise taxes that are partially based on income. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

There have been no other significant changes to the Company’s accounting policies from the ~~2018~~2019 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.

NOTE 2: ACQUISITIONS

The Landrum Company

On October 31, 2019, the Company completed its merger with The Landrum Company (“Landrum”), pursuant to the terms of the Agreement and Plan of Merger dated as of July 30, 2019 (“Landrum Agreement”), at which time Landrum was merged with and into the Company, with the Company continuing as the surviving corporation. Pursuant to the terms of the Landrum Agreement, the shares of Landrum Class A Common Voting Stock, par value $0.01 per share, and Landrum Class B Common Nonvoting Stock, par value $0.01 per share, were converted into the right to receive, in the aggregate, approximately 17,350,000 shares of the Company’s common stock, and each share of Landrum’s series E preferred stock was converted into the right to receive 1 share of the Company’s comparable series D preferred stock. The Company issued 17,349,722 shares of its common stock and 767 shares of its series D preferred stock, par value $0.01 per share, in exchange for all outstanding shares of Landrum capital stock to effect the merger.

Prior to the acquisition, Landrum, headquartered in Columbia, Missouri, conducted banking business through its subsidiary bank, Landmark Bank, from 39 branches located in Missouri, Oklahoma and Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $3.4 billion in assets, including approximately $2.0 billion in loans (inclusive of loan discounts), and approximately $3.0 billion in deposits. The systems conversion occurred on February 14, 2020, at which time Landmark Bank merged into Simmons Bank, with Simmons Bank as the surviving institution.

Goodwill of $151.1 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, 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 Landrum acquisition, as of the acquisition date, is as follows:


(In thousands)	Acquired from Landrum		Fair Value Adjustments		Fair Value
Assets Acquired
Cash and due from banks	$	215,285	$	0	$	215,285
Due from banks - time	248		0		248
Investment securities	1,021,755		4,228		1,025,983
Loans acquired	2,049,137		(43,651)		2,005,486
Allowance for loan losses	(22,736)		22,736		—
Foreclosed assets	373		(183)		190
Premises and equipment	63,878		18,781		82,659
Bank owned life insurance	19,206		0		19,206
Goodwill	407		(407)		—
Core deposit intangible	0		24,345		24,345
Other intangibles	412		4,704		5,116
Other assets	33,924		(13,290)		20,634
Total assets acquired	$	3,381,889	$	17,263	$	3,399,152

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	716,675	$	0	$	716,675
Interest bearing transaction accounts and savings deposits	1,465,429		0		1,465,429
Time deposits	867,197		299		867,496
Total deposits	3,049,301		299		3,049,600
Other borrowings	10,055		0		10,055
Subordinated debentures	34,794		(877)		33,917
Accrued interest and other liabilities	31,057		9,869		40,926
Total liabilities assumed	3,125,207		9,291		3,134,498
Equity	256,682		(256,682)		—
Total equity assumed	256,682		(256,682)		—
Total liabilities and equity assumed	$	3,381,889	$	(247,391)	$	3,134,498
Net assets acquired					264,654
Purchase price					415,779
Goodwill					$	151,125

During 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities.

The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Landrum subsequent to the acquisition date.

Reliance Bancshares, Inc.

On April 12, 2019, the Company completed its merger with Reliance Bancshares, Inc. (“Reliance”), headquartered in the St. Louis, Missouri, metropolitan area, pursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), dated November 13, 2018, as amended February 11, 2019. In the merger, each outstanding share of Reliance common stock, as well as each Reliance common stock equivalent was canceled and converted into the right to receive shares of the Company’s common stock and/or cash in accordance with the terms of the Reliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to receive 1 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 right to receive 1 share of Simmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive alternate consideration in accordance with the Reliance Agreement). The Company issued 3,999,623 shares of its common stock and paid $62.7 million in cash to effect the merger. The Company also issued $42.0 million of ~~preferred stock in exchange for all outstanding shares of Reliance preferred stock.~~its Series A Preferred Stock and Series B Preferred Stock. On May 13, 2019, the Company redeemed all of the preferred stock issued in connection with the merger, and paid all accrued and unpaid dividends up to the date of redemption. On October 29, 2019, the Company amended its Amended and Restated Articles of Incorporation to cancel the Series C Preferred Stock, having 140 authorized shares, of which 0 shares ~~have~~were ever ~~been~~ issued or outstanding.

Prior to the ~~merger,~~acquisition, Reliance conducted banking business through its subsidiary bank, Reliance Bank, from 22 branches located in Missouri and Illinois. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $1.5 billion in assets, including approximately $1.1 billion in loans (inclusive of loan discounts), and approximately $1.2 billion in deposits. Contemporaneously with the completion of the Reliance merger, Reliance Bank was merged into Simmons Bank, with Simmons Bank as the surviving institution.

Goodwill of ~~$81.0~~$78.5 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s St. Louis metropolitan area footprint, 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 Reliance ~~transaction,~~acquisition, as of the acquisition date, is as follows:


(In thousands)	Acquired from Reliance		Fair Value Adjustments		Fair Value
Assets Acquired
Cash and due from banks	$	25,693	$	0	$	25,693
Due from banks - time	502		0		502
Investment securities	287,983		(1,873)		286,110
Loans acquired	1,138,527		(41,657)		1,096,870
Allowance for loan losses	(10,808)		10,808		0
Foreclosed assets	11,092		(5,180)		5,912
Premises and equipment	32,452		(3,001)		29,451
Bank owned life insurance	39,348		0		39,348
Core deposit intangible	0		18,350		18,350
Other assets	25,165		6,911		32,076
Total assets acquired	$	1,549,954	$	(15,642)	$	1,534,312

(In thousands) Acquired from Reliance Fair Value Adjustments Fair Value
Assets Acquired
Cash and due from banks $ 25,693
$ —
$ 25,693
Due from banks - time 502
—
502
Investment securities 287,983
(1,763 ) 286,220
Loans acquired 1,138,527
(41,657 ) 1,096,870
Allowance for loan losses (10,808 ) 10,808
—
Foreclosed assets 11,092
(5,180 ) 5,912
Premises and equipment 32,452
(3,001 ) 29,451
Bank owned life insurance 39,348
—
39,348
Core deposit intangible —
18,350
18,350
Other assets 25,165
5,001
30,166
Total assets acquired $ 1,549,954
$ (17,442 ) $ 1,532,512

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts $ 108,845
$ (33 ) $ 108,812
Interest bearing transaction accounts and savings deposits 639,798
—
639,798
Time deposits 478,415
(1,758 ) 476,657
Total deposits 1,227,058
(1,791 ) 1,225,267
Securities sold under agreement to repurchase 14,146
—
14,146
Other borrowings 162,900
(5,500 ) 157,400
Accrued interest and other liabilities 8,185
936
9,121
Total liabilities assumed 1,412,289
(6,355 ) 1,405,934
Equity 137,665
(95,665 ) 42,000
Total equity assumed 137,665
(95,665 ) 42,000
Total liabilities and equity assumed $ 1,549,954
$ (102,020 ) $ 1,447,934
Net assets acquired 84,578
Purchase price 165,539
Goodwill $ 80,961


(In thousands)	Acquired from Reliance		Fair Value Adjustments		Fair Value
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	108,845	$	(33)	$	108,812
Interest bearing transaction accounts and savings deposits	639,798		0		639,798
Time deposits	478,415		(1,758)		476,657
Total deposits	1,227,058		(1,791)		1,225,267
Securities sold under agreement to repurchase	14,146		0		14,146
Other borrowings	162,900		(5,500)		157,400
Accrued interest and other liabilities	8,185		268		8,453
Total liabilities assumed	1,412,289		(7,023)		1,405,266
Equity	137,665		(137,665)		0
Total equity assumed	137,665		(137,665)		0
Total liabilities and equity assumed	$	1,549,954	$	(144,688)	$	1,405,266
Net assets acquired					129,046
Purchase price					207,539
Goodwill					$	78,493

During 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities.

The ~~purchase price allocation and certain fair value measurements remain preliminary due to~~Company’s operating results include the ~~timing of the merger. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis~~operating results of the acquired assets and assumed liabilities ~~in this transaction over the next few months, within one year~~ of ~~the merger. Therefore, adjustments~~Reliance subsequent to the ~~estimated amounts and carrying values may occur.~~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. Any core deposit intangible established prior to the acquisitions, if applicable, was written off.

Other intangibles – These intangible assets represent the value of the relationship that Landrum had with their trust and wealth management customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Intangible assets for Landrum also included mortgage servicing rights. 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 more or 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.~~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~~Other borrowings – The fair value of ~~Federal Home Loan Bank (“FHLB”)~~other borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and ~~other borrowings~~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.

Accrued interest and other liabilities – The adjustment establishes a liability for unfunded commitments equal to the ~~estimated~~ fair value of that liability at the date of acquisition. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.

~~The Landrum Company (Subsequent Event - Acquisition)~~

On July 30, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with The Landrum Company (“Landrum”), headquartered in Columbia, Missouri. The merger was completed on October 31, 2019, at which time The Landrum Company was merged with and into the Company, with the Company continuing as the surviving corporation. Pursuant to the terms of the Agreement, the shares of Landrum Class A Common Voting Stock, par value $0.01 per share, and Landrum Class B Common Nonvoting Stock, par value $0.01 per share, were converted into the right to receive, in the aggregate, approximately 17,350,000 shares of the Company’s common stock and each share of Landrum’s series E preferred stock was converted into the right to receive one share of the Company’s comparable series D preferred stock.

Prior to the acquisition, Landrum conducted banking business from 39 branches located in Missouri, Oklahoma and Texas. As of September 30, 2019, Landrum had approximately $3.3 billion in assets, $2.0 billion in loans and $2.9 billion in deposits.

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the merger. Due to the recent October 31, 2019 closing, management remains in the early stages of reviewing the estimated fair values and evaluating the assumed tax positions of this merger. 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 merger.

NOTE 3: INVESTMENT SECURITIES

Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity.

Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity, further discussed below. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity.

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


(In thousands)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Held-to-Maturity

September 30, 2020
Mortgage-backed securities	$	24,297	$	0	$	24,297	$	701	$	(1)	$	24,997
State and political subdivisions	22,003		(73)		21,930		1,155		(1)		23,084
Other securities	1,175		(300)		875		108				983
Total HTM	$	47,475	$	(373)	$	47,102	$	1,964	$	(2)	$	49,064

December 31, 2019
Mortgage-backed securities	$	10,796	$	0	$	10,796	$	71	$	(59)	$	10,808
State and political subdivisions	27,082		0		27,082		849		0		27,931
Other securities	3,049		0		3,049		67		0		3,116
Total HTM	$	40,927	$	0	$	40,927	$	987	$	(59)	$	41,855

September 30, 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 $ —
$ —
$ —
$ —
$ 16,990
$ —
$ (49 ) $ 16,941
Mortgage-backed securities 11,549
93
(42 ) 11,600
13,346
5
(412 ) 12,939
State and political subdivisions 28,692
931
—
29,623
256,863
3,029
(954 ) 258,938
Other securities 1,996
83
—
2,079
1,995
17
—
2,012
Total HTM $ 42,237

$ 1,107

$ (42 )
$ 43,302

$ 289,194

$ 3,051

$ (1,415 )
$ 290,830

Available-for-Sale
U.S. Government agencies $ 177,712
$ 1,629
$ (1,202 ) $ 178,139
$ 157,523
$ 518
$ (3,740 ) $ 154,301
Mortgage-backed securities 1,332,130
9,405
(3,741 ) 1,337,794
1,552,487
3,097
(32,684 ) 1,522,900
State and political subdivisions 658,984
22,290
(72 ) 681,202
320,142
171
(5,470 ) 314,843
Other securities 158,280
719
—
158,999
157,471
2,251
(14 ) 159,708
Total AFS $ 2,327,106

$ 34,043

$ (5,015 )
$ 2,356,134

$ 2,187,623

$ 6,037

$ (41,908 )
$ 2,151,752

The amortized cost, fair value and allowance for credit losses of investment securities that are classified as AFS are as follows:

~~Securities with limited marketability, such as stock in the Federal Reserve Bank~~


(In thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Available-for-sale

September 30, 2020
U.S. Government agencies	$	472,078	$	0	$	1,257	$	(1,362)	$	471,973
Mortgage-backed securities	882,076		0		22,050		(439)		903,687
State and political subdivisions	1,105,341		(1,148)		32,001		(3,188)		1,133,006
Other securities	97,313		(60)		1,429		(60)		98,622
Total AFS	$	2,556,808	$	(1,208)	$	56,737	$	(5,049)	$	2,607,288

December 31, 2019
U.S. Treasury	$	449,729	$	0	$	112	$	(112)	$	449,729
U.S. Government agencies	194,207		0		1,313		(1,271)		194,249
Mortgage-backed securities	1,738,584		0		8,510		(4,149)		1,742,945
State and political subdivisions	860,539		0		20,983		(998)		880,524
Other securities	20,092		0		822		(18)		20,896
Total AFS	$	3,263,151	$	0	$	31,740	$	(6,548)	$	3,288,343

Accrued interest receivable on HTM and ~~the FHLB, 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 September 30, ~~2019~~2020 was $291,000 and ~~December 31, 2018, was $710.6~~$12.1 million, respectively, and ~~$1.7 billion, which~~ is ~~approximately 29.6% and 70.3%, respectively,~~included in interest receivable on the consolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities from the estimate of ~~the Company’s combined AFS and HTM investment portfolios.~~

credit losses.

The following table ~~shows the gross unrealized losses and fair value of~~summarizes the Company’s AFS investments ~~with~~in an unrealized ~~losses,~~loss position for which an allowance for credit loss has not been recorded as of September 30, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss ~~position at~~position:


	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
Available-for-sale
U.S. Government agencies	$	213,014	$	(440)	$	54,329	$	(922)	$	267,343	$	(1,362)
Mortgage-backed securities	95,213		(433)		4,038		(6)		99,251		(439)
State and political subdivisions	108,153		(2,039)		386		(1)		108,539		(2,040)
Total AFS	$	416,380	$	(2,912)	$	58,753	$	(929)	$	475,133	$	(3,841)

As of September 30, ~~2019:~~2020, the Company’s investment portfolio included $2.6 billion of AFS securities, of which $475.1 million, or 18.2%, were in an unrealized loss position that are not deemed to have credit losses. A portion of the unrealized losses were related to the Company’s mortgage-backed securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies, and the Company’s state and political securities, specifically investments in insured fixed rate municipal bonds meaning issuers continue to make timely principal and interest payments under the contractual terms of the securities.

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

Mortgage-backed securities $ 3,408
$ (15 ) $ 2,575
$ (27 ) $ 5,983
$ (42 )
State and political subdivisions 635
—
15
—
650
—
Total HTM $ 4,043

$ (15 )
$ 2,590

$ (27 )
$ 6,633

$ (42 )

Available-for-Sale
U.S. Government agencies $ 16,662
$ (36 ) $ 90,974
$ (1,166 ) $ 107,636
$ (1,202 )
Mortgage-backed securities 133,538
(528 ) 435,207
(3,213 ) 568,745
(3,741 )
State and political subdivisions 24,278
(41 ) 3,297
(31 ) 27,575
(72 )
Total AFS $ 174,478

$ (605 )
$ 529,478

$ (4,410 )
$ 703,956

$ (5,015 )

~~The declines reflected~~Furthermore, the decline in fair value for each of the ~~preceding table primarily resulted from~~above AFS securities is attributable to the ~~rate~~rates for ~~these~~those investments yielding less than current market rates. ~~Based on evaluation~~Management does not believe any of ~~available evidence, management~~the securities are impaired due to reasons of credit quality. Management believes the declines in fair value for ~~these~~the securities are temporary. Management does not have the intent to sell ~~these~~the securities, and management believes it is more likely than not the Company will not have to sell ~~these~~the securities before recovery of their amortized cost ~~basis less any current period~~basis.

Allowance for Credit Losses

All of the mortgage-backed securities held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Accordingly, no allowance for credit losses has been recorded for these securities.

~~Declines~~Regarding securities issued by state and political subdivisions and other HTM securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts, (v) whether or not such securities provide insurance or other credit enhancement or pre-refunded by the issuers.

The following table details activity in the ~~fair value of~~allowance for credit losses by investment security type for the three and nine months ended September 30, 2020 on the Company’s HTM and AFS securities ~~below their cost that are deemed~~held.


(In thousands)	State and Political Subdivisions		Other Securities		Total
Three Months Ended September 30, 2020
Held-to-Maturity
Beginning balance, July 1, 2020	$	95	$	212	$	307
Provision for credit loss expense	(22)		88		66
Ending balance, September 30, 2020	$	73	$	300	$	373

Available-for-sale
Beginning balance, July 1, 2020	$	371	$	238	$	609
Credit losses on securities not previously recorded	1,137		23		1,160
Reduction due to sales	(294)		0		(294)
Net decrease in allowance on previously impaired securities	(66)		(201)		(267)
Ending balance, September 30, 2020	$	1,148	$	60	$	1,208

Nine Months Ended September 30, 2020
Held-to-Maturity
Beginning balance, January 1, 2020	$	0	$	0	$	0
Impact of ASU 2016-13 adoption	58		311		369
Provision for credit loss expense	15		(11)		4
Ending balance, September 30, 2020	$	73	$	300	$	373

Available-for-sale
Beginning balance, January 1, 2020	$	0	$	0	$	0
Impact of ASU 2016-13 adoption	373		0		373
Credit losses on securities not previously recorded	1,130		78		1,208
Reduction due to sales	(244)		0		(244)
Net decrease in allowance on previously impaired securities	(111)		(18)		(129)
Ending balance, September 30, 2020	$	1,148	$	60	$	1,208

During the three and nine months ended September 30, 2020, the provision for credit losses was $599,000 and $835,000, respectively, related 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.AFS securities.

~~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~~The following table summarizes bond ratings for the ~~securities. Furthermore,~~Company’s HTM portfolio issued by state and political subdivisions and other securities as of September 30, ~~2019, management also had~~2020:


	State and Political Subdivisions
(In thousands)	Not Guaranteed or Pre-Refunded		Other Credit Enhancement or Insurance		Pre-Refunded		Total		Other Securities
Aaa/AAA	$	865	$	0	$	0	$	865	$	0
Aa/AA	11,270		5,445		0		16,715		0
A	960		1,058		0		2,018		0
Baa	0		426		0		426		0
Not Rated	1,611		368		0		1,979		1,175
Total	$	14,706	$	7,297	$	0	$	22,003	$	1,175

Historical loss rates associated with securities having similar grades as those in the ~~ability~~Company’s portfolio have generally not been significant. Pre-refunded securities, if any, have been defeased by the issuer and ~~intent~~are fully secured by cash and/or U.S. Treasury securities held in escrow for payment 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 timeholders when 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 anycall dates of the securities are ~~impaired due~~reached. Securities with other credit enhancement or insurance continue to ~~reasons~~make timely principal and interest payments under the contractual terms of the securities. Accordingly, no allowance for credit losses has been recorded for these securities as there is no current expectation of credit ~~quality. Accordingly, as of September 30, 2019, management believes the impairments detailed in the table above are temporary. Should the impairment of any of~~losses related to 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.securities.

Income earned on securities for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, is as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2019 2018 2019 2018
Taxable:

Held-to-maturity $ 248
$ 528
$ 975
$ 1,641
Available-for-sale 10,166
10,364
34,422
29,614

Non-taxable:
Held-to-maturity 83
1,828
1,334
5,661
Available-for-sale 4,870
1,920
12,542
4,642
Total $ 15,367
$ 14,640
$ 49,273
$ 41,558


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Taxable:
Held-to-maturity	$	256	$	248	$	715	$	975
Available-for-sale	6,937		9,266		26,604		31,563

Non-taxable:
Held-to-maturity	65		83		205		1,334
Available-for-sale	7,652		4,870		19,802		12,542
Total	$	14,910	$	14,467	$	47,326	$	46,414

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 $ 5,039
$ 5,057
$ 7,599
$ 7,605
After one through five years 17,346
17,703
70,442
70,750
After five through ten years 5,561
5,858
139,421
142,101
After ten years 2,742
3,084
632,504
652,404
Securities not due on a single maturity date 11,549
11,600
1,332,130
1,337,794
Other securities (no maturity) —
—
145,010
145,480
Total $ 42,237

$ 43,302

$ 2,327,106

$ 2,356,134


	Held-to-Maturity				Available-for-Sale
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	4,205	$	4,243	$	15,432	$	15,538
After one through five years	13,117		13,698		33,170		33,657
After five through ten years	5,856		6,126		192,972		195,045
After ten years	0		0		1,432,064		1,458,119
Securities not due on a single maturity date	24,297		24,997		882,076		903,687
Other securities (no maturity)	—		—		1,094		1,242
Total	$	47,475	$	49,064	$	2,556,808	$	2,607,288

The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to ~~$1.12~~$1.41 billion at September 30, ~~2019~~2020 and ~~$1.02~~$1.73 billion at December 31, ~~2018.~~2019.

There were approximately $22.3 million of gross realized gains and $1,700 of gross realized losses from the sale of securities during the three months ended September 30, 2020, and approximately $54.8 million of gross realized gains and $4,400 of gross realized losses from the sale of securities during the nine months ended September 30, 2020. During the first nine months of 2020, the Company sold approximately $1.7 billion of investment securities to create additional liquidity. There were approximately $7.6 million of gross realized gains and $3,000 of gross realized losses from the sale of securities during the three months ended September 30, 2019, and approximately $12.9 million of gross realized gains and $3,000 of gross realized losses from the sale of securities during the nine months ended September 30, 2019. ~~During~~The income tax expense/benefit related to security gains/losses was 26.135% of the ~~third quarter~~gross amounts in 2020 and 2019.

NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE

Colorado Branch Sale

On February 10, 2020, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “First Western Agreement”) with First Western Trust Bank (“First Western”), a wholly-owned subsidiary of First Western Financial, Inc.

On May 18, 2020, First Western completed its purchase of certain assets and assumption of certain liabilities (“Colorado Branch Sale”) associated with four Simmons Bank locations in Denver, Englewood, Highlands Ranch, and Lone Tree, Colorado (collectively, the “Colorado Branches”). Pursuant to the terms of the First Western Agreement, First Western assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Colorado Branches.

Texas Branch Sale

On December 20, 2019, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “Spirit Agreement”) with Spirit of Texas Bank, SSB (“Spirit”), a wholly-owned subsidiary of Spirit of Texas Bancshares, Inc.

On February 28, 2020, Spirit completed its purchase of certain assets and assumption of certain liabilities (“Texas Branch Sale”) associated with five Simmons Bank locations in Austin, San Antonio, and Tilden, Texas (collectively, the “Texas Branches”). Pursuant to the terms of the Spirit Agreement, Spirit assumed certain deposit liabilities and acquired certain loans, as well as cash, real property, personal property and other fixed assets associated with the Texas Branches.

The Company ~~sold approximately $89 million of bonds as part of~~recognized a ~~plan to rebalance its investment portfolio resulting in a net~~combined gain on ~~the~~ sale of ~~securities of $7.3 million. The gross realized gains recognized for~~$8.1 million related to the Texas Branches and Colorado Branches in the nine ~~months~~month period ended September 30, 2019 is primarily due to the bond sale conducted during the third quarter 2019 as previously discussed and the adjustments made to the bond portfolio during the first quarter based upon projected cash flow changes. There were approximately $41,000 of gross realized gains and 0 gross realized losses from the sale of securities during the three months ended September 30, 2018, and approximately $54,000 of gross realized gains and $1,000 of gross realized losses from the sale of securities during the nine months ended September 30, 2018.2020.

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 4:5: LOANS AND ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES

At September 30, ~~2019,~~2020, the Company’s loan portfolio was ~~$13.00~~$14.02 billion, compared to ~~$11.72~~$14.43 billion at December 31, ~~2018.~~2019. The various categories of loans are summarized as follows:


	September 30,		December 31,
(In thousands)	2020		2019
Consumer:
Credit cards	$	172,880	$	204,802
Other consumer	190,736		249,195
Total consumer	363,616		453,997
Real Estate:
Construction and development	1,853,360		2,248,673
Single family residential	1,997,070		2,414,753
Other commercial	6,132,823		6,358,514
Total real estate	9,983,253		11,021,940
Commercial:
Commercial	2,907,798		2,451,119
Agricultural	241,687		191,525
Total commercial	3,149,485		2,642,644
Other	521,088		307,123
Total loans	$	14,017,442	$	14,425,704

(In thousands) September 30, 2019 December 31, 2018
Consumer:

Credit cards $ 195,083
$ 204,173
Other consumer 208,643
201,297
Total consumer 403,726

405,470
Real Estate:
Construction 1,712,858
1,300,723
Single family residential 1,448,455
1,440,443
Other commercial 3,630,708
3,225,287
Total real estate 6,792,021

5,966,453
Commercial:
Commercial 1,894,819
1,774,909
Agricultural 213,753
164,514
Total commercial 2,108,572

1,939,423
Other 339,046
119,042
Loans 9,643,365
8,430,388
Loans acquired, net of discount and allowance ⁽¹⁾
3,359,587
3,292,783
Total loans $ 13,002,952

$ 11,723,171

~~_____________________________~~



(In thousands)	Performance Stock Units
Non-vested, January 1, ~~2019~~2020	~~177~~199
Granted	~~118~~122
Vested (earned)	~~(93~~(80)	)
Forfeited	(3(19)	)
Non-vested, September 30, ~~2019~~2020	~~199~~222

Stock-based compensation expense was ~~$9,316,000~~$10,750,000 and ~~$9,818,000~~$9,316,000 during the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was 0 unrecognized stock-based compensation expense related to stock options at September 30, ~~2019.~~2020. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was ~~$16,269,000~~$18,142,000 at September 30, ~~2019.~~2020. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.7 years.

The intrinsic value of stock options outstanding and stock options exercisable at September 30, ~~2019~~2020 was ~~$1,717,000 and $1,714,000, respectively.~~$23,000. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was ~~$24.90~~$15.86 as of September 30, ~~2019,~~2020, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, was ~~$6,000~~$5,000 and ~~$1,155,000,~~$6,000, respectively.

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 0 stock options granted during the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

NOTE ~~16:~~17: EARNINGS PER SHARE (“EPS”)

Basic EPS is computed by dividing reported net income available to common stockholders by weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing reported net income available to common stockholders by the weighted average common shares and all potential dilutive common shares outstanding during the period.

The computation of earnings per share is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2020		2019		2020		2019
Net income available to common stockholders	$	65,885	$	81,826	$	201,897	$	185,119

Average common shares outstanding	109,019		96,608		110,292		95,090
Average potential dilutive common shares	189		360		189		360
Average diluted common shares	109,208		96,968		110,481		95,450

Basic earnings per share	$	0.60	$	0.85	$	1.83	$	1.95
Diluted earnings per share	$	0.60	$	0.84	$	1.83	$	1.94

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands, except per share data) 2019 2018 2019 2018
Net income available to common stockholders $ 81,826
$ 55,193
$ 185,119
$ 160,067

Average common shares outstanding 96,608
92,290
95,090
92,246
Average potential dilutive common shares 360
551
360
551
Average diluted common shares 96,968
92,841
95,450

92,797

Basic earnings per share $ 0.85
$ 0.60
$ 1.95
$ 1.74
Diluted earnings per share $ 0.84
$ 0.59
$ 1.94
$ 1.72

There were approximately 653,718 stock options excluded from the three and nine months ended September 30, 2020 earnings per share calculations due to the related stock option exercise price exceeding the average market price. There were 0 stock options excluded from ~~the~~ earnings per share ~~calculation~~calculations due to the related stock option exercise price exceeding the average market price for the three and nine months ended September 30, ~~2019 and 2018.~~2019.

NOTE ~~17:~~18: ADDITIONAL CASH FLOW INFORMATION

The following is a summary of the Company’s additional cash flow information:

Nine Months Ended
September 30,
(In thousands) 2019 2018
Interest paid $ 130,904
$ 78,987
Income taxes (refunded) paid 34,028
25,576
Transfers of loans to foreclosed assets held for sale 3,666
7,745
Transfers of premises to foreclosed assets and other real estate owned 556
3,690
Right-of use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02) 32,757
—


	Nine Months Ended September 30,
(In thousands)	2020		2019
Interest paid	$	95,040	$	130,904
Income taxes paid	30,708		34,028
Transfers of loans to foreclosed assets held for sale	3,083		3,666
Transfers of premises to foreclosed assets and other real estate owned	3,120		556
Transfers of premises to premises held for sale	1,072		0
Transfers of other real estate owned to premises held for sale	3,504		0
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02)	0		32,757
Transfers of loans to other assets held for sale	114,925		0
Transfers of deposits to other liabilities held for sale	58,405		0

NOTE ~~18:~~19: OTHER INCOME AND OTHER OPERATING EXPENSES

Other income for the three and nine months ended September 30, 2020 was $5.4 million and $28.0 million, respectively. The nine month period included the gains on sale related to the Texas Branch Sale and Colorado Branch Sale of $8.1 million. Other income for the three and nine months ended September 30, 2019 was ~~$43.8~~$44.7 million and ~~$52.1~~$54.9 million, respectively, and primarily consisted of the gain on sale of Visa Inc. class B common stock of $42.9 million. ~~Other income for the three and nine months ended September 30, 2018 was $4.9 million and $14.2 million, respectively.~~

Other operating expenses ~~consist~~consisted of the following:

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2019 2018 2019 2018
Professional services $ 4,310
$ 4,616
$ 12,125
$ 13,896
Postage 1,471
1,262
4,642
4,103
Telephone 2,507
1,248
5,605
4,217
Credit card expense 4,200
3,405
11,822
9,820
Marketing 7,021
2,912
12,514
6,334
Software and technology 6,531
4,733
16,607
10,716
Operating supplies 493
585
1,671
1,917
Amortization of intangibles 2,947
2,772
8,535
8,394
Branch right sizing expense 160
970
3,092
1,049
Other expense 8,239
7,171
24,195
20,907
Total other operating expenses $ 37,879
$ 29,674
$ 100,808

$ 81,353


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Professional services	$	3,779	$	4,310	$	13,529	$	12,125
Postage	1,932		1,471		5,937		4,642
Telephone	2,103		2,506		6,738		5,605
Credit card expense	5,190		4,200		14,154		11,822
Marketing	3,517		7,021		11,430		12,514
Software and technology	9,552		6,531		29,021		16,607
Operating supplies	824		493		2,588		1,671
Amortization of intangibles	3,362		2,947		10,144		8,535
Branch right sizing expense	442		160		2,401		3,092
Other expense	7,478		8,240		23,676		24,195
Total other operating expenses	$	38,179	$	37,879	$	119,618	$	100,808

NOTE ~~19:~~20: CERTAIN TRANSACTIONS

From time to time, the Company and its subsidiaries have made loans, other extensions of credit, and vendor contracts to directors, officers, their associates and members of their immediate families. Additionally, some directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary bank, Simmons Bank. Such loans and other extensions of credit, deposits and vendor 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 unrelated persons or 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:~~21: COMMITMENTS AND CREDIT RISK

The Company grants agri-business, commercial and residential loans to customers primarily throughout Arkansas, ~~Colorado,~~ Illinois, 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’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’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 September 30, 2020, the Company had outstanding commitments to extend credit aggregating approximately $676,028,000 and $2,674,548,000 for credit card commitments and other loan commitments, respectively. At December 31, 2019, the Company had outstanding commitments to extend credit aggregating approximately ~~$598,992,000~~$634,788,000 and $3,310,794,000 for credit card commitments and other loan commitments. At December 31, 2018, the Company had outstanding commitments to extend credit aggregating approximately $560,863,000 and $3,455,471,000$3,991,931,000 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 ~~$49,447,000~~$63,604,000 and ~~$39,101,000~~$71,074,000 at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively, with terms ranging from 9 months to 15 years. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had 0 deferred revenue under standby letter of credit agreements.

NOTE ~~21:~~22: FAIR VALUE MEASUREMENTS

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

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.

~~– 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’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.

Other assets and other liabilities held for sale – The Company’s other assets and other liabilities held for sale are reported at fair value utilizing Level 3 inputs. See Note 4, Other Assets and Other Liabilities Held for Sale.

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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


			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)
September 30, 2020
Available-for-sale securities
U.S. Government agencies	$	471,973	$	0	$	471,973	$	0
Mortgage-backed securities	903,687		0		903,687		0
State and political subdivisions	1,133,006		0		1,133,006		0
Other securities	98,622		0		98,622		0
Other assets held for sale	389		0		0		389
Derivative asset	42,021		0		42,021		0
Derivative liability	(42,356)		0		(42,356)		0

December 31, 2019
Available-for-sale securities
U.S. Treasury	$	449,729	$	449,729	$	0	$	0
U.S. Government agencies	194,249		0		194,249		0
Mortgage-backed securities	1,742,945		0		1,742,945		0
States and political subdivisions	880,524		0		880,524		0
Other securities	20,896		0		20,896		0
Other assets held for sale	260,332		0		0		260,332
Derivative asset	14,903		0		14,903		0
Other liabilities held for sale	(159,853)		0		0		(159,853)
Derivative liability	(12,650)		0		(12,650)		0

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)
September 30, 2019

Available-for-sale securities

U.S. Government agencies $ 178,139
$ —
$ 178,139
$ —
Mortgage-backed securities 1,337,794
—
1,337,794
—
State and political subdivisions 681,202
—
681,202
—
Other securities 158,999
—
158,999
—
Derivative asset 14,377
—
14,377
—
Derivative liability (14,478 ) —
(14,478 ) —

December 31, 2018
Available-for-sale securities
U.S. Government agencies $ 154,301
$ —
$ 154,301
$ —
Mortgage-backed securities 1,522,900
—
1,522,900
—
States and political subdivisions 314,843
—
314,843
—
Other securities 159,708
—
159,708
—
Derivative asset 6,242
—
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).~~circumstances. Financial assets and liabilities measured at fair value on a nonrecurring basis include the following:

~~Impaired~~Individually assessed loans ~~(collateral dependent)~~(collateral-dependent) – ~~Loan impairment is reported~~When the Company has a specific expectation to initiate, or has initiated, foreclosure proceedings, and 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 uncollectabilityrepayment of a loan is ~~confirmed. Impaired~~expected to be substantially dependent on the liquidation of underlying collateral, the relationship is deemed collateral-dependent. Fair value of the loan is determined by establishing an allowance for credit loss for any exposure based on the valuation of the underlying collateral. The valuation of the collateral is determined by either an independent third-party appraisal or other collateral analysis. Discounts can be made by the Company based upon the overall evaluation of the independent appraisal. Collateral-dependent loans ~~that are collateral dependent~~ are classified within Level 3 of the fair value ~~hierarchy when impairment is determined using~~hierarchy. Collateral values supporting the ~~fair value method.~~individually assessed loans are evaluated quarterly for updates to appraised values or adjustments due to non-current valuations.

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.

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

Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for ~~loan~~credit 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 September 30, 2019 and December 31, 2018, the fair value of foreclosed assets and other real estate owned less estimated costs to sell was $19.6 million and $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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, 0 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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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)
September 30, 2019

Impaired loans ^{(1) (2)} (collateral dependent)
$ 46,903
$ —
$ —
$ 46,903
Foreclosed assets and other real estate owned ⁽¹⁾
15,046
—
—
15,046

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


			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)
September 30, 2020
Individually assessed loans (1) (2) (collateral-dependent)	$	67,316	$	0	$	0	$	67,316
Foreclosed assets and other real estate owned (1)	3,581		0		0		3,581

December 31, 2019
Individually assessed loans (1) (2) (collateral-dependent)	$	49,190	$	0	$	0	$	49,190
Foreclosed assets and other real estate owned (1)	18,798		0		0		18,798

________________________

(1)These amounts represent the resulting carrying amounts on the consolidated balance sheets for ~~impaired collateral dependent~~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~~Identified reserves of ~~$1,297,000~~$12,586,000 and ~~$2,738,000~~$1,297,000 were related to ~~the impaired collateral dependent~~collateral-dependent loans for which fair value re-measurements took place during the periods ended September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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).

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).

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.

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
September 30, 2020
Financial assets:
Cash and cash equivalents	$	2,522,131	$	2,522,131	$	0	$	0	$	2,522,131
Interest bearing balances due from banks - time	4,061		0		4,061		0		4,061
Held-to-maturity securities	47,102		0		49,064		0		49,064
Mortgage loans held for sale	192,729		0		0		192,729		192,729
Interest receivable	77,352		0		77,352		0		77,352
Loans, net	13,769,191		0		0		13,864,914		13,864,914

Financial liabilities:
Non-interest bearing transaction accounts	4,451,385		0		4,451,385		0		4,451,385
Interest bearing transaction accounts and savings deposits	8,993,255		0		8,993,255		0		8,993,255
Time deposits	2,802,007		0		0		2,820,224		2,820,224
Federal funds purchased and securities sold under agreements to repurchase	313,694		0		313,694		0		313,694
Other borrowings	1,342,769		0		1,459,468		0		1,459,468
Subordinated notes and debentures	382,739		0		400,421		0		400,421
Interest payable	13,694		0		13,694		0		13,694

December 31, 2019
Financial assets:
Cash and cash equivalents	$	996,623	$	996,623	$	0	$	0	$	996,623
Interest bearing balances due from banks - time	4,554		0		4,554		0		4,554
Held-to-maturity securities	40,927		0		41,855		0		41,855
Mortgage loans held for sale	58,102		0		0		58,102		58,102
Interest receivable	62,707		0		62,707		0		62,707
Loans, net	14,357,460		0		0		14,290,188		14,290,188

Financial liabilities:
Non-interest bearing transaction accounts	3,741,093		0		3,741,093		0		3,741,093
Interest bearing transaction accounts and savings deposits	9,090,878		0		9,090,878		0		9,090,878
Time deposits	3,276,969		0		0		3,270,333		3,270,333
Federal funds purchased and securities sold under agreements to repurchase	150,145		0		150,145		0		150,145
Other borrowings	1,297,599		0		1,298,011		0		1,298,011
Subordinated debentures	388,260		0		397,088		0		397,088
Interest payable	12,898		0		12,898		0		12,898

Carrying Fair Value Measurements
(In thousands) Amount Level 1 Level 2 Level 3 Total
September 30, 2019

Financial assets:

Cash and cash equivalents $ 529,970
$ 529,970
$ —
$ —
$ 529,970
Interest bearing balances due from banks - time 5,041
—
5,041
—
5,041
Held-to-maturity securities 42,237
—
43,302
—
43,302
Mortgage loans held for sale 50,099
—
—
50,099
50,099
Interest receivable 53,966
—
53,966
—
53,966
Legacy loans, net 9,577,372
—
—
9,505,701
9,505,701
Loans acquired, net 3,359,587
—
—
3,334,446
3,334,446

Financial liabilities:
Non-interest bearing transaction accounts 3,044,330
—
3,044,330
—
3,044,330
Interest bearing transaction accounts and savings deposits 7,337,571
—
7,337,571
—
7,337,571
Time deposits 3,086,108
—
—
3,080,775
3,080,775
Federal funds purchased and securities sold under agreements to repurchase 116,536
—
116,536
—
116,536
Other borrowings 1,098,395
—
1,099,171
—
1,099,171
Subordinated notes and debentures 354,223
—
366,289
—
366,289
Interest payable 15,404
—
15,404
—
15,404

December 31, 2018
Financial assets:
Cash and cash equivalents $ 833,458
$ 833,458
$ —
$ —
$ 833,458
Interest bearing balances due from banks - time 4,934
—
4,934
—
4,934
Held-to-maturity securities 289,194
—
290,830
—
290,830
Mortgage loans held for sale 26,799
—
—
26,799
26,799
Interest receivable 49,938
—
49,938
—
49,938
Legacy loans, net 8,373,789
—
—
8,280,690
8,280,690
Loans acquired, net 3,292,783
—
—
3,256,174
3,256,174

Financial liabilities:
Non-interest bearing transaction accounts 2,672,405
—
2,672,405
—
2,672,405
Interest bearing transaction accounts and savings deposits 6,830,191
—
6,830,191
—
6,830,191
Time deposits 2,896,156
—
—
2,872,342
2,872,342
Federal funds purchased and securities sold under agreements to repurchase 95,792
—
95,792
—
95,792
Other borrowings 1,345,450
—
1,342,868
—
1,342,868
Subordinated debentures 353,950
—
355,812
—
355,812
Interest payable 9,897
—
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.

NOTE ~~22: SUBSEQUENT EVENTS~~23: DERIVATIVE INSTRUMENTS

~~On October 22,~~The Company utilizes derivative instruments to manage exposure to various types of interest rate risk for itself and its customers within policy guidelines. Transactions should only be entered into with an associated underlying exposure. All derivative instruments are carried at fair value.

Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s asset/liability management committee. In arranging these products for its customers, the Company assumes additional credit risk from the customer and from the dealer counterparty with whom the transaction is undertaken. Credit risk exists due to the default credit risk created in the exchange of the payments over a period of time. Credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty.

Hedge Structures

The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the underlying position being hedged. The term and notional principal amount of a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and aggregate exposure to each counterparty is tracked. The Company has set a maximum outstanding notional contract amount at 10% of the Company’s assets.

Customer Risk Management Interest Rate Swaps

The Company’s qualified loan customers have the opportunity to participate in its interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with the Company. The Company enters into such agreements with customers, then offsetting agreements are executed between the Company and an approved dealer counterparty to minimize market risk from changes in interest rates. The counterparty contracts are identical to customer contracts in terms of notional amounts, interest rates, and maturity dates, except for a fixed pricing spread or fee paid to the Company by the dealer counterparty. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of these derivative instruments is recognized as either derivative assets or liabilities in the accompanying consolidated balance sheets. The Company has a limited number of swaps that are standalone without a similar agreement with the loan customer.

The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets.


	September 30, 2020				December 31, 2019
(In thousands)	Notional		Fair Value		Notional		Fair Value
Derivative assets	$	426,796	$	42,021	$	401,969	$	14,903
Derivative liabilities	436,001		42,356		387,075		12,650

Risk Participation Agreements

The Company has a limited number of Risk Participation Agreement swaps, that are associated with loan participations, where the Company is not the counterparty to the interest rate swaps that are associated with the risk participation sold. The interest rate swap mark to market only impacts the Company if the swap is in a liability position to the counterparty and the customer defaults on payments to the counterparty. The notional amount of these contingent agreements is $51.7 million as of September 30, 2020.

Energy Hedging

During 2019, the Company ~~announced that its Board of Directors authorized a new stock repurchase program (the “Program”) under which the~~began providing energy derivative services to qualifying, high quality oil and gas borrowers for hedging purposes. The Company ~~may repurchase up to $60,000,000 of its Class A common stock currently issued and outstanding. The Program will terminate~~serves as an intermediary on ~~October 31, 2021 (unless terminated sooner). The new Program replaces~~energy derivative products between the Company’s ~~existing stock repurchase program, which was announced on July 23, 2012.~~borrowers and dealers. The Company will only enter into back-to-back trades, thus maintaining a balanced book between the dealer and the borrower.

Under the Program, the Company may repurchase shares of its common stock through open market and privately negotiated transactions or otherwise. The timing, pricing, and amount of any repurchases under the Program will be determined by

Energy hedging risk exposure to the Company’s ~~management at its discretion based on~~customer increases as energy prices for crude oil and natural gas rise. As prices decrease, exposure to the exchange increases. These risks are mitigated by customer credit underwriting policies and establishing a ~~variety~~predetermined hedge line for each borrower and by monitoring the exchange margin.

The outstanding notional value as of ~~factors, including, but not limited~~September 30, 2020 for energy hedging Customer Sell to ~~trading volume~~Company swaps were $17.8 million and ~~market price~~the corresponding Company Sell to Dealer swaps were $17.8 million and the corresponding net fair value of the ~~Company’s common stock, corporate considerations, the Company’s working capital~~derivative asset and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate the Company to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. The Company anticipates funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow.derivative liability was $792,085.

On October 29, 2019, the Company filed its Amended and Restated Articles of Incorporation (“Amended Articles”) with the Arkansas Secretary of State. The Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share (“Series D Preferred Stock”) out of the Company’s authorized preferred stock. The Amended Articles also canceled the Company’s 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C (“Series C Preferred Stock”), having 140 authorized shares, of which 0 shares have ever been issued or outstanding. The Amended Articles were effective as of October 29, 2019.

~~Please refer to Note 2, Acquisitions, for a discussion of the Company’s recent acquisition of The Landrum Company that closed on October 31, 2019.~~

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 September 30, ~~2019,~~2020, and the related ~~condensed~~ consolidated statements of income, comprehensive income and stockholders’ equity for the three-month and nine-month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, and cash flows for the nine-month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, 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, ~~2018,~~2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 27, ~~2019,~~2020, 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, ~~2018,~~2019, 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’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.

Emphasis of Matter

As discussed in Note 1 to the condensed consolidated financial statements, the Company has changed its method of accounting for the allowance for credit losses in 2020 due to the adoption of Topic 326.

/s/ BKD, LLP

Little Rock, Arkansas

November ~~7, 2019~~6, 2020


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

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

OVERVIEW

Our net income for the three months ended September 30, ~~2019~~2020 was ~~$81.8~~$65.9 million, or ~~$0.84~~$0.60 diluted earnings per share, ~~increases~~a decrease of ~~$26.6~~$15.9 million and ~~$0.25,~~of $0.24, respectively, compared to the third quarter ~~2018.~~of 2019. Included in both third quarter ~~2019~~2020 and ~~2018~~2019 results were non-core items related to our acquisitions, early retirement ~~program expenses~~programs and branch right sizing initiatives. Excluding all non-core items, core earnings for the three months ended September 30, ~~2019~~2020 were ~~$84.0~~$68.3 million, or ~~$0.87~~$0.63 core diluted earnings per share, compared to ~~$56.5~~$84.0 million, or ~~$0.61~~$0.87 core diluted earnings per share for the three months ended September 30, ~~2018. See “Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.~~2019.

We are very pleased with our operating results this quarter. We continue to have very strong loan demand opportunities throughout our footprint although our customers are displaying cautious optimism regarding the uncertainty in the world economy and interest rate adjustments. We had several notable events during the third quarter 2019 that affected our operating results. First, provision expense increased $15 million primarily related to the charge-off of a participation interest in a shared national credit to White Star Petroleum, LLC (“White Star”) (further discussed below in “Provision for Loan Losses”). Second, we sold Visa Inc. class B common stock resulting in a gain of $42.9 million, and in connection with that sale, we contributed $4 million to the Simmons First Foundation so it may continue its work to provide community development grants throughout our footprint. Third, we sold $114 million of primarily commercial real estate (“CRE”) loans resulting in a net loss of $5.1 million.

Net income for the first nine months ~~ended September 30, 2019~~of 2020 was ~~$185.1~~$201.9 million, or $1.94 diluted earnings per share, increases of $25.1 million and $0.22, respectively, compared to the same period in 2018. Excluding all non-core items, core earnings for the nine months ended September 30, 2019 were $198.5 million, or $2.08 core$1.83 diluted earnings per share, compared to ~~$163.8~~$185.1 million, or ~~$1.76 core~~$1.94 diluted earnings per share, for the same period in ~~2018. See “Reconciliation~~2019. In addition to the non-core items related to acquisitions, early retirement programs and branch right sizing initiatives, gains associated with the Texas Branch Sale and the Colorado Branch Sale were included in the results for the first nine months of ~~Non-GAAP Measures” below~~2020. Excluding the non-core items, year-to-date core earnings were $202.3 million, an increase of $3.8 million compared to the same period in prior year. Core diluted earnings per share for ~~additional discussion~~the first nine months of ~~non-GAAP measures.~~2020 were $1.83 compared to $2.08 for the same period in 2019.

~~In April 2019, we~~We completed the acquisition of ~~Reliance Bancshares, Inc. (“Reliance”). Contemporaneously with the Reliance acquisition, Reliance’s~~The Landrum Company, including its wholly-owned bank subsidiary, ~~bank, Reliance~~Landmark Bank, in October 2019. The systems conversion of Landmark Bank was merged with and into Simmons Bank, with Simmons Bank as the surviving entity. We are excited about the Reliance transaction and the opportunities we now have in the St. Louis market due to our increased presence.completed during February 2020. See Note 2, Acquisitions, in the accompanying Condensed Notes to Consolidated Financial Statements ~~included elsewhere in this report,~~ for additional information related to this acquisition.

~~In 2018,~~On February 28, 2020, we ~~announced~~completed the Texas Branch Sale of five Simmons Bank locations in Austin, San Antonio and Tilden, Texas. Additionally, on May 18, 2020 we completed the Colorado Branch Sale of four Simmons Bank locations in Denver, Englewood, Highlands Ranch and Lone Tree, Colorado. We recognized a combined gain on sale of $8.1 million on the Texas Branches and Colorado Branches.

Early in 2020, we offered qualifying associates an early retirement option resulting in $2.8 million of non-core expense during the first nine months of 2020. We expect ongoing net annualized savings of approximately $2.9 million from this program.

We continuously evaluate our Next Generation Banking (“NGB”) strategic initiative that we believe positions us to provide competitive banking services well into the future. Through this program, we have evaluated the primary information technology systems and functions that supportbranch network as part of our analysis of our profitability of our operations and ~~are improving or replacing many of them~~the efficiency with ~~updated and/or enhanced~~which we deliver banking ~~technologies. This initiative will,~~services to our markets, including, among other things, ~~assist us~~changes in ~~our efforts to create a differentiated experience for our customers across all channels, including digital.~~

~~We are beginning to see real changes as~~customer traffic and preferences. As a result of ~~our NGB investments. For example,~~this ongoing evaluation, we ~~accomplished a major milestone~~closed 11 branch locations during June 2020, with estimated net annual cost savings of approximately $2.4 million related to these locations. We closed an additional 23 branch locations on October 9, 2020, with an expected net annual cost savings of approximately $6.7 million.

We added over 38,000 new digital banking users since the end of February 2020 through June 30, 2020. Digital users continue to grow in the third quarter ~~2019 when~~of 2020, adding over 15,000 additional users, a 7% increase. In March 2020, for the first time, we ~~successfully~~had more weekly transactions using digital channels than at the branches, and our mobile deposit usage has seen an increase of 75% since the end of February. During May 2020, we completed the ~~migration~~conversion of ~~our core banking platform~~all consumer customers to our ~~vendor hosted environment. The transition was very successful~~new online platform. All consumer customers are now on the same online and ~~has increased security~~mobile platforms, including acquired institutions. In September 2020, we completed the development of new credit card functionality which allows mobile and ~~the reliability~~online banking to display credit card balances, line of ~~our systems. In addition, in October 2019, we successfully launched our new mobile banking application. Our new application makes us a formidable competitor in mobile banking,~~credit utilization, recent transactions and ~~customer response to date has been very positive. We will continue to expand customer offerings through our digital channel.~~minimum payment details, all with real-time information.

Stockholders’ equity as of September 30, ~~2019~~2020 was ~~$2.5~~$2.9 billion, book value per share was ~~$26.36~~$26.98 and tangible book value per share was ~~$15.73.~~$16.07. Our ratio of common stockholders’ equity to total assets was ~~14.3%~~13.72% and the ratio of tangible common stockholders’ equity to tangible assets was ~~9.1%~~8.65% at September 30, ~~2019. See “Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.~~2020. The Company’s Tier I1 leverage ratio of ~~9.1%~~9.05%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levels (see Table 1213 in the Capital section of this Item).

Total loans ~~including loans acquired,~~ were ~~$13.003~~$14.02 billion at September 30, ~~2019,~~2020, compared to ~~$13.127~~$14.61 billion at June 30, ~~2019~~2020 and ~~$11.723~~$13.00 billion at ~~December 31, 2018. During the third quarter 2019, we reduced our real estate loan portfolio as part of an effort to manage our CRE concentration.~~September 30, 2019. The increase ~~in our overall loan balance since year-end 2018 was~~from prior year is primarily due to the ~~Reliance Bank merger completed in April 2019.~~

As mentioned above, during the quarter we incurred a loss related to the White Star bankruptcy. The White Star loss is disappointing and contrary to the credit culture at Simmons. Because we were only a participant in the shared national credit, we were limited both in our ability to act unilaterally and in our access to timely information. We have learned some valuable lessonsLandrum acquisition. Sequentially, total loans decreased $589.5 million from ~~this experience. We have made changes to our credit underwriting and approval processes that are consistent with our conservative~~

credit culture. We will work to exit all purchased syndicated energy credits. Currently we have $187 million in syndicated energy loans in which Simmons is not the lead bank. We expect to exit at least $120 million of these credits by the second quarter of ~~next year.~~2020. During 2020, we had $970.5 million in loan originations under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). See the COVID-19 Impact section below for additional information.

At September 30, ~~2019,~~2020, the allowance for ~~loan~~credit losses ~~for legacy~~on loans was ~~$66.0~~$248.3 million. ~~The~~We adopted the new credit loss methodology, CECL, on January 1, 2020. Upon adoption, we recorded an additional allowance for ~~loan~~credit losses of approximately $151.4 million, an adjustment to the reserve for ~~loans acquired was $597,000~~unfunded commitments of $24.0 million, and a related $128.1 million adjustment to retained earnings net of taxes.

In our discussion and analysis of our financial condition and results of operation in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP. We believe the ~~acquired loan discount credit mark was $60.4 million. The allowances~~presentation of non-GAAP financial measures provides a meaningful basis for ~~loan losses~~period-to-period and ~~credit marks provide a total~~company-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of ~~$127.0 million~~the Company and predicting future performance. See the GAAP Reconciliation of ~~coverage, which equates to a total coverage ratio~~Non-GAAP Measures section below for additional discussion and reconciliations of ~~1.0% of gross loans. The ratio of credit mark and related allowance to loans acquired was 1.8%.~~non-GAAP measures.

~~On October 31, 2019, we completed our previously announced acquisition of The Landrum Company. We are excited about the expanded market presence in several states as a result of this acquisition.~~

Simmons First National Corporation is an Arkansas-based financial holding company that, as of September 30, ~~2019,~~2020, has approximately ~~$17.8~~$21.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations ~~throughout~~in Arkansas, ~~Colorado,~~ Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.

COVID-19 Impact

The coronavirus (COVID-19) pandemic has placed significant health, economic and other major pressure on the communities we serve, the United States and the entire world. In March 2020, Congress passed the CARES Act, which was designed to provide comprehensive relief to individuals and businesses following the unprecedented impact of the COVID-19 pandemic. Additionally, we have been actively managing our response to the continuing COVID-19 pandemic and have implemented a number of procedures in response to the pandemic to support the safety and well being of our employees, customers and shareholders. Some of the implemented procedures include:

•Addressing the safety of the Company’s branch network, following local, state, and federal guidelines;

•Holding regular executive and pandemic task force meetings to address issues that change rapidly;

•Implementing business continuity plans to help ensure that customers have adequate access to banking services;

•Providing extensions and deferrals to loan customers affected by COVID-19 provided such customers were not 30 days or more past due at December 31, 2019. See further discussion in the Asset Quality section below;

•Participating in both appropriations of the CARES Act PPP that provides 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assist with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions during this crisis.

We have experienced meaningful shifts in consumer habits which we believe will impact our delivery of products and services as well as the retail delivery of everyday amenities. We believe that our investment in digital channels will continue to position our company for these changes.

During the first quarter of 2020, we sold approximately $1.1 billion in securities to increase liquidity in response to potential customer withdrawals of deposits as well as for anticipated funding of PPP loans. As of September 30, 2020, the Company has approximately $2.5 billion in cash and cash equivalents and is well capitalized, which management believes has allowed us to continue to approach the crisis from a position of strength.

Through August 8, 2020, when the PPP program ended to new applicants, we had originated 8,199 PPP loans with an average balance of $118,000 per loan. Approximately 93% of our PPP loans had a balance of less than $350,000 at the end of the quarter. The following table categorizes our PPP loans by outstanding balance as of September 30, 2020:


PPP Loans	Number of			Balance
(Dollars in thousands)	Loans	% of Loans		September 30, 2020		% of Balance
Less than $50,000	5,216	63	%	$	94,401	10	%
$50,000 to $350,000	2,441	30	%	304,815		31	%
More than $350,000 to less than $2 million	481	6	%	357,943		37	%
$2 million to $10 million	61	1	%	213,329		22	%
Total	8,199	100	%	$	970,488	100	%

PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. As a result, excluding PPP loans from total assets, common equity to total assets was 14.4% and tangible common equity to tangible assets was 9.1% as of September 30, 2020.

We are dedicated to supporting our customers and communities throughout this period of uncertainty. As a show of this support, since March 2020, we have:

•Donated masks, gloves and hand sanitizers to healthcare facilities, police and a community group delivering meals.

•Sponsored a live streaming concert from Simmons Bank Arena to benefit the Feeding America food banks and the Hunger Relief Alliance, raising over $30,000.

•Donated over $100,000 to various community support groups throughout our footprint to be used for COVID-19 response.

•Delivered food and care packages to support police, firefighters, emergency responders and healthcare workers.

We believe our associates have done a commendable job of adapting to the changes that have occurred over the past eight months. We continue to operate in an uncertain environment, and we expect to continue to adjust as necessary. We have consolidated various operations to provide capacity for continued service to our customers and communities.

We continue to closely monitor this pandemic and expect to make future changes to respond as this situation continues to evolve. Further economic downturns accompanying this pandemic, or a delayed economic recovery from this pandemic, could result in increased deterioration in credit quality, past due loans, loans charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.

CRITICAL ACCOUNTING POLICIES

Overview

We follow accounting and reporting policies that conform, in all material respects, to ~~generally accepted accounting principles~~US GAAP 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 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~~credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes.

Allowance for ~~Loan~~Credit Losses ~~on Loans Not Acquired~~

The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses ~~is management’s estimate of probable losses~~and risks inherent 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~~Our allowance for ~~loan~~credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses. Accordingly, the methodology is ~~calculated monthly~~ based on ~~management’s assessment of several factors such as (1)~~our reasonable and supportable economic forecasts, 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~~qualitative adjustments. For further information see the ~~aforementioned factors and allocated to the individual loan categories. Allowances are accrued~~section Allowance 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.Credit Losses below.

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

~~Refer to~~ On January 1, 2020, the ~~Recently Issued Accounting Standards~~ ~~section in~~Company adopted the new CECL methodology. See Note 1, Preparation of Interim Financial Statements, in the accompanying Condensed Notes to Consolidated Financial Statements for ~~discussion regarding the pending accounting~~additional information.

~~pronouncement that will replace the current incurred loss accounting model for the allowance for loan losses, which will be effective on January 1, 2020.~~

Acquisition Accounting, Loans ~~Acquired~~

We account for our acquisitions under ~~Accounting Standards Codification (“ASC”)~~ASC Topic 805, Business Combinations, which requires the use of the ~~purchase~~acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. Our historical acquisitions all occurred under previous US GAAP prior to our adoption of CECL. No allowance for loan losses related to the acquired loans ~~acquired is~~was 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~~included 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.

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 Impairment. and ASU 2017-04 - Intangibles – Goodwill and Other. ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.

During the first quarter of 2020, our share price began to decline as the markets in the United States responded to the global COVID-19 pandemic. As a result of that economic decline, the effect on our share price and other factors, we performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed. During the second quarter of 2020, we performed our annual goodwill impairment test and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore, goodwill is not impaired. Once more, we performed an interim goodwill impairment assessment during the third quarter of 2020 and concluded no impairment existed. While our goodwill impairment analysis indicated no impairment at September 30, 2020, our assessment depends on several assumptions which are dependent on market and economic conditions, and future changes in those conditions could impact our assessment in the future.

~~Stock-based~~

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~~16, 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 2018 as the new standard impacted how the income tax effects associated with stock-based compensation are recognized.~~

~~IMPACTS OF GROWTH~~

~~During 2017, through both internal growth and 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 1st 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, became subject to the interchange rate cap effective July 1, 2018. The interchange rate cap resulted in a $5.9 million reduction in debit card fees for year-to-date 2019 when compared to the same period 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 Tier 1 capital. Trust preferred securities and qualifying subordinated debt is included as total Tier 2 capital.

The Dodd-Frank Act also previously required banks and bank holding companies with more than $10 billion in assets to conduct annual stress 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 had begun the necessary preparations, including undertaking a gap analysis, implementing enhancements to the audit and compliance departments, and investing in various information technology systems.

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, is 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. The CFPB has broad rule-making, supervisory and examination authority, as well as expanded data collecting and enforcement powers, all of which is expected to impact the operations of Simmons Bank.

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 is 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.~~.

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,~~In the last several years, on average, approximately ~~65%~~40% of our loan portfolio and approximately ~~75%~~80% of our time deposits have repriced in one year or less. Our current interest rate sensitivity shows that approximately ~~54%~~51% of our loans and ~~80%~~85% of our time deposits will reprice in the next year.

Net Interest Income Quarter-to-Date Analysis

For the three month period ended September 30, ~~2019,~~2020, net interest income on a fully taxable equivalent basis was ~~$152.0~~$156.5 million, an increase of ~~$7.6~~$5.4 million, or ~~5.3%~~3.6%, over the same period in ~~2018.~~2019. The increase in net interest income was primarily the result of a ~~$18.8~~$21.0 million ~~increase~~decrease in interest ~~income~~expense partially offset by a ~~$11.1 million increase~~reduction in interest ~~expense.~~income of $15.7 million.

The ~~increase~~reduction in interest income primarily resulted from a ~~$17.6~~decrease of $16.7 million ~~increase~~ in interest income on loans ~~and~~partially offset by an increase of ~~$1.1~~$1.4 million in interest income on investment securities. ~~The increase in loan volume during 2019~~During the third quarter of 2020, we generated ~~$19.5~~$16.3 million of additional interest income due to an increase in loan volume, primarily from our ~~Reliance~~Landrum acquisition completed during ~~April~~the fourth quarter of 2019, while a 793 basis point decline in yield resulted in a ~~$1.9~~$33.0 million decrease in interest income. The loan yield for the third quarter of 2020 was 4.54% compared to 5.47% for the same period in 2019. The PPP loan yield was approximately 2.37% (including accretion of net fees), which decreased the loan yield by 16 basis points. Excluding the PPP loans, loan yield for the third quarter of 2020 was 4.70%.

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 5, Loans Acquired, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report.~~acquired. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate ~~has increased~~may increase or decrease based on payment histories and ~~reduced~~ loss expectations of the loans. ~~This resulted in increased~~The resulting adjustment to interest income ~~that~~ is spread on a level-yield basis over the remaining expected lives of the loans. For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, interest income included ~~$9.3~~$8.9 million and ~~$10.0~~$9.3 million, respectively, for the yield accretion recognized on loans acquired.

The ~~$11.1~~$21.0 million ~~increase~~decrease in interest expense is mostly due to the ~~growth~~decline in our deposit account rates and our FHLB borrowing rates. Interest expense decreased $24.1 million due to the decrease in yield of 86 basis points on interest-bearing deposit accounts ~~from organic growth as well as the Reliance acquisition,~~ and ~~although the Federal Reserve did lower interest rates during the third quarter 2019, the rates were higher in the third quarter 2019 when compared~~$1.4 million due to the ~~same quarter~~decrease in ~~2018. Interest expense increased $4.2~~yield of 44 basis points on FHLB borrowings. These decreases were partially offset by an increase of $3.4 million ~~due~~related to deposit growth primarily ~~from the Reliance acquisition and $8.4 million~~ due to the ~~increase in yield of 35 basis points on deposit accounts. These increases were partially offset by a reduction in FHLB borrowings in third quarter 2019 compared to the same quarter in 2018.~~Landrum acquisition.

Net Interest Income Year-to-Date Analysis

For the nine month period ended September 30, ~~2019,~~2020, net interest income on a fully taxable equivalent basis was ~~$442.7~~$492.3 million, an increase of ~~$24.1~~$52.5 million, or ~~5.8%~~11.9%, over the same period in ~~2018.~~2019. The increase in net interest income was the result of a ~~$71.5~~$13.2 million increase in interest income ~~partially offset by~~coupled with a ~~$47.4~~$39.2 million ~~increase~~decrease in interest expense.

The increase in interest income primarily resulted from a ~~$61.6~~$10.5 million increase in interest income on loans and an increase of ~~$9.0~~$2.9 million in interest income on investment securities. ~~Increases~~The increase in loan volume ~~increased interest income by $54.5 million~~ during the first nine months of 2020 generated $77.0 million of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, ~~due to both organic loan growth and our Reliance acquisition. Interest income also increased $7.1 million due to an increase~~while a 66 basis point decline in yield ~~of 9 basis points on loans during 2019.~~resulted in a $66.5 million decrease in interest income.

For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, interest income included ~~$26.1~~$32.5 million and ~~$31.4~~$26.1 million, respectively, for the yield accretion recognized on loans acquired.

The ~~$47.4~~$39.2 million ~~increase~~decrease in interest expense is ~~due to growth in deposit accounts, higher cost of deposits~~mostly due to the ~~rising-rate environment during 2018~~decrease in our deposit account rates and ~~the first half of 2019 and the increase in rates for~~our FHLB ~~borrowings.~~borrowing rates. Interest expense ~~increased $10.9 million due to deposit growth, $33.2~~decreased $51.6 million due to the ~~increase~~decrease in yield of 4864 basis points on interest-bearing deposit accounts

and ~~$3.2~~$5.7 million due to the ~~increase~~decrease in yield of 3558 basis points on FHLB borrowings. These decreases were partially offset by an increase of $14.6 million related to deposit growth primarily due to the Landrum and Reliance acquisitions completed in 2019.

Net Interest Margin

Our net interest margin on a fully tax equivalent basis decreased 1761 basis points to ~~3.81%~~3.21% for the three month period ended September 30, ~~2019,~~2020, when compared to ~~3.98%~~3.82% for the same period in ~~2018.~~2019. Normalized for all accretion, our core net interest margin ~~(non-GAAP)~~ for the three months ended September 30, 2020 and 2019 was 3.02% and ~~2018 was 3.58% and 3.71%~~3.59%, respectively. For the nine month period ended September 30, ~~2019,~~2020, our net interest margin on a fully tax equivalent basis decreased 1845 basis points to ~~3.86%~~3.43% when compared to ~~4.04%~~3.88% for the same period in ~~2018.~~2019.

Since the first quarter of 2018, loan yield has increased 9 basis points and core loan yield has increased 24 basis points while cost of interest bearing deposits has risen 66 basis points and the cost of borrowed funds has increased 82 basis points. The ~~decrease~~decreases in ~~both~~ the net interest margin during the three and nine months ended September 30, 2020 were primarily driven by the lower interest rate environment, additional liquidity created in response to the COVID-19 pandemic, and the ~~core~~lower yielding PPP loans originated during the second and third quarters of 2020. The impact of these items on net interest margin for the ~~three~~third quarter 2020 was 30 basis points, bringing the net interest margin adjusted for PPP loans and ~~nine month periods ended September 30, 2019 is a direct result~~excess liquidity to 3.51%.

During March 2020, the Federal Open Market Committee, or FOMC, of the ~~prior rising~~Federal Reserve substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic and rates have continued to remain low through the third quarter of 2020. As such, our variable rate ~~environment. We~~loan portfolio has repriced to a lower yield and we have worked to lower the cost of deposits. In addition, our decreased net interest margin is being driven by the decrease in our non-PPP loan portfolio and we expect continued pressure on the net interest margin ~~from~~for the ~~recent Federal Reserve rate reductions due to immediate downward repricing on the portion~~remainder of ~~our loans that are variable rate while the ability to reprice deposits will lag the reductions.~~2020.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, as well as changes in fully taxable equivalent net interest margin for the three and nine months ended September 30, ~~2019~~2020 versus September 30, ~~2018.~~2019.

Table 1: Analysis of Net Interest Margin

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2020			2019			2020			2019
Interest income	$	179,725		$	196,406		$	580,610		$	569,732
FTE adjustment	2,864			1,843			7,519			5,150
Interest income – FTE	182,589			198,249			588,129			574,882
Interest expense	26,115			47,142			95,836			135,045
Net interest income – FTE	$	156,474		$	151,107		$	492,293		$	439,837

Yield on earning assets – FTE	3.74		%	5.02		%	4.10		%	5.07		%
Cost of interest bearing liabilities	0.74		%	1.55		%	0.90		%	1.54		%
Net interest spread – FTE	3.00		%	3.47		%	3.20		%	3.53		%
Net interest margin – FTE	3.21		%	3.82		%	3.43		%	3.88		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2019 2018 2019 2018
Interest income $ 197,306
$ 178,984
$ 572,591
$ 502,391
FTE adjustment 1,843
1,393
5,150
3,831
Interest income – FTE 199,149
180,377
577,741

506,222
Interest expense 47,142
36,016
135,045
87,620
Net interest income – FTE $ 152,007
$ 144,361
$ 442,696

$ 418,602

Yield on earning assets – FTE 4.99 % 4.98 % 5.04 % 4.89 %
Cost of interest bearing liabilities 1.55 % 1.29 % 1.54 % 1.10 %
Net interest spread – FTE 3.44 % 3.69 % 3.50 % 3.79 %
Net interest margin – FTE 3.81 % 3.98 % 3.86 % 4.04 %

Table 2: Changes in Fully Taxable Equivalent Net Interest Margin


	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2020 vs. 2019		2020 vs. 2019
Increase due to change in earning assets	$	22,956	$	97,238
Decrease due to change in earning asset yields	(38,616)		(83,991)
Decrease due to change in interest bearing liabilities	(5,016)		(18,835)
Increase due to change in interest rates paid on interest bearing liabilities	26,043		58,044
Increase in net interest income	$	5,367	$	52,456

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2019 vs. 2018 2019 vs. 2018
Increase due to change in earning assets $ 20,336
$ 59,278
Increase due to change in earning asset yields (1,564 ) 12,241
Decrease due to change in interest bearing liabilities (2,710 ) (10,194 )
Decrease due to change in interest rates paid on interest bearing liabilities (8,416 ) (37,231 )
Increase in net interest income $ 7,646
$ 24,094

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. 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.

Table 3: Average Balance Sheets and Net Interest Income Analysis

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


	Three Months Ended September 30,
	2020					2019
	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	$	2,265,233	$	623	0.11	$	344,761	$	1,586	1.83
Investment securities - taxable	1,534,742		7,193		1.86	1,561,308		9,514		2.42
Investment securities - non-taxable	1,155,099		10,382		3.58	681,505		6,687		3.89
Mortgage loans held for sale	145,226		1,012		2.77	39,551		382		3.83
Loans	14,315,014		163,379		4.54	13,053,540		180,080		5.47
Total interest earning assets	19,415,314		182,589		3.74	15,680,665		198,249		5.02
Non-earning assets	2,350,007					2,039,933
Total assets	$	21,765,321				$	17,720,598

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Interest bearing liabilities:
Interest bearing transaction and savings deposits	$	8,977,886	$	6,769	0.30	$	7,322,395	$	21,363	1.16
Time deposits	2,998,091		9,437		1.25	3,122,422		15,573		1.98
Total interest bearing deposits	11,975,977		16,206		0.54	10,444,817		36,936		1.40
Federal funds purchased and securities sold under agreements to repurchase	386,631		335		0.34	123,883		249		0.80
Other borrowings	1,357,278		4,943		1.45	1,127,886		5,381		1.89
Subordinated debt and debentures	382,672		4,631		4.81	354,178		4,576		5.13
Total interest bearing liabilities	14,102,558		26,115		0.74	12,050,764��		47,142		1.55

Non-interest bearing liabilities:
Non-interest bearing deposits	4,529,782					3,012,544
Other liabilities	190,169					288,517
Total liabilities	18,822,509					15,351,825
Stockholders’ equity	2,942,812					2,368,773
Total liabilities and stockholders’ equity	$	21,765,321				$	17,720,598
Net interest spread					3.00					3.47
Net interest margin			$	156,474	3.21			$	151,107	3.82

Three Months Ended September 30,
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 $ 344,761
$ 1,586
1.83 $ 373,528
$ 1,405
1.49
Investment securities - taxable 1,712,672
10,414
2.41 1,775,193
10,892
2.43
Investment securities - non-taxable 681,505
6,687
3.89 539,135
5,064
3.73
Mortgage loans held for sale 39,551
382
3.83 43,554
501
4.56
Loans 13,052,943
180,080
5.47 11,641,843
162,515
5.54
Total interest earning assets 15,831,432
199,149
4.99 14,373,253
180,377
4.98
Non-earning assets 1,889,166
1,667,631

Total assets $ 17,720,598
$ 16,040,884

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Interest bearing liabilities:

Interest bearing transaction and savings deposits $ 7,322,395
$ 21,363
1.16 $ 6,840,403
$ 16,373
0.95
Time deposits 3,122,422
15,573
1.98 2,379,142
8,017
1.34
Total interest bearing deposits 10,444,817
36,936
1.40 9,219,545
24,390
1.05
Federal funds purchased and securities sold under agreements to repurchase 123,883
249
0.80 107,770
104
0.38
Other borrowings 1,127,886
5,381
1.89 1,375,052
6,240
1.80
Subordinated debt and debentures 354,178
4,576
5.13 379,168
5,282
5.53
Total interest bearing liabilities 12,050,764
47,142
1.55 11,081,535
36,016
1.29

Non-interest bearing liabilities:
Non-interest bearing deposits 3,012,544
2,679,469

Other liabilities 288,517
103,315

Total liabilities 15,351,825
13,864,319

Stockholders’ equity 2,368,773
2,176,565

Total liabilities and stockholders’ equity $ 17,720,598
$ 16,040,884

Net interest spread 3.44 3.69
Net interest margin $ 152,007
3.81 $ 144,361
3.98


	Nine Months Ended September 30,
	2020					2019
	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	$	1,742,166	$	3,667	0.28	$	338,349	$	4,861	1.92
Investment securities - taxable	1,832,577		27,319		1.99	1,642,335		32,538		2.65
Investment securities - non-taxable	974,748		26,888		3.68	632,780		18,730		3.96
Mortgage loans held for sale	91,889		1,961		2.85	29,852		924		4.14
Loans	14,530,938		528,294		4.86	12,531,355		517,829		5.52
Total interest earning assets	19,172,318		588,129		4.10	15,174,671		574,882		5.07
Non-earning assets	2,331,246					1,965,748
Total assets	$	21,503,564				$	17,140,419

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Interest bearing liabilities:
Interest bearing transaction and savings deposits	$	9,040,053	$	31,926	0.47	$	7,072,363	$	59,983	1.13
Time deposits	3,068,459		33,563		1.46	2,993,336		42,499		1.90
Total interest bearing deposits	12,108,512		65,489		0.72	10,065,699		102,482		1.36
Federal funds purchased and securities sold under agreements to repurchase	370,116		1,431		0.52	122,195		642		0.70
Other borrowings	1,357,543		14,783		1.45	1,209,511		18,393		2.03
Subordinated debt and debentures	386,129		14,133		4.89	354,088		13,528		5.11
Total interest bearing liabilities	14,222,300		95,836		0.90	11,751,493		135,045		1.54

Non-interest bearing liabilities:
Non-interest bearing deposits	4,164,189					2,852,687
Other liabilities	205,942					208,397
Total liabilities	18,592,431					14,812,577
Stockholders’ equity	2,911,133					2,327,842
Total liabilities and stockholders’ equity	$	21,503,564				$	17,140,419
Net interest spread					3.20					3.53
Net interest margin			$	492,293	3.43			$	439,837	3.88

Nine Months Ended September 30,
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 $ 338,349
$ 4,861
1.92 $ 378,468
$ 3,828
1.35
Investment securities - taxable 1,795,103
35,397
2.64 1,714,898
31,255
2.44
Investment securities - non-taxable 632,780
18,730
3.96 505,170
13,918
3.68
Mortgage loans held for sale 29,852
924
4.14 29,111
964
4.43
Loans 12,530,348
517,829
5.53 11,209,992
456,257
5.44
Total interest earning assets 15,326,432
577,741
5.04 13,837,639
506,222
4.89
Non-earning assets 1,813,987
1,736,123

Total assets $ 17,140,419
$ 15,573,762

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Interest bearing liabilities:

Interest bearing transaction and savings deposits $ 7,072,363
$ 59,983
1.13 $ 6,664,347
$ 39,414
0.79
Time deposits 2,993,336
42,499
1.90 2,206,873
19,034
1.15
Total interest bearing deposits 10,065,699
102,482
1.36 8,871,220
58,448
0.88
Federal funds purchased and securities sold under agreements to repurchase 122,195
642
0.70 111,760
302
0.36
Other borrowings 1,209,511
18,393
2.03 1,311,781
16,520
1.68
Subordinated debt and debentures 354,088
13,528
5.11 336,990
12,350
4.90
Total interest bearing liabilities 11,751,493
135,045
1.54 10,631,751
87,620
1.10

Non-interest bearing liabilities:
Non-interest bearing deposits 2,852,687
2,673,285

Other liabilities 208,397
129,908

Total liabilities 14,812,577
13,434,944

Stockholders’ equity 2,327,842
2,138,818

Total liabilities and stockholders’ equity $ 17,140,419
$ 15,573,762

Net interest spread 3.50 3.79
Net interest margin $ 442,696
3.86 $ 418,602
4.04

Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and nine month periods ended September 30, ~~2019,~~2020, as compared to the same periods 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 September 30,						Nine Months Ended September 30,
	2020 vs. 2019						2020 vs. 2019
(In thousands, on a fully taxable equivalent basis)	Volume		Yield/ Rate		Total		Volume		Yield/ Rate		Total
Increase (decrease) in:
Interest income:
Interest bearing balances due from banks and federal funds sold	$	1,727	$	(2,690)	$	(963)	$	5,890	$	(7,084)	$	(1,194)
Investment securities - taxable	(159)		(2,162)		(2,321)		3,472		(8,691)		(5,219)
Investment securities - non-taxable	4,299		(604)		3,695		9,510		(1,352)		8,158
Mortgage loans held for sale	764		(134)		630		1,402		(365)		1,037
Loans	16,325		(33,026)		(16,701)		76,964		(66,499)		10,465
Total	22,956		(38,616)		(15,660)		97,238		(83,991)		13,247

Interest expense:
Interest bearing transaction and savings accounts	3,993		(18,587)		(14,594)		13,545		(41,602)		(28,057)
Time deposits	(598)		(5,538)		(6,136)		1,043		(9,979)		(8,936)
Federal funds purchased and securities sold under agreements to repurchase	292		(206)		86		999		(210)		789
Other borrowings	974		(1,412)		(438)		2,059		(5,669)		(3,610)
Subordinated notes and debentures	355		(300)		55		1,189		(584)		605
Total	5,016		(26,043)		(21,027)		18,835		(58,044)		(39,209)
Increase (decrease) in net interest income	$	17,940	$	(12,573)	$	5,367	$	78,403	$	(25,947)	$	52,456

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 vs. 2018 2019 vs. 2018
(In thousands, on a fully taxable equivalent basis) Volume
Yield/
Rate
Total Volume
Yield/
Rate
Total
Increase (decrease) in:

Interest income:

Interest bearing balances due from banks and federal funds sold $ (114 ) $ 295
$ 181
$ (440 ) $ 1,473
$ 1,033
Investment securities - taxable (382 ) (96 ) (478 ) 1,506
2,636
4,142
Investment securities - non-taxable 1,388
235
1,623
3,718
1,094
4,812
Mortgage loans held for sale (43 ) (76 ) (119 ) 24
(64 ) (40 )
Loans 19,487
(1,922 ) 17,565
54,470
7,102
61,572
Total 20,336
(1,564 ) 18,772
59,278

12,241

71,519

Interest expense:
Interest bearing transaction and savings accounts 1,216
3,774
4,990
2,542
18,027
20,569
Time deposits 2,979
4,577
7,556
8,341
15,124
23,465
Federal funds purchased and securities sold under agreements to repurchase 18
127
145
30
310
340
Other borrowings (1,167 ) 308
(859 ) (1,361 ) 3,234
1,873
Subordinated notes and debentures (336 ) (370 ) (706 ) 642
536
1,178
Total 2,710
8,416
11,126
10,194

37,231

47,425
Increase (decrease) in net interest income $ 17,626
$ (9,980 ) $ 7,646
$ 49,084

$ (24,990 )
$ 24,094

PROVISION FOR ~~LOAN~~CREDIT LOSSES

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

The provision for ~~loan~~credit losses for the three month period ended September 30, 2019 was $22.0 million compared to $10.3 million for the same period in 2018, an increase of $11.6 million. The provision for loan losses for the nine month period ended September 30, 2019, was $38.3 million, compared to $28.5 million for the nine month period ended September 30, 2018, an increase of $9.8 million. The increase in both periods was due to the special provision made during the third quarter 2019 related to White Star. We were a participant in a shared national credit to White Star. White Star became the subject of bankruptcy proceedings earlier this year, and on September 30, 2019, the bankruptcy court authorized the sale of White Star assets through a Section 363 proceeding under the U.S. Bankruptcy Code. Our portion of the shared national credit was $19.1 million. Based upon the anticipated net proceeds from the pending bankruptcy sale, our loss recorded in third quarter 2019 was $14.7 million. As a result, we increased the provision by $15 million to increase the allowance to an appropriate level consistent with our historical ratios. See Allowance for Loan Losses section for additional information.

Additionally, the provision on loans acquired for the three and nine months ended September 30, 2019 was $0 and $2.5 million, respectively. The year-to-date provision was primarily the result of identifying certain loans during first quarter 2019, specific to an acquired portfolio in our Dallas market which were poorly structured or were poorly managed post-funding. We carefully reviewed these loans for potential losses and believe we have adequately identified any risk associated with the loans. In addition, a portion of the loans identified during the first quarter were subsequently paid off in the second quarter of 2019. The recovery on this loan was added to the allowance for acquired loans.

~~The provision on loans acquired~~ for the three and nine month periods ended September 30, ~~2018~~2020, was $0$23.0 million and ~~$1.8~~$68.0 million, respectively, compared to $22.0 million and $38.3 million for the same periods ended September 30, 2019, increases of $1.0 million and $29.7 million. The increase during the quarter ended September 30, 2020 was primarily based on additional qualitative adjustments specific to industries that are more adversely impacted by the ~~result~~current and expected economic scenarios, such as the restaurant, retail, and hotel industries. These adjustments are intended to account for potential problem credits that have not materialized into any identifiable metrics or delinquencies. We additionally updated the credit loss forecast models using multiple Moody’s economic scenarios. The updates to the credit loss forecast models capture the possibility of a ~~decrease~~more prolonged recovery to the economies than originally expected that affect our loan portfolio. The increase during the nine month period ended September 30, 2020 also included an additional provision related to problem energy credits, ultimately charged-off during the second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in ~~expected cash flows from~~first quarter of 2020 and were negatively impacted by the ~~evaluation~~sharp decline in commodity pricing. The remainder of the increase was related to the economic impact of the COVID-19 pandemic that is incorporated in the Company’s allowance for credit ~~marks on certain purchased credit impaired loans.~~losses.

NON-INTEREST INCOME

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.

Total non-interest income was ~~$83.8~~$71.9 million for the three month period ended September 30, ~~2019, an increase~~2020, a decrease of approximately ~~$50.1~~$12.8 million, or ~~148.4%~~15.1%, compared to the same period in 2019, primarily due to the gain on sale of Visa Inc. class B common stock of $42.9 million that was recognized during the third quarter ~~2018.~~ of 2019. We benefited from additional gains on the sale of securities and incremental mortgage lending income, collectively $24.4 million, during the third quarter of 2020. During the third quarter of 2020, we evaluated our security portfolio and projected calls that we expected to occur over the next year and a half with large gains. As a result, we sold approximately $515.6 million of investment securities resulting in a net gain of $22.3 million during the third quarter of 2020.

For the nine month period ended September 30, ~~2019,~~2020, total non-interest income was ~~$156.5~~$204.5 million, an increase of approximately ~~$47.2~~$45.1 million, or ~~43.2%~~28.3%, compared to the same period in 2019. During the first nine months of ~~2018.~~

2020, we sold approximately $1.7 billion of investment securities resulting in a net gain of $54.8 million. The majority of the investment securities were sold in March 2020, in response to the unfolding events of the COVID-19 pandemic, as we focused on the creation of additional liquidity and strengthening our balance sheet. We used a portion of the liquidity generated by these investment security sales to fund PPP loans originated during the second and third quarters of 2020. We plan to reinvest back into our investment portfolio when the PPP loans are repaid, subject to economic conditions and other concerns at such time. Additionally, the gains on sale from the Texas Branch Sale and Colorado Branch Sales of $8.1 million, which we consider a non-core item, contributed to the increase during 2020.

The increases of $9.5 million and $20.5 million in ~~both~~mortgage lending income in the three and nine month periods ended September 30, ~~2019~~2020, respectively, was related to the gain on sale of the Visa Inc. class B common stock of $42.9 million. Additionally, during 2019 we have been focused on rebalancing our investment portfolio and consequently have recognized additional gains on the sale of securities in both periods. During the nine months ended September 30, 2019, we sold approximately $551 million of securities resulting in a ~~net gain of $12.9 million. Increases in mortgage lending income were due to a strong real estate housing market driven by the recent interest rate decreases.~~

~~Debit card fees decreased $5.9 million in 2019 compared to 2018 as a direct~~ result of the ~~Durbin amendment that became effective for the Company during the third quarter 2018.~~current low mortgage interest rate environment as well as increased business related to our Landrum and Reliance acquisitions.

Table 5 shows non-interest income for the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, as well as changes in ~~2019~~2020 from ~~2018.~~2019.

Table 5: Non-Interest Income


																				Three Months Ended September 30,				2020 Change from			Nine Months Ended September 30,				2020 Change from
	Three Months Ended September 30,				2019 Change from					Nine Months Ended September 30,				2019 Change from
(In thousands)	2019		2018		2018					2019		2018		2018
(Dollars in thousands)																			(Dollars in thousands)	2020		2019		2019			2020		2019		2019
Trust income	$	6,108	$	6,277	$	(169	)	(2.7	)%	$	17,610	$	17,148	$	462		2.7	%	Trust income	$	6,744	$	6,108	$	636	10.4%	$	21,148	$	17,610	$	3,538	20.1%
Service charges on deposit accounts	10,825		10,837		(12		)	(0.1	)	31,450		31,245		205			0.7		Service charges on deposit accounts	10,385		10,825		(440)		(4.1)	32,283		31,450		833		2.7
Other service charges and fees	1,308		1,201		107			8.9		3,909		5,968		(2,059		)	(34.5	)	Other service charges and fees	1,764		1,308		456		34.9	4,841		3,909		932		23.8
Mortgage lending income	4,509		1,521		2,988			196.5		10,988		7,773		3,215			41.4		Mortgage lending income	13,971		4,509		9,462		*	31,476		10,988		20,488		186.5
SBA lending income	956		304		652			214.5		2,348		1,627		721			44.3		SBA lending income	304		956		(652)		(68.2)	845		2,348		(1,503)		(64.0)
Investment banking income	513		664		(151		)	(22.7	)	1,491		2,312		(821		)	(35.5	)	Investment banking income	557		513		44		8.6	2,005		1,491		514		34.5
Debit and credit card fees	7,059		6,820		239			3.5		20,369		25,721		(5,352		)	(20.8	)	Debit and credit card fees	8,850		7,059		1,791		25.4	24,760		20,369		4,391		21.6
Bank owned life insurance income	1,302		1,105		197			17.8		3,357		3,310		47			1.4		Bank owned life insurance income	1,591		1,302		289		22.2	4,334		3,357		977		29.1
Gain (loss) on sale of securities, net	7,374		54		7,320			*		12,937		53		12,884			*
Gain on sale of securities, net																			Gain on sale of securities, net	22,305		7,374		14,931		*	54,790		12,937		41,853		*
Gain on sale of Visa, Inc. class B common stock	42,860		—		42,860			*		42,860		—		42,860			*		Gain on sale of Visa, Inc. class B common stock	—		42,860		(42,860)		*	—		42,860		(42,860)		(100.0)
Gain on sale of banking operations, net																			Gain on sale of banking operations, net	—		—		—		—	8,093		—		8,093		*
Other income	961		4,942		(3,981		)	(80.6	)	9,223		14,151		(4,928		)	(34.8	)	Other income	5,380		1,861		3,519		189.1	19,897		12,082		7,815		64.7
Total non-interest income	$	83,775	$	33,725	$	50,050		148.4	%	$	156,542	$	109,308	$	47,234		43.2	%	Total non-interest income	$	71,851	$	84,675	$	(12,824)	(15.1)%	$	204,472	$	159,401	$	45,071	28.3%

_____________________________

* Not meaningful

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended September 30, ~~2019~~2020 was ~~$25.3~~$27.7 million, an increase of ~~$165,000~~$2.4 million from the same period in ~~2018.~~2019. Recurring fee income for the nine month period ended September 30, ~~2019,~~2020, was ~~$73.3~~$83.0 million, ~~a decrease~~an increase of ~~$6.7~~$9.7 million from the ~~same~~nine month period ~~in 2018,~~ended September 30, 2019, primarily ~~due to~~ the ~~reduction in debit card fees as previously discussed.~~result of the Landrum and Reliance acquisitions completed during 2019.

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.~~our operations. 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 September 30, ~~2019~~2020 was ~~$106.9~~$118.9 million, an increase of ~~$6.6~~$12.1 million, or ~~6.6%~~11.3%, from the same period in ~~2018. The~~2019. Non-interest expense during the third quarter ~~2019~~of 2020 included ~~$2.9~~$3.7 million of pre-tax non-core items: ~~$2.6 million~~$902,000 of merger-related costs, ~~due to the Reliance acquisition, $177,000~~$2.3 million of early retirement program expenses, and ~~$160,000~~$442,000 of ~~branch-right~~net branch right sizing costs. Normalizing for these non-core costs, core non-interest expense for the three months ended September 30, ~~2019~~2020 increased ~~$5.5~~$11.3 million, or ~~5.6%~~10.9%, from the same period in ~~2018.~~2019.

Non-interest expense for the nine months ended September 30, ~~2019~~2020 was ~~$319.0~~$365.4 million, an increase of ~~$22.2~~$46.3 million, or ~~7.5%~~14.5%, from the same period in ~~2018.~~2019. Normalizing for the non-core costs, core non-interest expense for the nine months ended September 30, ~~2019~~2020 increased ~~$9.1~~$55.4 million, or ~~3.1%~~18.4%, from the same period in ~~2018. As previously mentioned,~~2019.

The increases during both periods were primarily due to the incremental operating expenses from the Landrum and Reliance acquisitions completed during 2019. Also, our ~~NGB~~Next Generation Banking (“NGB”) technology initiative ~~is well underway~~has made substantial progress and the incremental software and technology expenditures of ~~$5.9~~$12.4 million during the first nine months of ~~2019~~2020 were primarily related to this initiative. Additionally, marketing costs increased year over year primarily due to the $4 million donation to the Simmons First Foundation during third quarter 2019 and also incorporating a comprehensive community banking marketing philosophy over our expanded footprint during the year. The early retirement option offered to qualifying associates in the first quarter of this year contributed to the decline in salaries and employee benefit expense during 2019. The reduction in deposit insurance expense was primarily due to a credit assessment received from the FDIC during the third quarter 2019 for $2.3 million.

Table 6 below shows non-interest expense for the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, as well as changes in ~~2019~~2020 from ~~2018.~~2019.

Table 6: Non-Interest Expense


																				Three Months Ended September 30,				2020 Change from			Nine Months Ended September 30,				2020 Change from
	Three Months Ended September 30,				2019 Change from					Nine Months Ended September 30,				2019 Change from
(In thousands)	2019		2018		2018					2019		2018		2018
(Dollars in thousands)																			(Dollars in thousands)	2020		2019		2019			2020		2019		2019
Salaries and employee benefits	$	51,888	$	55,515	$	(3,627	)	(6.5	)%	$	161,096	$	167,550	$	(6,454	)	(3.9	)%	Salaries and employee benefits	$	58,798	$	51,888	$	6,910	13.3%	$	183,873	$	161,096	$	22,777	14.1%
Early retirement program	177		—		177			*		3,464		—		3,464			*		Early retirement program	2,346		177		2,169		*	2,839		3,464		(625)		(18.0)
Occupancy expense, net	8,342		7,713		629			8.2		22,736		22,594		142			0.6		Occupancy expense, net	9,647		8,342		1,305		15.6	28,374		22,736		5,638		24.8
Furniture and equipment expense	4,898		3,761		1,137			30.2		12,462		12,184		278			2.3		Furniture and equipment expense	6,231		4,898		1,333		27.2	18,098		12,462		5,636		45.2
Other real estate and foreclosure expense	1,125		538		587			109.1		2,353		2,940		(587		)	(20.0	)	Other real estate and foreclosure expense	602		1,125		(523)		(46.5)	1,201		2,353		(1,152)		(49.0)
Deposit insurance	—		2,248		(2,248		)	(100.0	)	4,550		6,232		(1,682		)	(27.0	)	Deposit insurance	2,244		—		2,244		*	7,557		4,550		3,007		66.1
Merger related costs	2,556		804		1,752			217.9		11,548		3,980		7,568			190.2		Merger related costs	902		2,556		(1,654)		(64.7)	3,800		11,548		(7,748)		(67.1)
Other operating expenses:																			Other operating expenses:
Professional services	4,310		4,616		(306		)	(6.6	)	12,125		13,896		(1,771		)	(12.7	)	Professional services	3,779		4,310		(531)		(12.3)	13,529		12,125		1,404		11.6
Postage	1,471		1,262		209			16.6		4,642		4,103		539			13.1		Postage	1,932		1,471		461		31.3	5,937		4,642		1,295		27.9
Telephone	2,507		1,248		1,259			100.9		5,605		4,217		1,388			32.9		Telephone	2,103		2,506		(403)		(16.1)	6,738		5,605		1,133		20.2
Credit card expenses	4,200		3,405		795			23.4		11,822		9,820		2,002			20.4		Credit card expenses	5,190		4,200		990		23.6	14,154		11,822		2,332		19.7
Marketing	7,021		2,912		4,109			141.1		12,514		6,334		6,180			97.6		Marketing	3,517		7,021		(3,504)		(49.9)	11,430		12,514		(1,084)		(8.7)
Software and technology	6,531		4,733		1,798			38.0		16,607		10,716		5,891			55.0		Software and technology	9,552		6,531		3,021		46.3	29,021		16,607		12,414		74.8
Operating supplies	493		585		(92		)	(15.7	)	1,671		1,917		(246		)	(12.8	)	Operating supplies	824		493		331		67.1	2,588		1,671		917		54.9
Amortization of intangibles	2,947		2,772		175			6.3		8,535		8,394		141			1.7		Amortization of intangibles	3,362		2,947		415		14.1	10,144		8,535		1,609		18.9
Branch right sizing expense	160		970		(810		)	(83.5)		3,092		1,049		2,043			194.8		Branch right sizing expense	442		160		282		176.3	2,401		3,092		(691)		(22.4)
Other expense	8,239		7,171		1,068			14.9		24,195		20,907		3,288			15.7		Other expense	7,478		8,240		(762)		(9.3)	23,676		24,195		(519)		(2.2)
Total non-interest expense	$	106,865	$	100,253	$	6,612		6.6	%	$	319,017	$	296,833	$	22,184		7.5	%	Total non-interest expense	$	118,949	$	106,865	$	12,084	11.3%	$	365,360	$	319,017	$	46,343	14.5%

_____________________________

* Not meaningful

LOAN PORTFOLIO

Our ~~legacy~~ loan portfolio ~~excluding loans acquired,~~ averaged ~~$9.206~~$14.53 billion and ~~$6.618~~$12.53 billion during the first nine months of ~~2019~~2020 and ~~2018,~~2019, respectively. As of September 30, ~~2019,~~2020, total loans ~~excluding loans acquired,~~ were ~~$9.64~~$14.02 billion, ~~an increase~~a decrease of ~~$1.21 billion~~$408.3 million from December 31, ~~2018.~~2019. 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).

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, 2018 to September 30, 2019 included $1.2 billion in balances that migrated from loans acquired during the period. These migrated loan balances are included in the legacy loan balances as of September 30, 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~~credit losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose, industry and geographic region. We seek to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. We use the allowance for ~~loan~~credit losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits.

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


	September 30,		December 31,
(In thousands)	2020		2019
Consumer:
Credit cards	$	172,880	$	204,802
Other consumer	190,736		249,195
Total consumer	363,616		453,997
Real estate:
Construction and development	1,853,360		2,248,673
Single family residential	1,997,070		2,414,753
Other commercial	6,132,823		6,358,514
Total real estate	9,983,253		11,021,940
Commercial:
Commercial	2,907,798		2,451,119
Agricultural	241,687		191,525
Total commercial	3,149,485		2,642,644
Other	521,088		307,123
Total loans before allowance for credit losses	$	14,017,442	$	14,425,704

(In thousands) September 30, 2019 December 31, 2018
Consumer:

Credit cards $ 195,083
$ 204,173
Other consumer 208,643
201,297
Total consumer 403,726

405,470
Real estate:
Construction 1,712,858
1,300,723
Single family residential 1,448,455
1,440,443
Other commercial 3,630,708
3,225,287
Total real estate 6,792,021

5,966,453
Commercial:
Commercial 1,894,819
1,774,909
Agricultural 213,753
164,514
Total commercial 2,108,572

1,939,423
Other 339,046
119,042
Total loans, excluding loans acquired, before allowance for loan losses $ 9,643,365

$ 8,430,388

Consumer loans consist of credit card loans and other consumer loans. Consumer loans were ~~$403.7~~$363.6 million at September 30, ~~2019,~~2020, or ~~4.2%~~2.6% of total loans, compared to ~~$405.5~~$454.0 million, or ~~4.8%~~3.1% of total loans at December 31, ~~2018.~~2019. The decrease in consumer loans from December 31, ~~2018,~~2019, to September 30, ~~2019,~~2020, was primarily due to the expected seasonal decline in our credit card ~~portfolio partially offset by growth in direct consumer loans.~~portfolio.

Real estate loans consist of construction and development (“C&D”) loans, single-family residential loans and commercial real estate (“CRE”) loans. Real estate loans were ~~$6.792~~$9.98 billion at September 30, ~~2019,~~2020, or ~~70.4%~~71.2% of total loans, compared to ~~$5.966~~$11.02 billion, or ~~70.8%~~76.4%, of total loans at December 31, ~~2018, an increase~~2019, a decrease of ~~$825.6~~$1.0 billion, or 9.4%. Our C&D loans decreased by $395.3 million, or ~~13.8%. Our construction and development (“C&D”) loans increased by $412.1 million, or 31.7%~~17.6%, single family residential loans ~~increased~~decreased by ~~$8.0~~$417.7 million, or ~~0.6%~~17.3%, and ~~commercial real estate (“CRE”)~~CRE loans ~~increased~~decreased by ~~$405.4~~$225.7 million, or ~~12.6%~~3.5%. ~~The increases are primarily~~Real estate loans declined approximately $104.6 million due to the ~~recent Reliance merger~~Colorado Branch Sale. The remaining decrease was due to less activity as ~~well as loans migrating from~~a result of the ~~acquired loan portfolio.~~pandemic and our effort to manage our real estate portfolio concentration. In the near term, we expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers.

Commercial loans consist of non-real estate loans related to business and agricultural loans. Total commercial loans were ~~$2.109~~$3.15 billion at September 30, ~~2019,~~2020, or ~~21.9%~~22.5% of total loans, compared to ~~$1.939~~$2.64 billion, or ~~23.0%~~18.3% of total loans at December 31, ~~2018,~~2019, an increase of ~~$169.1~~$506.8 million, or ~~8.7%. Non-agricultural~~19.2%, that is mostly in our non-agricultural commercial loan portfolio. The $970.5 million in PPP loan originations drove the increase in commercial loans increased to $1.895 billion, a $119.9 million increase, or 6.8%, from December 31, 2018. Agricultural loans increased to $213.8 million, a $49.2 million increase, or 29.9%, 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.

~~LOANS ACQUIRED~~

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 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.

On April 12, 2019, we completed the acquisition of Reliance and issued 3,999,623 shares of our common stock plus $62.7 million in cash in exchange for all outstanding shares of Reliance common stock. We also issued ~~$42.0 million~~ ~~of preferred stock in exchange for all outstanding shares of Reliance preferred stock. Included in the acquisition were loans with a fair value of~~ ~~$1.1 billion~~.

~~Table 8 reflects the carrying value of all loans acquired as of September 30, 2019 and December 31, 2018.~~

~~Table 8: Loans Acquired~~

(In thousands) September 30, 2019 December 31, 2018
Consumer:

Other consumer $ 7,431
$ 15,658
Real estate:
Construction 362,000
429,605
Single family residential 504,490
566,188
Other commercial 2,134,973
1,848,679
Total real estate 3,001,463

2,844,472
Commercial:
Commercial 349,821
430,914
Agricultural 872
1,739
Total commercial 350,693

432,653
Total loans acquired ⁽¹⁾
$ 3,359,587
$ 3,292,783

~~(1) Loans acquired are reported net of a $597,000 and $95,000 allowance at September 30, 2019 and December 31, 2018, respectively.~~

~~The majority of the loans originally acquired 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 acquisitions 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 loans were determined to have experienced credit deterioration in~~during the first nine months of ~~2019. During~~2020.

Management believes that loan demand is very weak in almost every aspect of our commercial economy, which we believe we see through our lower loan pipeline. Our customers appear to be deleveraging and not taking on new risks due to the ~~nine months ended September 30, 2019, we recorded approximately $2.5~~economic uncertainty stemming from the COVID-19 pandemic. We believe that trend will continue until our customers are more confident in the economy.

Other loans mainly consists of mortgage warehouse lending. Mortgage volume surged during the second and third quarters of 2020 due to the low interest rate environment leading to an increase of $214.0 million in ~~a provision for these~~other loans ~~charge-offs~~primarily from mortgage warehouse lines of $2.9 million, and recoveries of $900,000, resulting in an allowance for loan losses on loans acquired at September 30, 2019 of $597,000. 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 carefully reviewed these loans for potential losses and believe we have adequately identified any risk associated with the loans. In addition, a portion of the loans identified during the first quarter were subsequently paid off in the second quarter of 2019. See Note 5, Loans Acquired, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report for further discussion and analysis of loans acquired.credit.

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 bank recognizes income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the 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~~credit losses.

~~Credit~~When 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,~~ increased ~~$32.4~~$67.2 million from December 31, ~~2018~~2019 to September 30, ~~2019.~~2020. Nonaccrual loans increased by ~~$38.5~~$74.4 million during the period ~~primarily commercial loans, partially offset by a decrease in~~and foreclosed assets held for sale ~~of $6.0~~and other real estate owned decreased by $6.5 million. The increase in nonaccrual loans during 2020 is primarily in our CRE loan portfolio. Approximately $31.1 million and $18.2 million related to hotel real estate and student housing accommodations, respectively, moved to nonaccrual during the first nine months of the year. The remaining increase was ~~primarily due~~related to ~~two~~various other CRE loans ~~that became reportable as non-performing legacy loans during the quarter. One particular acquired~~and commercial loan ~~migrated from loans acquired~~relationships. We continue to ~~legacy loans during the quarter,~~actively pursue an exit of our energy lending portfolio, except for our customers who have a diversified relationship with the entire balance previously being included in the nonaccrual loans acquired total. The decrease in foreclosed assets held for sale was partially offset by foreclosed assets received from the Reliance merger. us.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were ~~0.56%~~0.87% at September 30, ~~2019,~~2020, compared to ~~0.40%~~0.57% at December 31, ~~2018.~~

2019. From time to time, certain borrowers are experiencing declines in income and cash flow. As a result, these 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~~increased to ~~$8.3~~$8.6 million at September 30, ~~2019, compared to $9.2~~2020 from $7.4 million at December 31, ~~2018. The majority~~2019.

TDRs are individually evaluated for expected credit losses. We assess the exposure for each modification, either by the fair value of ~~our TDR balance remains in~~ the ~~CRE portfolio with~~underlying collateral or the ~~largest balance comprised~~present value of ~~four relationships.~~expected cash flows, and determine if a specific allowance for credit losses is needed.

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.

The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act and is following the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by regulatory agencies.

We have more than 3,900 loans totaling approximately $3.2 billion which have received a COVID-19 modification. See Note 5, Loans and Allowance for Credit Losses, in the accompanying Condensed Notes to Consolidated Financial Statements for additional information related to these loans. Of these COVID-19 loan modifications, approximately $550.8 million, or 17.4%, are commercial loan modifications that are in an internal COVID-19 status category of 4-7 as of mid-October 2020, further discussed below, comprised of the following industries:

Table 8: Commercial COVID-19 Loan Modifications Status Category 4-7 by Industry


(Dollars in thousands)	Loan Balance		%
Hotels	$	319,991	58.1	%
Restaurants - Real Estate	7,209		1.3
Restaurants - Non-Real Estate	1,897		0.4
Retail	15,836		2.9
Nursing/Extended Care	42,674		7.7
Multifamily	62,320		11.3
All Other	100,905		18.3
Total	$	550,832	100.0	%

Table 9: Commercial COVID-19 Loan Modifications Status Category 4-7


(Dollars in thousands)	Loan Balance		Number of Loans
Internal Status Category 4	$	335,798	105
Internal Status Category 5	195,312		71
Internal Status Category 6	17,242		44
Internal Status Category 7	2,480		8
Total	$	550,832	228

As previously discussed, the COVID-19 pandemic has had an unprecedented impact on the hotel, restaurant and retail industries, causing our borrowers in those industries to require loan modifications. We expect most of the commercial COVID-19 loan modifications listed above, as illustrated in Table 9, to return to regular payments with no credit downgrade or long-term restructure.

Internal COVID-19 status categories are internal status categories that we use in connection with our COVID-19 loan modification program. A description of the general characteristics of the internal COVID-19 status categories 4-7 is as follows:

•Category 4– Borrower is still in the modification period and expected to need an additional modification. Financial projections show return to original terms, but not at the end of six months. The loan remains collateralized and fully supported by the guarantor.

•Category 5– Financial projections do not support return to regular payments OR collateral deterioration is likely, which would not fully support the loan. The guarantors remain engaged and cooperative.

•Category 6– Financial projections do not support return to regular payments AND collateral deterioration is likely, which would not fully support the loan. The guarantors remain engaged and cooperative.

•Category 7– Financial projections do not support return to regular payments OR collateral deterioration is likely, which would not fully support the loan. The guarantors lack the capacity and are unwilling or unable to develop a new operating strategy.

We developed these status categories for internal purposes only and they are not a substitute or a replacement for loan risk ratings used by us under US GAAP.

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~~credit losses as a percent of total ~~legacy~~ loans was ~~0.68%~~1.77% as of September 30, ~~2019.~~2020. Non-performing loans equaled ~~0.76%~~1.20% of total loans. Non-performing assets were ~~0.52%~~0.85% of total assets, a 1531 basis point increase from December 31, ~~2018.~~2019. The allowance for ~~loan~~credit losses was ~~91%~~148% of non-performing loans. Our annualized net charge-offs to total loans for the first nine months of ~~2019~~2020 was ~~0.38%~~0.43%. Excluding credit cards, the annualized net charge-offs to total loans for the same period was ~~0.35%~~0.41%. Annualized net credit card charge-offs to total credit card loans were ~~1.79%~~1.75%, compared to ~~1.64%~~1.86% during the full year ~~2018,~~2019, and ~~204~~229 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.

Table 910 presents information concerning non-performing assets, including nonaccrual loans at amortized cost and foreclosed assets held for ~~sale (excluding all loans acquired).~~sale.

Table 9:10: Non-performing Assets


	September 30,			December 31,
(Dollars in thousands)	2020			2019
Nonaccrual loans (1)	$	167,713		$	93,330
Loans past due 90 days or more (principal or interest payments)	174			856
Total non-performing loans	167,887			94,186
Other non-performing assets:
Foreclosed assets held for sale and other real estate owned	12,590			19,121
Other non-performing assets	1,983			1,964
Total other non-performing assets	14,573			21,085
Total non-performing assets	$	182,460		$	115,271

Performing TDRs	$	3,379		$	5,887
Allowance for credit losses to non-performing loans	148		%	72		%
Non-performing loans to total loans	1.20		%	0.65		%
Non-performing assets (including performing TDRs) to total assets	0.87		%	0.57		%
Non-performing assets to total assets	0.85		%	0.54		%

(1)Includes nonaccrual TDRs of approximately $5,177,000 at September 30, 2020 and $1,561,000 at December 31, 2019.

(Dollars in thousands) September 30, 2019 December 31, 2018
Nonaccrual loans ⁽¹⁾
$ 72,721
$ 34,201
Loans past due 90 days or more (principal or interest payments) 155
224
Total non-performing loans 72,876

34,425
Other non-performing assets:
Foreclosed assets held for sale 19,576
25,565
Other non-performing assets 540
553
Total other non-performing assets 20,116

26,118
Total non-performing assets $ 92,992

$ 60,543

Performing TDRs $ 6,519
$ 6,369
Allowance for loan losses to non-performing loans 91 % 164 %
Non-performing loans to total loans 0.76 % 0.41 %
Non-performing assets (including performing TDRs) to total assets ⁽²⁾
0.56 % 0.40 %
Non-performing assets to total assets ⁽²⁾
0.52 % 0.37 %


~~(1)~~	~~Includes nonaccrual TDRs of approximately $1.8 million at September 30, 2019 and $2.8 million at December 31, 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 and nine month periods ended September 30, ~~2019~~2020 and ~~2018.~~2019.

At September 30, 2019, impaired loans, net of government guarantees and loans acquired, were $70.0 million compared to $39.8 million at December 31, 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.

ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES

~~Overview~~

The allowance for ~~loan~~credit losses is a reserve established through a provision for ~~loan~~credit losses charged to expense which represents management’s best estimate of ~~probable~~lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations.

Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical correlation with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis.

We also include qualitative adjustments to the allowance based on factors and considerations that have not otherwise been ~~incurred within the existing portfolio of loans. The allowance,~~fully accounted for. Qualitative adjustments include, but are not limited to:

•Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the ~~judgment~~reserve factor.

•Changes in the nature and volume of ~~management, is necessary~~the portfolio - Adjustments related to ~~reserve for estimated loan losses and risks inherent~~current changes in the loan ~~portfolio. The Company’s allowance~~portfolio that are not fully represented or accounted 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~~reserve factors.

~~As mentioned above, allocations to the allowance for~~•Changes in lending and 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) lendingmonitoring policies and procedures ~~including those for~~ - Adjustments related to current changes in lending and loan ~~losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6)~~monitoring procedures as well as review of specific internal policy compliance metrics.

•Changes in the experience, ability, and depth of lending management and other relevant staff ~~(7) seasoning~~ - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.

•Changes in the value of ~~new products obtained~~underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors.

•Changes in and ~~new markets entered through acquisition~~the existence and ~~(8) other factors~~effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors.

•Changes in regional and ~~trends~~local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that ~~will affect specific~~are not fully captured within our reasonable and supportable forecast.

•Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio.

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans ~~and categories of loans. We established general allocations for each major loan category. This category also includes allocations to loans which~~with a deteriorated internal risk rating or that are ~~collectively evaluated for loss such~~classified 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~~a TDR. The allowance for ~~loan losses, we have established a reserve for unfunded commitments, classified in other liabilities. This reserve~~credit loss is ~~maintained at a level sufficient to absorb losses arising from unfunded loan commitments. The adequacy~~determined based on several methods including estimating the fair value of the ~~reserve for unfunded commitments is determined monthly based on methodology similar to our methodology for determining~~underlying collateral or the ~~allowance for loan losses. Net adjustments to the reserve for unfunded commitments are included in other non-interest expense.~~present value of expected cash flows.

An analysis of the allowance for ~~loan~~credit losses for ~~legacy~~ loans is shown in Table ~~10.~~11.

Table ~~10:~~11: Allowance for ~~Loan~~Credit Losses


(In thousands)	2020		2019
Balance, beginning of year	$	68,244	$	56,694

Impact of CECL adoption	151,377		—
Loans charged off:
Credit card	3,326		3,298
Other consumer	3,062		3,582
Real estate	3,373		3,000
Commercial	40,537		22,893
Total loans charged off	50,298		32,773
Recoveries of loans previously charged off:
Credit card	773		734
Other consumer	1,110		2,053
Real estate	474		355
Commercial	1,381		1,190
Total recoveries	3,738		4,332
Net loans charged off	46,560		28,441
Provision for credit losses	75,190		38,337
Balance, September 30	$	248,251	$	66,590

Loans charged off:
Credit card			1,287
Other consumer			1,425
Real estate			892
Commercial			459
Total loans charged off			4,063
Recoveries of loans previously charged off:
Credit card			287
Other consumer			304
Real estate			146
Commercial			77
Total recoveries			814
Net loans charged off			3,249
Provision for credit losses			4,903
Balance, end of year			$	68,244

(In thousands) 2019 2018
Balance, beginning of year $ 56,599
$ 41,668
Loans charged off:
Credit card 3,298
2,930
Other consumer 3,497
3,743
Real estate 1,552
5,568
Commercial 21,564
3,143
Total loans charged off 29,911

15,384
Recoveries of loans previously charged off:
Credit card 734
778
Other consumer 2,053
403
Real estate 350
624
Commercial 295
578
Total recoveries 3,432

2,383
Net loans charged off 26,479
13,001
Provision for loan losses ⁽¹⁾
35,873
26,691
Balance, September 30 ⁽³⁾
$ 65,993

$ 55,358

Loans charged off:
Credit card 1,121
Other consumer 2,894
Real estate 337
Commercial 3,480
Total loans charged off 7,832
Recoveries of loans previously charged off:
Credit card 227
Other consumer 154
Real estate 367
Commercial 167
Total recoveries 915
Net loans charged off 6,917
Provision for loan losses ⁽²⁾
8,158
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 $38,337,000) and $1,837,000 was excluded from this table for 2018 (total year-to-date 2018 provision for loan losses was $28,528,000). Charge offs of $2,862,000 on loans acquired were excluded from this table for 2019 and $910,000 for 2018. Additionally, recoveries of $900,000 on loans acquired were excluded from this table for 2019.


~~(2)~~	~~Provision for loan losses of $3,299,000 attributable to loans acquired, was excluded from this table for 2018 (total 2018 provision for loan losses was $38,148,000).~~

~~(3)~~

Allowance for loan losses at September 30, 2019 includes $597,000 allowance for loans acquired (not shown in the table above). Allowance for loan losses at December 31, 2018 and September 30, 2018 includes $95,000 and $1,345,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2019 was $66,590,000 and total allowance for loan losses at December 31, 2018 and September 30, 2018 was $56,694,000 and $56,703,000, respectively.

Provision for ~~Loan~~Credit Losses

The amount of provision added to the allowance during the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, and for the year ended December 31, ~~2018,~~2019, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and 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.

Allowance for ~~Loan~~Credit Losses Allocation

As of September 30, ~~2019,~~2020, the allowance for ~~loan~~credit losses ~~reflects~~reflected an increase of approximately ~~$9.4~~$180.0 million from December 31, ~~2018,~~2019 while ~~total~~ loans ~~excluding loans acquired, increased by $1.2 billion~~decreased $408.3 million over the same nine month period. The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix. During the first quarter of 2020, we recorded an additional allowance for credit losses for loans of approximately $151.4 million due to the adoption of CECL.

The significant impact to the allowance for credit losses at the date of adoption was driven by the substantial amount of loans acquired held by the Company. We had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology. As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank.

The remaining increase in the allowance for credit losses during the first nine months of 2020 was predominately related to updated credit loss forecast models using multiple Moody’s economic scenarios previously discussed in Provision for Credit Losses as well as continued economic uncertainty due to the COVID-19 pandemic. Certain industries are being more adversely impacted than others by this pandemic, such as the restaurant, retail and hotel industries, and there remains substantial uncertainty regarding how borrowers in these industries will recover. Our allowance for credit losses at September 30, 2020 was at the high-end of our calculated range, although it was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic recovery, future of government assistance/election, and other related factors.

The following table sets forth the sum of the amounts of the allowance for ~~loan~~credit losses attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of loans in each category to the total loan portfolio ~~excluding loans acquired,~~ for each of the periods indicated. ~~These~~The allowance ~~amounts have been computed using the Company’s internal grading system,~~for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific ~~impairment analysis, qualitative and quantitative factor allocations.~~allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories.

Table ~~11:~~12: Allocation of Allowance for ~~Loan~~Credit Losses

September 30, 2019 December 31, 2018
(Dollars in thousands)
Allowance
Amount

% of
loans ⁽¹⁾

Allowance
Amount

% of
loans ⁽¹⁾
Credit cards $ 4,003
2.0 % $ 3,923
2.4 %
Other consumer 2,100
2.2 % 2,380
2.4 %
Real estate 36,470
70.4 % 29,743
70.8 %
Commercial 23,225
21.9 % 20,514
23.0 %
Other 195
3.5 % 39
1.4 %
Total ⁽²⁾
$ 65,993

100.0 %
$ 56,599

100.0 %


	September 30, 2020				December 31, 2019
(Dollars in thousands)	Allowance Amount		% of loans (1)		Allowance Amount		% of loans (1)
Credit cards	$	8,600	1.2	%	$	4,051	1.4	%
Other consumer	7,175		1.4	%	1,998		1.7	%
Real estate	181,917		71.2	%	39,161		76.5	%
Commercial	49,248		22.5	%	22,863		18.3	%
Other	1,311		3.7	%	171		2.1	%
Total	$	248,251	100.0	%	$	68,244	100.0	%


~~(1)~~	~~Percentage of loans in each category to total loans, excluding loans acquired.~~


~~(2)~~	Allowance for loan losses at September 30, 2019 and December 31, 2018 includes $597,000 and $95,000, respectively, allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2019 and December 31, 2018 was $66,590,000 and $56,694,000, respectively.

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

DEPOSITS

Deposits are our primary source of funding for earning assets and are primarily developed through our network of ~~212~~approximately 226 financial ~~centers.~~centers as of September 30, 2020. 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 September 30, ~~2019,~~2020, core deposits comprised ~~79.6%~~84.9% 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,~~Department, establish the interest rates offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. We believe we are paying a competitive rate when compared with pricing in those markets.

We manage our interest expense through deposit pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs. We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.

Our total deposits as of September 30, ~~2019,~~2020, were ~~$13.47~~$16.25 billion, an increase of ~~$1.07 billion~~$137.7 million from December 31, ~~2018. The increase was primarily due to the Reliance Bank merger, however, we also achieved organic core deposit growth for the first nine months of~~ 2019. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled ~~$10.4~~$13.4 billion at September 30, ~~2019,~~2020, compared to ~~$9.5~~$12.8 billion at December 31, ~~2018, a $879.3 million increase.~~2019, an increase of $612.7 million. Total time deposits ~~increased $190.0~~decreased $475.0 million to ~~$3.1~~$2.8 billion at September 30, ~~2019,~~2020, from ~~$2.9~~$3.3 billion at December 31, ~~2018.~~2019. We had ~~$1.1 billion~~$513.4 million and ~~$1.4~~$1.1 billion of brokered deposits at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits.

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was ~~$1.45~~$1.73 billion and ~~$1.70~~$1.69 billion at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The outstanding balance for September 30, ~~2019~~2020 includes ~~$1.1~~$1.3 billion in FHLB short-term ~~advances, $13.4~~advances; $9.0 million in FHLB long-term ~~advances,~~advances; $330.0 million in subordinated ~~notes and $24.2~~notes; $52.7 million of trust preferred securities and unamortized debt issuance costs; and $33.8 million of other ~~subordinated~~long-term debt.

The FHLB short-term advances ~~mostly consist~~outstanding at the end of the third quarter 2020 are FHLB Owns the Option (“FOTO”) advances ~~that~~which 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~~Our FOTO advances outstanding at ~~the end of the third quarter~~September 30, 2020 have ~~ten~~10 to ~~fifteen~~15 year maturity dates with lockout periods that have expired and, as a result, are considered and monitored ~~by the Company~~ as short-term advances. ~~The~~We analyze the possibility of the FHLB exercising the options ~~is analyzed by the Company~~ along with the market expected rate outcome.

We assumed trust preferred securities and other subordinated debt in an aggregate principal amount, net of discounts, of $33.9 million related to the Landrum acquisition during 2019. During the second quarter of 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.

In March 2018, we issued $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 $3.6 million in debt issuance costs related to the 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 beare subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries.

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 expiration date to October 2019 and reduced the $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. All amounts borrowed, together with applicable interest, fees, and other amounts owed by the Company were due and payable on October 4, 2019. The balance due under the Credit Agreement at September 30, 2019 and October 4, 2019 was $0. The Company did not renew the Credit Agreement upon the expiration date.

During 2018, the Company used a portion of the net proceeds from the sale of the Notes to repay certain outstanding indebtedness, including the $75.0 million outstanding balance on the Credit Agreement, $43.3 million in notes payable, $94.9 million in trust preferred securities and $19.1 million in subordinated debt.

CAPITAL

Overview

At September 30, ~~2019,~~2020, total capital was ~~$2.55~~$2.94 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At September 30, ~~2019,~~2020, our common equity to ~~assets~~asset ratio was ~~14.34%~~13.72% compared to ~~13.58%~~14.06% at year-end ~~2018.~~2019.

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~~February 12, 2019, we filed Amended and Restated Articles of ~~Directors of the Company approved a two-for-one stock split of the Company’s outstanding Class A common stock, $0.01 par value~~Incorporation (“Common Stock”), in the form of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018. 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~~Amended Articles”) with the ~~SEC.~~Arkansas Secretary of State. The ~~shelf registration statement provides increased flexibility~~February Amended Articles classified and ~~more efficient access to raise capital from time to time through the sale~~designated three series 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 timeout 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~~our authorized ~~shares of Common Stock from 120,000,000 to 175,000,000.~~

~~On April 12, 2019, as part of the acquisition of Reliance, the Company issued 40,000 shares of Simmons~~preferred stock: Series A Preferred Stock, ~~and 2,000.02 shares Simmons~~Par Value $0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, ~~in exchange for the outstanding shares of Reliance’s Series A~~Par Value $0.01 Per Share (having 2,000.02 authorized shares); and 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C (having 140 authorized shares).

On October 29, 2019, we filed our Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series BD Preferred ~~Stock. On May 13, 2019, the Company redeemed all~~Stock, Par Value $0.01 Per Share, out of ~~the~~our authorized preferred ~~stock, including accrued and unpaid dividends.~~stock. The October Amended Articles also canceled our 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C Preferred Stock, of which no shares were ever issued or outstanding.

Stock Repurchase

~~Through third quarter 2019, we had~~On July 23, 2012, our Board of Directors approved a stock repurchase program ~~in place~~ which authorized the repurchase of up to 1,700,000 ~~(split adjusted)~~shares of ~~Common Stock. As previously discussed in Note 22, Subsequent Events, of the accompanying Condensed Notes to Consolidated Financial Statements, on~~common stock (“2012 Program”). On October 22, 2019, we announced a new stock repurchase program ~~which replaces~~(“Program”) that replaced the ~~previous program and~~2012 Program, under which we may repurchase up to $60,000,000 of our ~~Common Stock~~Class A common stock currently issued and outstanding. WeOn March 5, 2020, we announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000 to $180,000,000. The Program will terminate on October 31, 2021 (unless terminated sooner).

Under the Program, we may repurchase shares of our common stock through open market and privately negotiated transactions or otherwise. The timing, pricing, and amount of any repurchases under the ~~new stock repurchase program~~Program will be determined by management at its discretion based on a variety of ~~factors.~~factors, including, but not limited to, trading volume and market price of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. We anticipate funding for this ~~new stock repurchase program~~Program to come from available sources of liquidity, including cash on hand and future cash flow.

During the nine month period ended September 30, 2020, we repurchased 4,922,336 shares at an average price of $18.96 under the Program. No shares have been repurchased since March 31, 2020. We had no stock repurchases ~~pursuant to the repurchase program~~ during the first nine months of ~~2019 or 2018.~~2019. On October 22, 2020, we announced the resumption of stock repurchases under the Program.

Cash Dividends

We declared cash dividends on our common stock of $0.51 per share for the first nine months of 2020 compared to $0.48 per share for the first nine months of 2019, ~~compared to $0.45 per share for the first nine months of 2018,~~ an increase of $0.03, or 7%6%. ~~On October 22, 2019, the Board of Directors declared a regular $0.16 per share quarterly cash dividend payable January 6, 2020, to shareholders of record December 16, 2019.~~ 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.~~obligations and cash needs for acquisitions. The primary sources for meeting these liquidity needs are the current cash on hand at the parent company and the future dividends received from Simmons Bank. Payment of dividends by ~~the bank subsidiary~~Simmons Bank is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk for additional information regarding the parent company’s liquidity. The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising via, among other things, equity or debt offerings.

Risk Based Capital

Our bank subsidiary 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 September 30, ~~2019,~~2020, we meet all capital adequacy requirements to which we are subject.

As of the most recent notification from regulatory agencies, the bank subsidiary was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the ~~Banks~~Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s categories.

Our risk-based capital ratios at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 are presented in Table 1213 below:

Table ~~12:~~13: Risk-Based Capital


	September 30,			December 31,
(Dollars in thousands)	2020			2019
Tier 1 capital:
Stockholders’ equity	$	2,942,241		$	2,988,924
CECL transition provision	134,798			—
Goodwill and other intangible assets	(1,167,357)			(1,160,079)
Unrealized gain on available-for-sale securities, net of income taxes	(41,509)			(20,891)
Total Tier 1 capital	1,868,173			1,807,954
Tier 2 capital:
Trust preferred securities and subordinated debt	382,739			388,260
Qualifying allowance for credit losses and reserve for unfunded commitments	96,734			76,644
Total Tier 2 capital	479,473			464,904
Total risk-based capital	$	2,347,646		$	2,272,858

Risk weighted assets	$	14,878,932		$	16,554,081

Assets for leverage ratio	$	20,652,454		$	18,852,798

Ratios at end of period:
Common equity Tier 1 ratio (CET1)	12.55		%	10.92		%
Tier 1 leverage ratio	9.05		%	9.59		%
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)	9.49		%	N/A
Tier 1 risk-based capital ratio	12.56		%	10.92		%
Total risk-based capital ratio	15.78		%	13.73		%
Minimum guidelines:
Common equity Tier 1 ratio (CET1)	4.50		%	4.50		%
Tier 1 leverage ratio	4.00		%	4.00		%
Tier 1 risk-based capital ratio	6.00		%	6.00		%
Total risk-based capital ratio	8.00		%	8.00		%

(1)PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. Tier 1 leverage ratio, excluding average PPP loans is a non-GAAP measurement.

(Dollars in thousands) September 30, 2019 December 31, 2018
Tier 1 capital:

Stockholders’ equity $ 2,547,071
$ 2,246,434
Goodwill and other intangible assets (1,013,309 ) (912,428 )
Unrealized (gain) loss on available-for-sale securities, net of income taxes (23,709 ) 27,374
Total Tier 1 capital 1,510,053

1,361,380
Tier 2 capital:
Trust preferred securities and subordinated debt 354,223
353,950
Qualifying allowance for loan losses 74,455
63,608
Total Tier 2 capital 428,678

417,558
Total risk-based capital $ 1,938,731

$ 1,778,938

Risk weighted assets $ 14,725,571
$ 13,326,832

Assets for leverage ratio $ 16,681,527
$ 15,512,042

Ratios at end of period:
Common equity Tier 1 ratio (CET1) 10.25 % 10.22 %
Tier 1 leverage ratio 9.05 % 8.78 %
Tier 1 risk-based capital ratio 10.25 % 10.22 %
Total risk-based capital ratio 13.17 % 13.35 %
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 %

Regulatory Capital Changes

In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that provided an option to phase in over a three year period on a straight line basis the day-one impact of the adoption on earnings and Tier 1 capital (the “CECL Transition Provision”).

In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision.

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 introduced substantial revisions to the risk-based capital requirements applicable to bank holding companies and depository 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.

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 on January 1, 2019.

Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital. Trust preferred securities and qualifying subordinated debt of ~~$354.2~~$382.7 million is included as Tier 2 and total capital as of September 30, ~~2019.~~2020.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See the Recently Issued Accounting Standards section 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~~should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “believe,” “budget,” “expect,” “foresee,” “anticipate,” “intend,” “indicate,” “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,” “prospects,” “predict,” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could,” “might” or “may,” or by variations of such words or by similar expressions. These forward-looking statements include, without limitation, those relating to the Company’s future growth, 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, acquisition strategy, balance sheet and liquidity management, NGB and other digital banking initiatives, the Company’s ability to recruit and retain key employees, the benefits associated with the Company’s early retirement program and branch closures, the adequacy of the allowance for ~~loan~~credit losses, the ability of the Company to manage the impact of the COVID-19 pandemic, the effect of certain new accounting standards on the Company’s financial statements (including, without limitation, the CECL methodology and its anticipated effect on the provision and allowance for credit losses), 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 future 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, acquisition, or expansion ~~and acquisition strategy (including difficulties integrating The Landrum Company into the Company’s business),~~strategy; the effects of future economic conditions ~~including~~(including unemployment levels and slowdowns in economic ~~growth,~~growth), governmental monetary and fiscal policies, as well as legislative and regulatory changes; changes in real estate values; 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; changes in the securities markets generally or the price of the Company’s common stock specifically; the effect of the steps the Company takes in response to COVID-19, the severity and duration of the pandemic, including whether there is a widespread resurgence in COVID-19 infections and whether the impact of the COVID-19 pandemic is exacerbated by the seasonal flu, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein; the effects of the COVID-19 pandemic on, among other things, the Company’s operations, liquidity, and credit quality; developments in information technology affecting the financial industry; cyber threats, attacks or events; reliance on third parties for key services; changes in the assumptions, forecasts, models, and methodology used to calculate the ~~expected~~ impact of CECL on the Company’s financial statements; possible adverse rulings, judgements, settlements and other outcomes of pending or future litigation or government actions (including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the PPP loan program authorized by the CARES Act)); 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;~~internet; the failure of assumptions underlying the establishment of reserves for possible ~~loan~~credit losses, fair value for loans, ~~and~~ other real estate ~~owned;~~owned, and other cautionary statements

set forth elsewhere in this report. Please also refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report and the Company’s annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. Many of these factors are beyond our ability to predict or control, and actual results could differ materially from those in the forward-looking statements due to these factors and others. 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.

GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The tables below present computations of core earnings (net income excluding non-core items ~~{merger~~{gain on sale of branches, merger related costs, early retirement program costs and the net one-time costs of branch right sizing}) (non-GAAP) and core diluted ~~core~~ earnings per share (non-GAAP) as well as a ~~reconciliation~~computation of tangible book value per share (non-GAAP), tangible common equity to tangible ~~equity~~assets (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 (US GAAP). The tables below also present computations of certain figures that are exclusive of the impact of PPP loans: the ratios of common equity to total assets and tangible common equity to tangible assets, each adjusted for PPP loans (each non-GAAP), Tier 1 leverage ratio excluding average PPP loans (non-GAAP), net interest income and net interest margin, each adjusted for PPP loans and excess liquidity (each non-GAAP), and loan yield excluding PPP loans (non-GAAP).

We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the 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~~“core diluted earnings per share” (non-GAAP) and core net interest margin (non-GAAP), provides a meaningful ~~base~~basis 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~~“core diluted earnings per share” (non-GAAP) for the following purposes:

• Calculation of annual performance-based incentives for certain executives

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

• Investor presentations of Company performance

We have ~~$1.0~~$1.190 billion and ~~$937.0 million~~$1.183 billion total goodwill and other intangible assets for the periods ended September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Because of our acquisition strategy has resulted in a high level of intangible assets, management believes a useful ~~calculation is return on~~calculations include tangible book value per share (non-GAAP) and tangible common equity to tangible assets (non-GAAP).

We believe the exclusion of PPP loans or their impact, as applicable, in expressing earnings and certain other financial measures provides a meaningful basis for period-to-period and company-to-company comparisons because PPP loans are 100% federally guaranteed and have very low interest rates. The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “common equity to total assets” and “tangible common equity to tangible assets,” each adjusted for PPP loans (each non-GAAP), “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “net interest margin,” each adjusted for PPP loans and excess liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP). Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, including the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance. Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance.

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). Additionally, similarly titled non-GAAP financial measures used by other companies may not be computed in the same or similar fashion.

See Table 1314 below for the reconciliation of non-GAAP financial measures, which exclude non-core items for the periods presented.

Table ~~13:~~14: Reconciliation of Core Earnings (non-GAAP)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2020		2019		2020		2019
Net income available to common stockholders	$	65,885	$	81,826	$	201,897	$	185,119
Non-core items:
Gain on sale of branches	—		—		(8,093)		—
Merger related costs	902		2,556		3,800		11,548
Early retirement program	2,346		177		2,839		3,464
Branch right sizing	72		160		2,031		3,092
Tax effect (1)	(867)		(756)		(151)		(4,731)
Net non-core items	2,453		2,137		426		13,373
Core earnings (non-GAAP)	$	68,338	$	83,963	$	202,323	$	198,492

Diluted earnings per share(2)	$	0.60	$	0.84	$	1.83	$	1.94
Non-core items:
Gain on sale of branches	—		—		(0.07)		—
Merger related costs	0.01		0.04		0.03		0.12
Early retirement program	0.02		—		0.02		0.04
Branch right sizing	—		—		0.02		0.03
Tax effect (1)	—		(0.01)		—		(0.05)
Net non-core items	0.03		0.03		—		0.14
Core diluted earnings per share (non-GAAP)	$	0.63	$	0.87	$	1.83	$	2.08

(1)Effective tax rate of 26.135%.

(2)See Note 17, Earnings Per Share, for number of shares used to determine EPS.

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 2019 2018
Net income available to common stockholders $ 81,826
$ 55,193
$ 185,119
$ 160,067
Non-core items:
Merger related costs 2,556
804
11,548
3,980
Early retirement program 177
—
3,464
—
Branch right sizing 160
970
3,092
1,049
Tax effect ⁽¹⁾
(756 ) (463 ) (4,731 ) (1,314 )
Net non-core items 2,137
1,311
13,373
3,715
Core earnings (non-GAAP) $ 83,963
$ 56,504
$ 198,492

$ 163,782

Diluted earnings per share⁽²⁾
$ 0.84
$ 0.59
$ 1.94
$ 1.72
Non-core items:
Merger related costs 0.04
0.01
0.12
0.04
Early retirement program —
—
0.04 —
Branch right sizing —
0.01
0.03
0.01
Tax effect ⁽¹⁾
(0.01 ) —
(0.05 ) (0.01 )
Net non-core items 0.03
0.02
0.14
0.04
Diluted core earnings per share (non-GAAP) $ 0.87
$ 0.61
$ 2.08

$ 1.76


~~(1)~~	~~Effective tax rate of 26.135%.~~


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

See Table 1415 below for the reconciliation of core other income and core non-interest expense for the periods presented.

Table 15: Reconciliation of Core Other Income and Core Non-Interest Expense (non-GAAP)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Other income	$	5,380	$	44,721	$	27,990	$	54,942
Gain on sale of banking operations	—		—		(8,093)		—
Branch right sizing	(370)		—		(370)		—
Core other income (non-GAAP)	$	5,010	$	44,721	$	19,527	$	54,942

Non-interest expense	$	118,949	$	106,865	$	365,360	$	319,017
Non-core items:
Merger related costs	(902)		(2,556)		(3,800)		(11,548)
Early retirement program	(2,346)		(177)		(2,839)		(3,464)
Branch right sizing	(442)		(160)		(2,401)		(3,092)
Total non-core items	(3,690)		(2,893)		(9,040)		(18,104)
Core non-interest expense (non-GAAP)	$	115,259	$	103,972	$	356,320	$	300,913

See Table 16 below for the reconciliation of tangible book value per common share.

Table ~~14:~~16: Reconciliation of Tangible Book Value per Common Share (non-GAAP)


	September 30,		December 31,
(In thousands, except per share data)	2020		2019
Total stockholders’ equity	$	2,942,241	$	2,988,924
Preferred stock	(767)		(767)
Total common stockholders’ equity	2,941,474		2,988,157
Intangible assets:
Goodwill	(1,075,305)		(1,055,520)
Other intangible assets	(114,460)		(127,340)
Total intangibles	(1,189,765)		(1,182,860)
Tangible common stockholders’ equity	$	1,751,709	$	1,805,297
Shares of common stock outstanding	109,023,781		113,628,601

Book value per common share	$	26.98	$	26.30

Tangible book value per common share (non-GAAP)	$	16.07	$	15.89

(In thousands, except per share data) September 30, 2019 December 31, 2018
Total common stockholders’ equity $ 2,547,071
$ 2,246,434
Intangible assets:
Goodwill (926,648 ) (845,687 )
Other intangible assets (101,149 ) (91,334 )
Total intangibles (1,027,797 )
(937,021 )
Tangible common stockholders’ equity $ 1,519,274

$ 1,309,413
Shares of common stock outstanding 96,613,855
92,347,643

Book value per common share $ 26.36
$ 24.33

Tangible book value per common share (non-GAAP) $ 15.73
$ 14.18

See Table 1517 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets.

Table ~~15:~~17: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)


	September 30,			December 31,
(Dollars in thousands)	2020			2019
Total common stockholders’ equity	$	2,941,474		$	2,988,157
Intangible assets:
Goodwill	(1,075,305)			(1,055,520)
Other intangible assets	(114,460)			(127,340)
Total intangibles	(1,189,765)			(1,182,860)
Tangible common stockholders’ equity	$	1,751,709		$	1,805,297

Total assets	$	21,437,395		$	21,259,143
Intangible assets:
Goodwill	(1,075,305)			(1,055,520)
Other intangible assets	(114,460)			(127,340)
Total intangibles	(1,189,765)			(1,182,860)
Tangible assets	$	20,247,630		$	20,076,283

Paycheck Protection Program (“PPP”) loans	(970,488)
Total assets excluding PPP loans	$	20,466,907
Tangible assets excluding PPP loans	$	19,277,142

Ratio of common equity to assets	13.72		%	14.06		%
Ratio of tangible common equity to tangible assets (non-GAAP)	8.65		%	8.99		%
Ratio of common equity to assets excluding PPP loans (non-GAAP)	14.37		%
Ratio of tangible common equity to tangible assets excluding PPP loans (non-GAAP)	9.09		%

(In thousands, except per share data) September 30, 2019 December 31, 2018
Total common stockholders’ equity $ 2,547,071
$ 2,246,434
Intangible assets:
Goodwill (926,648 ) (845,687 )
Other intangible assets (101,149 ) (91,334 )
Total intangibles (1,027,797 )
(937,021 )
Tangible common stockholders’ equity $ 1,519,274

$ 1,309,413

Total assets $ 17,758,511
$ 16,543,337
Intangible assets:
Goodwill (926,648 ) (845,687 )
Other intangible assets (101,149 ) (91,334 )
Total intangibles (1,027,797 )
(937,021 )
Tangible assets $ 16,730,714

$ 15,606,316

Ratio of common equity to assets 14.34 % 13.58 %
Ratio of tangible common equity to tangible assets (non-GAAP) 9.08 % 8.39 %

See Table 1618 below for the calculation of Tier 1 leverage ratio excluding average PPP loans for the period presented.

Table 18: Reconciliation of Tier 1 Leverage Ratio Excluding Average PPP Loans (non-GAAP)


(Dollars in thousands)	Three Months Ended September 30, 2020
Total Tier 1 capital	$	1,868,173

Adjusted average assets for leverage ratio	$	20,652,454
Average PPP loans	(967,152)
Adjusted average assets excluding average PPP loans	$	19,685,302

Tier 1 leverage ratio	9.05		%
Tier 1 leverage ratio excluding average PPP loans (non-GAAP)	9.49		%

See Table 19 below for the calculation of core net interest margin and net interest margin adjusted for PPP loans and excess liquidity for the periods presented.

Table ~~16:~~19: Reconciliation of Core Net Interest Margin (non-GAAP)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2020			2019			2020			2019
Net interest income	$	153,610		$	149,264		$	484,774		$	434,687
FTE adjustment	2,864			1,843			7,519			5,150
Fully tax equivalent net interest income	156,474			151,107			492,293			439,837
Total accretable yield	(8,948)			(9,322)			(32,508)			(26,144)
Core net interest income	$	147,526		$	141,785		$	459,785		$	413,693

PPP loan and excess liquidity interest income	(6,131)
Net interest income adjusted for PPP loans and excess liquidity	$	150,343

Average earning assets – quarter-to-date	$	19,415,314		$	15,680,665		$	19,172,318		$	15,174,671
Average PPP loan balance and excess liquidity	(2,359,928)
Average earning assets adjusted for PPP loans and excess liquidity	$	17,055,386

Net interest margin	3.21		%	3.82		%	3.43		%	3.88		%
Core net interest margin (non-GAAP)	3.02		%	3.59		%	3.20		%	3.64		%
Net interest margin adjusted for PPP loans and excess liquidity (non-GAAP)	3.51		%

See Table 20 below for the calculation of loan yield excluding PPP loans for the period presented.

Table 20: Reconciliation of Loan Yield Excluding PPP Loans (non-GAAP)


(Dollars in thousands)	Three Months Ended September 30, 2020
Loan interest income	$	163,379
PPP loan interest income	(5,782)
Loan interest income excluding PPP loans	$	157,597

Average loan balance	$	14,315,014
Average PPP loan balance	(967,152)
Average loan balance excluding PPP loans	$	13,347,862

Loan yield	4.54		%
Loan yield excluding PPP loans (non-GAAP)	4.70		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2019 2018 2019 2018
Net interest income $ 150,164
$ 142,968
$ 437,546
$ 414,771
FTE adjustment 1,843
1,393
5,150
3,831
Fully tax equivalent net interest income 152,007
144,361
442,696

418,602
Total accretable yield (9,322 ) (10,006 ) (26,144 ) (31,413 )
Core net interest income $ 142,685
$ 134,355
$ 416,552

$ 387,189

Average earning assets – quarter-to-date $ 15,831,432
$ 14,373,253
$ 15,326,432
$ 13,837,639

Net interest margin 3.81 % 3.98 % 3.86 % 4.04 %
Core net interest margin (non-GAAP) 3.58 % 3.71 % 3.63 % 3.74 %


~~Item 3.~~	~~Quantitative and Qualitative Disclosure About Market Risk~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has leveraged its investment in its subsidiary bank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary bank, as a principal source of funds for dividends to shareholders, stock repurchases and debt service requirements. At September 30, ~~2019,~~2020, undivided profits of Simmons Bank were approximately ~~$629.6~~$512.1 million, of which approximately ~~$128.8~~$105.0 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 Bank

Generally speaking, the Company’s subsidiary bank 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 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’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 bank monitors these same indicators and makes 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 source of liquidity available to the Company is ~~Federal~~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 ~~$380~~$415 million in ~~Federal~~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 subsidiary~~Simmons Bank 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 ~~$3.1~~$2.5 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,~~ Illinois, 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 98.2% 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.

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

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 September 30, ~~2019,~~2020, 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 ~~2.24%~~4.58% and ~~4.64%~~9.48%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of ~~100 basis points and 200~~25 basis points would result in a negative variance in net interest income of ~~(2.37)~~(0.52)% ~~and (3.40)%, respectively,~~ relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 25 basis points as of September 30, 2020, is considered remote given current interest rate levels. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each period-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 September 30, ~~2019:~~2020:

Table ~~14:~~21: Net Interest Income Sensitivity



Interest Rate Scenario		% Change from Base
Up 200 basis points		~~4.64%~~9.48%
Up 100 basis points		~~2.24%~~4.58%
Down ~~100~~25 basis points		~~(2.37)~~(0.52)%
~~Down 200 basis points~~	~~(3.40)%~~


~~Item 4.~~	~~Controls and Procedures~~

Item 4. Controls and Procedures

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“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’s current disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiary to disclose material information required to be set forth in the Company’s periodic reports.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, ~~2019,~~2020, which materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


~~Part II:~~	~~Other Information~~

Part II: Other Information


~~Item 1.~~	~~Legal Proceedings~~

Item 1. Legal Proceedings

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.


~~Item 1A.~~	~~Risk Factors~~

Item 1A. Risk Factors

There have been no material changes toin the risk factors ~~discussed~~faced by the Company from those disclosed in ~~Part 1, Item 1A of our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Form 10-K”). 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 2018 Form 10-K, which could materially and adversely affect, as supplemented by the Company’s ~~business, ongoing financial condition and results of operations. The risks described are not~~Quarterly Report on Form 10-Q for 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.quarter ended June 30, 2020.

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

On October 22, 2019, we announced that our Board of Directors authorized a new stock repurchase program (“Program”) under which we may repurchase up to $60,000,000 of our Class A common stock currently issued and outstanding. On March 5, 2020, we announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000 to $180,000,000. The ~~information~~Program will terminate on October 31, 2021 (unless terminated sooner) and replaced the previous stock repurchase program, which was announced on July 23, 2012, that authorized us to repurchase up to 1,700,000 shares of common stock. No shares have been repurchased under the Program since March 31, 2020. On October 22, 2020, we announced the resumption of stock repurchases under the Program. Market conditions and our capital needs will drive decisions regarding future, additional stock repurchases.

During the quarter ended September 30, 2020, we repurchased restricted stock in connection with employee tax withholding obligations under employee compensation plans. Information concerning our purchases of ~~Common Stock for the periods indicated~~common stock is as follows:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 - July 31, 2020	1,224	$	17.28	—	$	76,560,000
August 1, 2020 - August 31, 2020	—	—		—	$	76,560,000
September 1, 2020 - September 30, 2020	689	16.80		—	$	76,560,000
Total	1,913	$	17.10	—

(1)Total number of shares purchased consists of 1,913 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.

Total number of shares purchased⁽¹⁾
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs⁽²⁾
Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2019 - July 31, 2019 1,394
$ 23.22
—
308,272
August 1, 2019 - August 31, 2019 —
—
—
308,272
September 1, 2019 - September 30, 2019 2,001
25.11
—
308,272
Total 3,395
$ 24.33
—
308,272


~~(1)~~	Total number of shares purchased consists of 3,395 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.

~~(2)~~

On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares of Common Stock. The Company had no repurchases of its Common Stock during the three months ended September 30, 2019. On October 22, 2019, the Company announced a new stock repurchase program, replacing the previous stock repurchase program, under which the Company may repurchase up to $60,000,000 of Common Stock currently issued and outstanding. The new stock repurchase program will terminate on October 31, 2021 (unless terminated sooner).

Item 6. Exhibits


Exhibit No.			Description



2.1		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)).
~~2.2~~	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)).
~~2.3~~	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)).
~~2.4~~	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)).
~~2.5~~	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)).
~~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)).
~~2.7~~	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)).



~~2.8~~	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)).
~~2.9~~	Agreement and Plan of Merger, dated as of November 13, 2018, by and between Simmons First National Corporation and Reliance Bancshares, Inc., as amended on February 11, 2019 (incorporated by reference to Annex A to the Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) by Simmons First National Corporation for March 4, 2019 (File No. 333-229378)).
~~2.10~~2.2		Agreement and Plan of Merger, dated as of July 30, 2019, by and between Simmons First National Corporation and The Landrum Company (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for July 30, 2019 (File No. 000-06253)).
3.1		Amended and Restated Articles of Incorporation of Simmons First National Corporation, as amended on October 29, 2019 (incorporated by reference to Exhibit 3.1 to Simmons First National Corporation’s Current Report on Form 8-K ~~for~~filed November 1, 2019 (File No. 000-06253)).
3.2		As Amended By-Laws of Simmons First National Corporation, ~~(incorporated by reference to Exhibit 3.2 to the Registration Statement~~as amended on ~~Form S-4 (File No. 333-233559) filed by Simmons First National Corporation on August 30, 2019 (File No. 000-06253)).~~ October 21, 2020.*
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.
~~15.1~~10.1		Executive Severance Agreement for George Makris III dated July 28, 2020.*
10.2		Executive Severance Agreement for John Barber dated July 24, 2020.*
14.1		Amended and Restated Simmons First National Corporation Code of Ethics (as amended and restated on July 23, 2020) (incorporated by reference to Exhibit 14.1 to Simmons First National Corporation’s Current Report on Form 8-K filed July 28, 2020 (File No. 000-06253)).
15.1		Awareness Letter of BKD, LLP.*
31.1		Rule 13a-15(e) and 15d-15(e) Certification – George A. Makris, Jr., Chairman and Chief Executive Officer.*


Exhibit No.			Description
31.2			Rule 13a-15(e) and 15d-15(e) Certification – Robert A. Fehlman, Senior Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer.*
31.3			Rule 13a-15(e) and 15d-15(e) Certification – David W. Garner, Executive Vice President, ~~Controller~~Executive Director of Finance and Accounting and Chief Accounting Officer.*
32.1			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.*
32.2			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, Chief Operating Officer and Treasurer.*
32.3			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~~Executive Director of Finance and Accounting and Chief Accounting Officer.*
101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. **
101.SCH			Inline XBRL Taxonomy Extension Schema.**
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase.**
101.DEF			InlineXBRL Taxonomy Extension Definition Linkbase.**
101.LAB			Inline XBRL Taxonomy Extension Labels Linkbase.**
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase.**
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).**

* 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 Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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:			November ~~7, 2019~~6, 2020	/s/ George A. Makris, Jr.
				George A. Makris, Jr.
				Chairman and Chief Executive Officer


Date:			November 6, 2020
~~Date:~~	~~November 7, 2019~~	/s/ Robert A. Fehlman
				Robert A. Fehlman
				Senior Executive Vice President,
		Chief Financial Officer,
				Chief Operating Officer and Treasurer
				~~and Treasurer~~

Date:			November 6, 2020
~~Date:~~	~~November 7, 2019~~	/s/ David W. Garner
				David W. Garner
				Executive Vice President, ~~Controller~~Executive Director of Finance and
				Accounting and Chief Accounting Officer



Arkansas			71-0407808
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

501 Main Street			71601
Pine Bluff			(Zip Code)
Arkansas
(Address of principal executive offices)



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2019		2018			2019		2018
	(Unaudited)					(Unaudited)
NET INCOME	$	81,826	$	55,193		$	185,445	$	160,067

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) arising during the period on available-for-sale securities	18,736		(10,583		)	79,547		(41,612		)
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 (losses) included in net income	7,374		54			12,937		53
Other comprehensive gain (loss), before tax effect	11,362		(10,637		)	69,157		(41,665		)
Less: Tax effect of other comprehensive income (loss)	2,969		(2,780		)	18,074		(10,889		)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	8,393		(7,857		)	51,083		(30,776		)

COMPREHENSIVE INCOME	$	90,219	$	47,336		$	236,528	$	129,291


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
NET INCOME	$	65,898	$	81,826	$	201,936	$	185,445

OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized holding gains arising during the period on available-for-sale securities	4,975		18,736		82,703		79,547
Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-12	0		0		0		2,547
Less: Reclassification adjustment for realized gains included in net income	22,305		7,374		54,790		12,937
Other comprehensive (loss) income, before tax effect	(17,330)		11,362		27,913		69,157
Less: Tax effect of other comprehensive (loss) income	(4,529)		2,969		7,295		18,074

TOTAL OTHER COMPREHENSIVE (LOSS) INCOME	(12,801)		8,393		20,618		51,083

COMPREHENSIVE INCOME	$	53,097	$	90,219	$	222,554	$	236,528


(In thousands)	September 30, 2020		September 30, 2019
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	201,936	$	185,445
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	36,590		25,462
Provision for credit losses	68,030		38,337
Gain on sale of investments	(54,790)		(12,937)
Net accretion of investment securities and assets	(43,286)		(35,272)
Net amortization on borrowings	406		273
Stock-based compensation expense	10,750		9,316
Gain on sale of premises and equipment, net of impairment	(33)		0
Gain on sale of foreclosed assets held for sale	(475)		(16)
Gain on sale of mortgage loans held for sale	(28,994)		(14,196)
Loss on sale of loans	0		4,451
Gain on sale of Visa, Inc. class B common stock	0		(42,860)
Gain on sale of other intangibles	(301)		0
Gain on sale of branches	(8,094)		0
Fair value write-down of closed branches	1,465		0
Deferred income taxes	2,920		10,933
Income from bank owned life insurance	(4,983)		(3,438)
Originations of mortgage loans held for sale	(851,356)		(499,178)
Proceeds from sale of mortgage loans held for sale	745,723		490,674
Changes in assets and liabilities:
Interest receivable	(15,601)		(679)
Lease right-of-use assets	8,147		(1,370)
Other assets	(7,009)		13,325
Accrued interest and other liabilities	35,549		10,881
Income taxes payable	(20,206)		18,722
Net cash provided by operating activities	76,388		197,873

INVESTING ACTIVITIES
Net collections (originations) of loans	243,826		(299,013)
Proceeds from sale of loans	32,742		104,587
Decrease in due from banks - time	493		395
Purchases of premises and equipment, net	(22,697)		(37,523)
Proceeds from sale of premises and equipment	123		0
Proceeds from sale of foreclosed assets held for sale	9,705		16,139
Proceeds from sale of available-for-sale securities	1,717,364		543,400
Proceeds from maturities of available-for-sale securities	2,218,259		412,006
Purchases of available-for-sale securities	(3,169,534)		(592,165)
Proceeds from maturities of held-to-maturity securities	10,520		29,179
Purchases of held-to-maturity securities	(16,997)		0
Proceeds from bank owned life insurance death benefits	1,425		1,310
Disposition of assets and liabilities held for sale	181,271		1,245
Purchase of Reliance Bancshares, Inc.	0		(37,017)
Net cash provided by investing activities	1,206,500		142,543

FINANCING ACTIVITIES
Net change in deposits	191,714		(156,010)
Repayments of subordinated debentures	(5,927)		0
Dividends paid on preferred stock	(39)		(326)
Dividends paid on common stock	(56,141)		(45,722)
Net change in other borrowed funds	45,170		(404,455)
Net change in federal funds purchased and securities sold under agreements to repurchase	163,549		6,598
Net shares cancelled under stock compensation plans	(3,355)		(3,301)
Shares issued under employee stock purchase plan	956		1,312
Retirement of preferred stock	0		(42,000)
Repurchases of common stock	(93,307)		0
Net cash provided by (used in) financing activities	242,620		(643,904)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,525,508		(303,488)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	996,623		833,458

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,522,131	$	529,970



(In thousands)	September 30, 2019			September 30, 2018
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	185,445		$	160,067
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	25,462			20,810
Provision for loan losses	38,337			28,528
Gain on sale of investments	(12,937		)	(53		)
Net accretion of investment securities and assets	(35,272		)	(41,423		)
Net amortization (accretion) on borrowings	273			(471		)
Stock-based compensation expense	9,316			8,448
(Gain) loss on sale of foreclosed assets held for sale	(16		)	150
Gain on sale of mortgage loans held for sale	(14,196		)	(9,675		)
Loss (gain) on sale of loans	4,451			(10		)
Gain on sale of Visa, Inc. class B common stock	(42,860		)	—
Fair value write-down of closed branches	—			954
Deferred income taxes	10,933			7,316
Income from bank owned life insurance	(3,438		)	(3,310		)
Originations of mortgage loans held for sale	(499,178		)	(424,751		)
Proceeds from sale of mortgage loans held for sale	490,674			410,269
Changes in assets and liabilities:
Interest receivable	(679		)	(7,798		)
Lease right-of-use assets	(1,370		)	—
Other assets	3,802			(24,695		)
Accrued interest and other liabilities	10,881			23,821
Income taxes payable	18,722			3,956
Net cash provided by operating activities	188,350			152,133

INVESTING ACTIVITIES
Net originations of loans	(299,013		)	(1,034,175		)
Proceeds from sale of loans	104,587			24,977
Decrease (increase) in due from banks - time	395			(640		)
Purchases of premises and equipment, net	(37,523		)	(17,084		)
Proceeds from sale of foreclosed assets held for sale	16,139			20,739
Proceeds from sale of available-for-sale securities	561,374			7,726
Proceeds from maturities of available-for-sale securities	405,090			197,464
Purchases of available-for-sale securities	(593,700		)	(634,791		)
Proceeds from maturities of held-to-maturity securities	29,179			46,515
Purchases of held-to-maturity securities	—			(1,172		)
Purchases of bank owned life insurance	—			(4,000		)
Proceeds from bank owned life insurance death benefits	1,310			616
Disposition of assets and liabilities held for sale	1,245			(58,295		)
Purchase of Reliance Bancshares, Inc.	(37,017		)	—
Net cash provided by (used in) investing activities	152,066			(1,452,120		)

FINANCING ACTIVITIES
Net change in deposits	(156,010		)	995,631
Proceeds from issuance of subordinated notes	—			326,355
Repayments of subordinated debentures	—			(94,915		)
Dividends paid on preferred stock	(326		)	—
Dividends paid on common stock	(45,722		)	(41,766		)
Net change in other borrowed funds	(404,455		)	40,893
Net change in federal funds purchased and securities sold under agreements to repurchase	6,598			(13,231		)
Net shares issued under stock compensation plans	(3,301		)	1,756
Shares issued under employee stock purchase plan	1,312			1,026
Retirement of preferred stock	(42,000		)	—
Net cash (used in) provided by financing activities	(643,904		)	1,215,749

DECREASE IN CASH AND CASH EQUIVALENTS	(303,488		)	(84,238		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	833,458			598,042

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	529,970		$	513,804



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



		Page
Part I:	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders' Equity	7
	Condensed Notes to Consolidated Financial Statements	9
	Report of Independent Registered Public Accounting Firm	50
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk	7779
Item 4.	Controls and Procedures	7981

Part II:	Other Information
Item 1.	Legal Proceedings	7981
Item 1A.	Risk Factors	7981
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8082
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	*
Item 5.	Other Information	*
Item 6.	Exhibits	8082

Signatures		8284


	September 30,		December 31,
(In thousands, except share data)	2020		2019
	(Unaudited)
ASSETS
Cash and non-interest bearing balances due from banks	$	382,691	$	277,208
Interest bearing balances due from banks and federal funds sold	2,139,440		719,415
Cash and cash equivalents	2,522,131		996,623
Interest bearing balances due from banks - time	4,061		4,554
Investment securities:
Held-to-maturity, net of allowance for credit losses of $373 at September 30, 2020	47,102		40,927
Available-for-sale, net of allowance for credit losses of $1,208 at September 30, 2020 (amortized cost of $2,556,808 and $3,263,151 at September 30, 2020 and December 31, 2019, respectively)	2,607,288		3,288,343
Total investments	2,654,390		3,329,270
Mortgage loans held for sale	192,729		58,102
Other assets held for sale	389		260,332
Loans	14,017,442		14,425,704
Allowance for credit losses on loans	(248,251)		(68,244)
Net loans	13,769,191		14,357,460
Premises and equipment	470,491		492,384
Premises held for sale	4,486		0
Foreclosed assets and other real estate owned	12,590		19,121
Interest receivable	77,352		62,707
Bank owned life insurance	257,718		254,152
Goodwill	1,075,305		1,055,520
Other intangible assets	114,460		127,340
Other assets	282,102		241,578
Total assets	$	21,437,395	$	21,259,143

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing transaction accounts	$	4,451,385	$	3,741,093
Interest bearing transaction accounts and savings deposits	8,993,255		9,090,878
Time deposits	2,802,007		3,276,969
Total deposits	16,246,647		16,108,940
Federal funds purchased and securities sold under agreements to repurchase	313,694		150,145
Other borrowings	1,342,769		1,297,599
Subordinated debentures	382,739		388,260
Other liabilities held for sale	0		159,853
Accrued interest and other liabilities	209,305		165,422
Total liabilities	18,495,154		18,270,219

Stockholders’ equity:
Preferred stock, 40,040,000 shares authorized; Series D, $0.01 par value, $1,000 liquidation value per share; 767 shares issued and outstanding at September 30, 2020 and December 31, 2019	767		767
Common stock, Class A, $0.01 par value; 175,000,000 shares authorized at September 30, 2020 and December 31, 2019; 109,023,781 and 113,628,601 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	1,090		1,136
Surplus	2,032,372		2,117,282
Undivided profits	866,503		848,848
Accumulated other comprehensive income	41,509		20,891
Total stockholders’ equity	2,942,241		2,988,924
Total liabilities and stockholders’ equity	$	21,437,395	$	21,259,143


(In thousands, except share data)	Preferred Stock		Common Stock		Surplus		Accumulated Other Comprehensive Income (Loss)			Undivided Profits			Total			(In thousands, except share data)	Preferred Stock		Common Stock		Surplus		Accumulated Other Comprehensive Income (Loss)		Undivided Profits		Total
Three Months Ended September 30, 2020																Three Months Ended September 30, 2020
Balance, June 30, 2020 (Unaudited)																Balance, June 30, 2020 (Unaudited)	$	767	$	1,090	$	2,029,383	$	54,310	$	819,153	$	2,904,703

Comprehensive income																Comprehensive income	—		—		—		(12,801)		65,898		53,097
Stock-based compensation plans, net – 29,392 shares																Stock-based compensation plans, net – 29,392 shares	—		—		2,989		—		—		2,989
Dividends on preferred stock																Dividends on preferred stock	—		—		—		—		(13)		(13)
Dividends on common stock – $0.17 per share																Dividends on common stock – $0.17 per share	—		—		—		—		(18,535)		(18,535)

Balance, September 30, 2020 (Unaudited)																Balance, September 30, 2020 (Unaudited)	$	767	$	1,090	$	2,032,372	$	41,509	$	866,503	$	2,942,241

Three Months Ended September 30, 2019	Three Months Ended September 30, 2019															Three Months Ended September 30, 2019
Balance, June 30, 2019 (Unaudited)	$	—	$	966	$	1,705,262	$	15,316		$	747,969		$	2,469,513		Balance, June 30, 2019 (Unaudited)	$	0	$	966	$	1,705,262	$	15,316	$	747,969	$	2,469,513

Comprehensive income	—		—		—		8,393			81,826			90,219			Comprehensive income	—		—		—		8,393		81,826		90,219
Stock-based compensation plans, net – 23,199 shares	—		—		2,796		—			—			2,796			Stock-based compensation plans, net – 23,199 shares	—		—		2,796		—		—		2,796
Dividends on common stock – $0.16 per share	—		—		—		—			(15,457		)	(15,457		)	Dividends on common stock – $0.16 per share	—		—		—		—		(15,457)		(15,457)

Balance, September 30, 2019 (Unaudited)	$	—	$	966	$	1,708,058	$	23,709		$	814,338		$	2,547,071		Balance, September 30, 2019 (Unaudited)	$	0	$	966	$	1,708,058	$	23,709	$	814,338	$	2,547,071

Three Months Ended September 30, 2018
Balance, June 30, 2018 (Unaudited)	$	—	$	923	$	1,594,342	$	(40,183	)	$	591,826		$	2,146,908

Comprehensive income	—		—		—		(7,857		)	55,193			47,336
Stock-based compensation plans, net – 14,245 shares	—		—		2,919		—			—			2,919
Dividends on common stock – $0.15 per share	—		—		—		—			(13,844		)	(13,844		)

Balance, September 30, 2018 (Unaudited)	$	—	$	923	$	1,597,261	$	(48,040	)	$	633,175		$	2,183,319



	September 30, 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	$	—	$	—	$	—		$	—	$	16,990	$	—	$	(49	)	$	16,941
Mortgage-backed securities	11,549		93		(42		)	11,600		13,346		5		(412		)	12,939
State and political subdivisions	28,692		931		—			29,623		256,863		3,029		(954		)	258,938
Other securities	1,996		83		—			2,079		1,995		17		—			2,012
Total HTM	$	42,237	$	1,107	$	(42	)	$	43,302	$	289,194	$	3,051	$	(1,415	)	$	290,830

Available-for-Sale
U.S. Government agencies	$	177,712	$	1,629	$	(1,202	)	$	178,139	$	157,523	$	518	$	(3,740	)	$	154,301
Mortgage-backed securities	1,332,130		9,405		(3,741		)	1,337,794		1,552,487		3,097		(32,684		)	1,522,900
State and political subdivisions	658,984		22,290		(72		)	681,202		320,142		171		(5,470		)	314,843
Other securities	158,280		719		—			158,999		157,471		2,251		(14		)	159,708
Total AFS	$	2,327,106	$	34,043	$	(5,015	)	$	2,356,134	$	2,187,623	$	6,037	$	(41,908	)	$	2,151,752


(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
September 30, 2020
Consumer:
Credit cards	$	672	$	262	$	934	$	171,946	$	172,880	$	95
Other consumer	2,302		391		2,693		188,043		190,736		6
Total consumer	2,974		653		3,627		359,989		363,616		101
Real estate:
Construction and development	1,168		2,526		3,694		1,849,666		1,853,360		0
Single family residential	12,170		14,522		26,692		1,970,378		1,997,070		64
Other commercial	5,115		11,885		17,000		6,115,823		6,132,823		2
Total real estate	18,453		28,933		47,386		9,935,867		9,983,253		66
Commercial:
Commercial	6,984		5,824		12,808		2,894,990		2,907,798		7
Agricultural	290		328		618		241,069		241,687		0
Total commercial	7,274		6,152		13,426		3,136,059		3,149,485		7
Other	0		0		0		521,088		521,088		0
Total	$	28,701	$	35,738	$	64,439	$	13,953,003	$	14,017,442	$	174



(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		Average Investment in Impaired Loans		Interest Income Recognized
September 30, 2019											Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
Consumer:
Credit cards	$	521	$	521	$	—	$	521	$	—	$	423	$	40	$	370	$	110
Other consumer	1,783		1,634		—		1,634		—		1,603		9		1,730		33
Total consumer	2,304		2,155		—		2,155		—		2,026		49		2,100		143
Real estate:
Construction	1,898		1,708		97		1,805		—		1,972		10		1,946		38
Single family residential	17,526		13,985		2,206		16,191		31		15,920		85		14,812		287
Other commercial	15,642		4,200		11,007		15,207		628		11,739		77		10,365		201
Total real estate	35,066		19,893		13,310		33,203		659		29,631		172		27,123		526
Commercial:
Commercial	50,712		10,153		23,930		34,083		4,620		32,020		176		26,379		511
Agricultural	583		450		116		566		—		873		3		1,010		20
Total commercial	51,295		10,603		24,046		34,649		4,620		32,893		179		27,389		531
Total	$	88,665	$	32,651	$	37,356	$	70,007	$	5,279	$	64,550	$	400	$	56,612	$	1,200



December 31, 2018											Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
Consumer:
Credit cards	$	296	$	296	$	—	$	296	$	—	$	283	$	35	$	259	$	60
Other consumer	2,311		2,159		—		2,159		—		3,561		28		4,109		96
Total consumer	2,607		2,455		—		2,455		—		3,844		63		4,368		156
Real estate:
Construction	1,344		784		485		1,269		211		1,411		11		1,747		41
Single family residential	12,906		11,468		616		12,084		36		13,577		98		13,550		315
Other commercial	8,434		5,442		5,458		10,900		—		12,282		108		14,284		332
Total real estate	22,684		17,694		6,559		24,253		247		27,270		217		29,581		688
Commercial:
Commercial	10,361		7,254		4,628		11,882		437		11,840		108		9,533		222
Agricultural	2,419		1,180		—		1,180		—		1,355		12		1,470		34
Total commercial	12,780		8,434		4,628		13,062		437		13,195		120		11,003		256
Total	$	38,071	$	28,583	$	11,187	$	39,770	$	684	$	44,309	$	400	$	44,952	$	1,100


(Dollars in thousands)	Number	Balance
Real Estate Rental and Leasing	1,162	$	1,263,884
Accommodation and Food Services	386	845,803
Health Care and Social Assistance	226	278,200
Construction	186	190,337
Retail Trade	145	130,498
Other Services (Except Public Administration)	131	58,169
Other	1,720	444,053
Total	3,956	$	3,210,944


~~Part I:~~	~~Financial Information~~



	Accruing TDR Loans			Nonaccrual TDR Loans			Total TDR Loans
(Dollars in thousands)	Number	Balance		Number	Balance		Number	Balance
September 30, 2019
Real estate:
Construction	—	$	—	1	$	97	1	$	97
Single-family residential	6	549		10	627		16	1,176
Other commercial	2	3,166		2	950		4	4,116
Total real estate	8	3,715		13	1,674		21	5,389
Commercial:
Commercial	4	2,804		3	84		7	2,888
Total commercial	4	2,804		3	84		7	2,888
Total	12	$	6,519	16	$	1,758	28	$	8,277

December 31, 2018
Real estate:
Construction	—	$	—	3	$	485	3	$	485
Single-family residential	6	230		10	616		16	846
Other commercial	2	3,306		2	1,027		4	4,333
Total real estate	8	3,536		15	2,128		23	5,664
Commercial:
Commercial	4	2,833		6	718		10	3,551
Total commercial	4	2,833		6	718		10	3,551
Total	12	$	6,369	21	$	2,846	33	$	9,215



						Modification Type
(Dollars in thousands)	Number of Loans	Balance Prior to TDR		Balance at September 30,		Change in Maturity Date		Change in Rate			Financial Impact on Date of Restructure
Three and Nine Months Ended September 30, 2019
Real estate:
Single-family residential	1	$	330	$	330	$	330	$	—		$	—
Total real estate	1	330		330		330		—		��	—
Total	1	$	330	$	330	$	330	$	—		$	—

Three Months Ended September 30, 2018
Real estate:
Construction	1	$	99	$	98	$	98	$	—		$	—
Other commercial	2	392		390		390		—			212
Total real estate	3	491		488		488		—			212
Commercial:
Commercial	3	2,363		2,358		2,358		—			190
Total commercial	3	2,363		2,358		2,358		—			190
Total	6	$	2,854	$	2,846	$	2,846	$	—		$	402

Nine Months Ended September 30, 2018
Consumer:
Other consumer	1	$	91	$	91	$	91	$	—		$	—
Total consumer	1	91		91		91		—			—
Real estate:
Construction	1	99		98		98		—			—
Single-family residential	1	61		62		62		—			—
Other commercial	2	392		390		390		—			212
Total real estate	4	552		550		550		—			212
Commercial:
Commercial	3	2,363		2,358		2,358		—			190
Total commercial	3	2,363		2,358		2,358		—			190
Total	8	$	3,006	$	2,999	$	2,999	$	—		$	402


(Dollars in thousands)	Number of loans	Balance Prior to TDR		Balance at September 30,		Change in Maturity Date		Change in Rate		Financial Impact on Date of Restructure
Nine Months Ended September 30, 2020
Real estate:
Single-family residential	5	$	1,948	$	1,896	$	1,896	$	0	$	0
Total real estate	5	$	1,948	$	1,896	$	1,896	$	0	$	0

Three and Nine Months Ended September 30, 2019
Real estate:
Single-family residential	1	$	330	$	330	$	330	$	0	$	0
Total real estate	1	$	330	$	330	$	330	$	0	$	0


•	~~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.


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2020 (YTD)		2019		2018		2017		2016		2015 and Prior		Lines of Credit (“LOC”) Amortized Cost Basis		LOC Converted to Term Loans Amortized Cost Basis		Total
Consumer - credit cards
Delinquency:
30-89 days past due	$	0	$	0	$	0	$	0	$	0	$	0	$	672	$	0	$	672
90+ days past due	0		0		0		0		0		0		262		0		262
Total consumer - credit cards	0		0		0		0		0		0		934		0		934
Consumer - other
Delinquency:
30-89 days past due	213		404		344		634		505		124		78		0		2,302
90+ days past due	4		55		72		94		48		8		110		0		391
Total consumer - other	217		459		416		728		553		132		188		0		2,693
Real estate - C&D
Risk rating:
5 internal grade	504		357		173		2,171		19		238		4,707		0		8,169
6 internal grade	244		2,127		447		539		366		570		579		0		4,872
7 internal grade	0		0		0		0		0		0		0		0		0
Total real estate - C&D	748		2,484		620		2,710		385		808		5,286		0		13,041
Real estate - SF residential
Delinquency:
30-89 days past due	1,080		1,417		1,602		1,686		1,395		3,365		1,625		0		12,170
90+ days past due	26		2,308		2,873		2,438		918		3,743		2,217		0		14,523
Total real estate - SF residential	1,106		3,725		4,475		4,124		2,313		7,108		3,842		0		26,693
Real estate - other commercial
Risk rating:
5 internal grade	17,230		4,973		24,463		14,997		1,744		10,844		61,045		16,005		151,301
6 internal grade	29,267		9,544		13,940		5,751		15,069		10,114		54,571		48,444		186,700
7 internal grade	0		0		0		0		0				0		0		0
Total real estate - other commercial	46,497		14,517		38,403		20,748		16,813		20,958		115,616		64,449		338,001
Commercial
Risk rating:
5 internal grade	914		1,255		1,662		896		332		14		45,106		569		50,748
6 internal grade	7,062		3,434		19,418		2,407		1,232		1,077		51,387		522		86,539
7 internal grade	0		0		0		0		0		0		0		0		0
Total commercial	7,976		4,689		21,080		3,303		1,564		1,091		96,493		1,091		137,287
Commercial - agriculture
Risk rating:
5 internal grade	35		83		14		325		0		0		34		0		491
6 internal grade	72		140		166		53		42		10		83		0		566
7 internal grade	0		0		0		0		0		0		0		0		0
Total commercial - agriculture	107		223		180		378		42		10		117		0		1,057
Total	$	56,651	$	26,097	$	65,174	$	31,991	$	21,670	$	30,107	$	222,476	$	65,540	$	519,706


(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total
December 31, 2019
Consumer:
Credit cards	$	204,161	$	0	$	641	$	0	$	0	$	204,802
Other consumer	247,668		0		2,026		0		0		249,694
Total consumer	451,829		0		2,667		0		0		454,496
Real estate:
Construction and development	2,229,019		70		7,735		0		37		2,236,861
Single family residential	2,394,284		6,049		41,601		130		0		2,442,064
Other commercial	6,068,425		69,745		67,429		0		0		6,205,599
Total real estate	10,691,728		75,864		116,765		130		37		10,884,524
Commercial:
Commercial	2,384,263		26,713		84,317		43		180		2,495,516
Agricultural	309,741		41		5,672		0		0		315,454
Total commercial	2,694,004		26,754		89,989		43		180		2,810,970
Other	275,714		0		0		0		0		275,714
Total	$	14,113,275	$	102,618	$	209,421	$	173	$	217	$	14,425,704


(In thousands)	Real Estate Collateral		Energy		Other Collateral		Total
Construction and development	$	1,538	$	0	$	0	$	1,538
Single family residential	6,722		0		0		6,722
Other commercial real estate	40,358		0		0		40,358
Commercial	0		19,100		4,009		23,109
Total	$	48,618	$	19,100	$	4,009	$	71,727



(In thousands)	Commercial			Real Estate			Credit Card			Other Consumer and Other			Total
Three Months Ended September 30, 2019
Balance, beginning of period ⁽²⁾	$	21,739		$	34,917		$	3,951		$	2,460		$	63,067
Provision for loan losses ⁽¹⁾	19,150			2,405			946			(528		)	21,973
Charge-offs	(17,729		)	(907		)	(1,117		)	(1,059		)	(20,812		)
Recoveries	65			55			223			1,422			1,765
Net charge-offs	(17,664		)	(852		)	(894		)	363			(19,047		)
Balance, September 30, 2019 ⁽²⁾	$	23,225		$	36,470		$	4,003		$	2,295		$	65,993

Nine Months Ended September 30, 2019
Balance, beginning of period ⁽²⁾	$	20,514		$	29,743		$	3,923		$	2,419		$	56,599
Provision for loan losses ⁽¹⁾	23,980			7,929			2,644			1,320			35,873
Charge-offs	(21,564		)	(1,552		)	(3,298		)	(3,497		)	(29,911		)
Recoveries	295			350			734			2,053			3,432
Net charge-offs	(21,269		)	(1,202		)	(2,564		)	(1,444		)	(26,479		)
Balance, September 30, 2019 ⁽²⁾	$	23,225		$	36,470		$	4,003		$	2,295		$	65,993

Period-end amount allocated to:
Loans individually evaluated for impairment	$	4,620		$	659		$	—		$	—		$	5,279
Loans collectively evaluated for impairment	18,605			35,811			4,003			2,295			60,714
Balance, September 30, 2019 ⁽²⁾	$	23,225		$	36,470		$	4,003		$	2,295		$	65,993


(In thousands)	Year	Amortization Expense
	Remainder of 2020	$	3,351
	2021	13,379
	2022	13,327
	2023	13,044
	2024	12,141
	Thereafter	59,218
	Total	$	114,460


	Remaining Contractual Maturity of the Agreements
(In thousands)	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
September 30, 2020
Repurchase agreements:
U.S. Government agencies	$	263,444	$	0	$	0	$	0	$	263,444

December 31, 2019
Repurchase agreements:
U.S. Government agencies	$	133,220	$	0	$	0	$	0	$	133,220



(In thousands)	Year	Annual Maturities
	2019	$	356
	2020	2,105
	2021	1,804
	2022	948
	2023	925
	Thereafter	361,480
	Total	$	367,618


	Stock Options Outstanding			Non-vested Stock Awards Outstanding			Non-vested Stock Units Outstanding
(Shares in thousands)	Number of Shares	Weighted Average Exercise Price		Number of Shares	Weighted Average Grant-Date Fair Value		Number of Shares	Weighted Average Grant-Date Fair Value
Balance, January 1, 2020	692	$	22.46	21	$	23.19	1,152	$	26.79
Granted	—	—		—	—		518	21.94
Stock options exercised	(1)	10.71		—	—		—	—
Stock awards/units vested (earned)	—	—		(11)	22.57		(426)	25.95
Forfeited/expired	(33)	22.49		—	—		(116)	26.49

Balance, September 30, 2020	658	$	22.48	10	$	23.87	1,128	$	24.90

Exercisable, September 30, 2020	658	$	22.48


					Options Outstanding			Options Exercisable
Range of Exercise Prices					Number of Shares (In thousands)	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Number of Shares (In thousands)	Weighted Average Exercise Price
$	9.46	—	$	9.46	1	1.30	$9.46	1	$9.46
10.65		—	10.65		3	2.33	10.65	3	10.65
20.29		—	20.29		66	3.45	20.29	66	20.29
20.36		—	20.36		2	4.13	20.36	2	20.36
22.20		—	22.20		74	3.38	22.20	74	22.20
22.75		—	22.75		412	4.14	22.75	412	22.75
23.51		—	23.51		93	4.54	23.51	93	23.51
24.07		—	24.07		7	4.96	24.07	7	24.07
$	9.46	—	$	24.07	658	4.03	$22.48	658	$22.48



	Three Months Ended September 30,									Nine Months Ended September 30,
	2019 vs. 2018									2019 vs. 2018
(In thousands, on a fully taxable equivalent basis)	Volume			Yield/ Rate			Total			Volume			Yield/ Rate			Total
Increase (decrease) in:
Interest income:
Interest bearing balances due from banks and federal funds sold	$	(114	)	$	295		$	181		$	(440	)	$	1,473		$	1,033
Investment securities - taxable	(382		)	(96		)	(478		)	1,506			2,636			4,142
Investment securities - non-taxable	1,388			235			1,623			3,718			1,094			4,812
Mortgage loans held for sale	(43		)	(76		)	(119		)	24			(64		)	(40		)
Loans	19,487			(1,922		)	17,565			54,470			7,102			61,572
Total	20,336			(1,564		)	18,772			59,278			12,241			71,519

Interest expense:
Interest bearing transaction and savings accounts	1,216			3,774			4,990			2,542			18,027			20,569
Time deposits	2,979			4,577			7,556			8,341			15,124			23,465
Federal funds purchased and securities sold under agreements to repurchase	18			127			145			30			310			340
Other borrowings	(1,167		)	308			(859		)	(1,361		)	3,234			1,873
Subordinated notes and debentures	(336		)	(370		)	(706		)	642			536			1,178
Total	2,710			8,416			11,126			10,194			37,231			47,425
Increase (decrease) in net interest income	$	17,626		$	(9,980	)	$	7,646		$	49,084		$	(24,990	)	$	24,094



	Total number of shares purchased⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2019 - July 31, 2019	1,394	$	23.22	—	308,272
August 1, 2019 - August 31, 2019	—	—		—	308,272
September 1, 2019 - September 30, 2019	2,001	25.11		—	308,272
Total	3,395	$	24.33	—	308,272