0000090498 sfnc:AcquiredLoansMember us-gaap:ConsumerPortfolioSegmentMember sfnc:OtherConsumerLoansMember 2019-09-30



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

 Commission File Number 000-06253
sfnc-20200930_g1.jpgSIMMONS FIRST NATIONAL CORPORATIONCORPORATION
(Exact name of registrant as specified in its charter)
Arkansas71-0407808
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
501 Main Street71601
Pine Bluff(Zip Code)
Arkansas
(Address of principal executive offices)
 (870) (870) 541-1000
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareSFNCThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filerNon-accelerated filer
Smaller reporting companyEmerging Growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.).  Yes    No

The number of shares outstanding of the Registrant’s Common Stock as of November 4, 2019,2, 2020, was 96,654,900.108,845,891.






Simmons First National Corporation
Quarterly Report on Form 10-Q
September 30, 20192020

Table of Contents

Page
Item 3.Defaults Upon Senior Securities*
Item 4.Mine Safety Disclosures*
Item 5.Other Information*
___________________
*    No reportable information under this item.







Part I:    Financial Information
Part I:Financial Information
Item 1.Financial Statements (Unaudited)
Item 1.    Financial Statements (Unaudited)
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 20192020 and December 31, 20182019
September 30,December 31,
(In thousands, except share data)20202019
 (Unaudited) 
ASSETS  
Cash and non-interest bearing balances due from banks$382,691 $277,208 
Interest bearing balances due from banks and federal funds sold2,139,440 719,415 
Cash and cash equivalents2,522,131 996,623 
Interest bearing balances due from banks - time4,061 4,554 
Investment securities:
Held-to-maturity, net of allowance for credit losses of $373 at September 30, 202047,102 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 investments2,654,390 3,329,270 
Mortgage loans held for sale192,729 58,102 
Other assets held for sale389 260,332 
Loans14,017,442 14,425,704 
Allowance for credit losses on loans(248,251)(68,244)
Net loans13,769,191 14,357,460 
Premises and equipment470,491 492,384 
Premises held for sale4,486 
Foreclosed assets and other real estate owned12,590 19,121 
Interest receivable77,352 62,707 
Bank owned life insurance257,718 254,152 
Goodwill1,075,305 1,055,520 
Other intangible assets114,460 127,340 
Other assets282,102 241,578 
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 deposits8,993,255 9,090,878 
Time deposits2,802,007 3,276,969 
Total deposits16,246,647 16,108,940 
Federal funds purchased and securities sold under agreements to repurchase313,694 150,145 
Other borrowings1,342,769 1,297,599 
Subordinated debentures382,739 388,260 
Other liabilities held for sale159,853 
Accrued interest and other liabilities209,305 165,422 
Total liabilities18,495,154 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, 2019767 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, respectively1,090 1,136 
Surplus2,032,372 2,117,282 
Undivided profits866,503 848,848 
Accumulated other comprehensive income41,509 20,891 
Total stockholders’ equity2,942,241 2,988,924 
Total liabilities and stockholders’ equity$21,437,395 $21,259,143 
 September 30, December 31,
(In thousands, except share data)2019 2018
 (Unaudited)  
ASSETS 
  
Cash and non-interest bearing balances due from banks$161,440
 $171,792
Interest bearing balances due from banks and federal funds sold368,530
 661,666
Cash and cash equivalents529,970
 833,458
Interest bearing balances due from banks - time5,041
 4,934
Investment securities:   
Held-to-maturity42,237
 289,194
Available-for-sale2,356,134
 2,151,752
Total investments2,398,371
 2,440,946
Mortgage loans held for sale50,099
 26,799
Loans:   
Legacy loans9,643,365
 8,430,388
Allowance for loan losses(65,993) (56,599)
Loans acquired, net of discount and allowance3,359,587
 3,292,783
Net loans12,936,959
 11,666,572
Premises and equipment378,678
 295,060
Foreclosed assets and other real estate owned19,576
 25,565
Interest receivable53,966
 49,938
Bank owned life insurance234,655
 193,170
Goodwill926,648
 845,687
Other intangible assets101,149
 91,334
Other assets123,399
 69,874
Total assets$17,758,511
 $16,543,337
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Deposits:   
Non-interest bearing transaction accounts$3,044,330
 $2,672,405
Interest bearing transaction accounts and savings deposits7,337,571
 6,830,191
Time deposits3,086,108
 2,896,156
Total deposits13,468,009

12,398,752
Federal funds purchased and securities sold under agreements to repurchase116,536
 95,792
Other borrowings1,098,395
 1,345,450
Subordinated debentures354,223
 353,950
Accrued interest and other liabilities174,277
 102,959
Total liabilities15,211,440

14,296,903
    
Stockholders’ equity:   
Common stock, Class A, $0.01 par value; 175,000,000 shares authorized at September 30, 2019 and December 31, 2018; 96,613,855 and 92,347,643 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively966
 923
Surplus1,708,058
 1,597,944
Undivided profits814,338
 674,941
Accumulated other comprehensive income (loss)23,709
 (27,374)
Total stockholders’ equity2,547,071
 2,246,434
Total liabilities and stockholders’ equity$17,758,511
 $16,543,337


See Condensed Notes to Consolidated Financial Statements.
3






Simmons First National Corporation
Consolidated Statements of Income
Three and Nine Months Ended September 30, 20192020 and 20182019
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data)2019 2018 2019 2018
 (Unaudited) (Unaudited)
INTEREST INCOME       
Loans$179,971
 $162,438
 $517,533
 $456,041
Interest bearing balances due from banks and federal funds sold1,586
 1,405
 4,861
 3,828
Investment securities15,367
 14,640
 49,273
 41,558
Mortgage loans held for sale382
 501
 924
 964
TOTAL INTEREST INCOME197,306
 178,984
 572,591
 502,391
        
INTEREST EXPENSE       
Deposits36,936
 24,390
 102,482
 58,448
Federal funds purchased and securities sold under agreements to repurchase249
 104
 642
 302
Other borrowings5,381
 6,240
 18,393
 16,520
Subordinated notes and debentures4,576
 5,282
 13,528
 12,350
TOTAL INTEREST EXPENSE47,142
 36,016
 135,045
 87,620
        
NET INTEREST INCOME150,164
 142,968
 437,546
 414,771
Provision for loan losses21,973
 10,345
 38,337
 28,528
        
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES128,191
 132,623
 399,209
 386,243
        
NON-INTEREST INCOME       
Trust income6,108
 6,277
 17,610
 17,148
Service charges on deposit accounts10,825
 10,837
 31,450
 31,245
Other service charges and fees1,308
 1,201
 3,909
 5,968
Mortgage lending income4,509
 1,521
 10,988
 7,773
SBA lending income956
 304
 2,348
 1,627
Investment banking income513
 664
 1,491
 2,312
Debit and credit card fees7,059
 6,820
 20,369
 25,721
Bank owned life insurance income1,302
 1,105
 3,357
 3,310
Gain on sale of securities, net7,374
 54
 12,937
 53
Other income43,821
 4,942
 52,083
 14,151
TOTAL NON-INTEREST INCOME83,775
 33,725
 156,542
 109,308
        
NON-INTEREST EXPENSE       
Salaries and employee benefits52,065
 55,515
 164,560
 167,550
Occupancy expense, net8,342
 7,713
 22,736
 22,594
Furniture and equipment expense4,898
 3,761
 12,462
 12,184
Other real estate and foreclosure expense1,125
 538
 2,353
 2,940
Deposit insurance
 2,248
 4,550
 6,232
Merger related costs2,556
 804
 11,548
 3,980
Other operating expenses37,879
 29,674
 100,808
 81,353
TOTAL NON-INTEREST EXPENSE106,865
 100,253
 319,017
 296,833
        
INCOME BEFORE INCOME TAXES105,101
 66,095
 236,734
 198,718
Provision for income taxes23,275
 10,902
 51,289
 38,651
        
NET INCOME81,826
 55,193
 185,445
 160,067
Preferred stock dividends
 
 326
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$81,826
 $55,193
 $185,119
 $160,067
BASIC EARNINGS PER SHARE$0.85
 $0.60
 $1.95
 $1.74
DILUTED EARNINGS PER SHARE$0.84
 $0.59
 $1.94
 $1.72


 Three Months Ended
September 30,
Nine Months Ended September 30,
(In thousands, except per share data)2020201920202019
 (Unaudited)(Unaudited)
INTEREST INCOME
Loans$163,180 $179,971 $527,656 $517,533 
Interest bearing balances due from banks and federal funds sold623 1,586 3,667 4,861 
Investment securities14,910 14,467 47,326 46,414 
Mortgage loans held for sale1,012 382 1,961 924 
TOTAL INTEREST INCOME179,725 196,406 580,610 569,732 
INTEREST EXPENSE
Deposits16,206 36,936 65,489 102,482 
Federal funds purchased and securities sold under agreements to repurchase335 249 1,431 642 
Other borrowings4,943 5,381 14,783 18,393 
Subordinated notes and debentures4,631 4,576 14,133 13,528 
TOTAL INTEREST EXPENSE26,115 47,142 95,836 135,045 
NET INTEREST INCOME153,610 149,264 484,774 434,687 
Provision for credit losses22,981 21,973 68,030 38,337 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES130,629 127,291 416,744 396,350 
NON-INTEREST INCOME
Trust income6,744 6,108 21,148 17,610 
Service charges on deposit accounts10,385 10,825 32,283 31,450 
Other service charges and fees1,764 1,308 4,841 3,909 
Mortgage lending income13,971 4,509 31,476 10,988 
SBA lending income304 956 845 2,348 
Investment banking income557 513 2,005 1,491 
Debit and credit card fees8,850 7,059 24,760 20,369 
Bank owned life insurance income1,591 1,302 4,334 3,357 
Gain on sale of securities, net22,305 7,374 54,790 12,937 
Other income5,380 44,721 27,990 54,942 
TOTAL NON-INTEREST INCOME71,851 84,675 204,472 159,401 
NON-INTEREST EXPENSE
Salaries and employee benefits61,144 52,065 186,712 164,560 
Occupancy expense, net9,647 8,342 28,374 22,736 
Furniture and equipment expense6,231 4,898 18,098 12,462 
Other real estate and foreclosure expense602 1,125 1,201 2,353 
Deposit insurance2,244 7,557 4,550 
Merger related costs902 2,556 3,800 11,548 
Other operating expenses38,179 37,879 119,618 100,808 
TOTAL NON-INTEREST EXPENSE118,949 106,865 365,360 319,017 
INCOME BEFORE INCOME TAXES83,531 105,101 255,856 236,734 
Provision for income taxes17,633 23,275 53,920 51,289 
NET INCOME65,898 81,826 201,936 185,445 
Preferred stock dividends13 39 326 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$65,885 $81,826 $201,897 $185,119 
BASIC EARNINGS PER SHARE$0.60 $0.85 $1.83 $1.95 
DILUTED EARNINGS PER SHARE$0.60 $0.84 $1.83 $1.94 
See Condensed Notes to Consolidated Financial Statements.
4






Simmons First National Corporation
Consolidated Statements of Comprehensive Income
Three and Nine Months Ended September 30, 20192020 and 20182019

 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 securities18,736
 (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 income7,374
 54
 12,937
 53
Other comprehensive gain (loss), before tax effect11,362
 (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)2020201920202019
 (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 securities4,975 18,736 82,703 79,547 
Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-122,547 
Less: Reclassification adjustment for realized gains included in net income22,305 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 


See Condensed Notes to Consolidated Financial Statements.
5






Simmons First National Corporation
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 20192020 and 20182019
(In thousands)September 30, 2020September 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 amortization36,590 25,462 
Provision for credit losses68,030 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 borrowings406 273 
Stock-based compensation expense10,750 9,316 
Gain on sale of premises and equipment, net of impairment(33)
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 loans4,451 
Gain on sale of Visa, Inc. class B common stock(42,860)
Gain on sale of other intangibles(301)
Gain on sale of branches(8,094)
Fair value write-down of closed branches1,465 
Deferred income taxes2,920 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 sale745,723 490,674 
Changes in assets and liabilities:
Interest receivable(15,601)(679)
Lease right-of-use assets8,147 (1,370)
Other assets(7,009)13,325 
Accrued interest and other liabilities35,549 10,881 
Income taxes payable(20,206)18,722 
Net cash provided by operating activities76,388 197,873 
INVESTING ACTIVITIES
Net collections (originations) of loans243,826 (299,013)
Proceeds from sale of loans32,742 104,587 
Decrease in due from banks - time493 395 
Purchases of premises and equipment, net(22,697)(37,523)
Proceeds from sale of premises and equipment123 
Proceeds from sale of foreclosed assets held for sale9,705 16,139 
Proceeds from sale of available-for-sale securities1,717,364 543,400 
Proceeds from maturities of available-for-sale securities2,218,259 412,006 
Purchases of available-for-sale securities(3,169,534)(592,165)
Proceeds from maturities of held-to-maturity securities10,520 29,179 
Purchases of held-to-maturity securities(16,997)
Proceeds from bank owned life insurance death benefits1,425 1,310 
Disposition of assets and liabilities held for sale181,271 1,245 
Purchase of Reliance Bancshares, Inc.(37,017)
Net cash provided by investing activities1,206,500 142,543 
FINANCING ACTIVITIES
Net change in deposits191,714 (156,010)
Repayments of subordinated debentures(5,927)
Dividends paid on preferred stock(39)(326)
Dividends paid on common stock(56,141)(45,722)
Net change in other borrowed funds45,170 (404,455)
Net change in federal funds purchased and securities sold under agreements to repurchase163,549 6,598 
Net shares cancelled under stock compensation plans(3,355)(3,301)
Shares issued under employee stock purchase plan956 1,312 
Retirement of preferred stock(42,000)
Repurchases of common stock(93,307)
Net cash provided by (used in) financing activities242,620 (643,904)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS1,525,508 (303,488)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD996,623 833,458 
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 amortization25,462
 20,810
Provision for loan losses38,337
 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 borrowings273
 (471)
Stock-based compensation expense9,316
 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 loans4,451
 (10)
Gain on sale of Visa, Inc. class B common stock(42,860) 
Fair value write-down of closed branches
 954
Deferred income taxes10,933
 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 sale490,674
 410,269
Changes in assets and liabilities:   
Interest receivable(679) (7,798)
Lease right-of-use assets(1,370) 
Other assets3,802
 (24,695)
Accrued interest and other liabilities10,881
 23,821
Income taxes payable18,722
 3,956
Net cash provided by operating activities188,350

152,133
    
INVESTING ACTIVITIES   
Net originations of loans(299,013) (1,034,175)
Proceeds from sale of loans104,587
 24,977
Decrease (increase) in due from banks - time395
 (640)
Purchases of premises and equipment, net(37,523) (17,084)
Proceeds from sale of foreclosed assets held for sale16,139
 20,739
Proceeds from sale of available-for-sale securities561,374
 7,726
Proceeds from maturities of available-for-sale securities405,090
 197,464
Purchases of available-for-sale securities(593,700) (634,791)
Proceeds from maturities of held-to-maturity securities29,179
 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 benefits1,310
 616
Disposition of assets and liabilities held for sale1,245
 (58,295)
Purchase of Reliance Bancshares, Inc.(37,017) 
Net cash provided by (used in) investing activities152,066
 (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 repurchase6,598
 (13,231)
Net shares issued under stock compensation plans(3,301) 1,756
Shares issued under employee stock purchase plan1,312
 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 PERIOD833,458
 598,042
    
CASH AND CASH EQUIVALENTS, END OF PERIOD$529,970

$513,804

See Condensed Notes to Consolidated Financial Statements.
6






Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Three Months Ended September 30, 20192020 and 20182019


(In thousands, except share data)Preferred Stock 
Common
Stock
 Surplus 
Accumulated
Other
Comprehensive
Income (Loss)
 
Undivided
Profits
 Total(In thousands, except share data)Preferred StockCommon StockSurplusAccumulated Other Comprehensive Income (Loss)Undivided ProfitsTotal
Three Months Ended September 30, 2020Three 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 incomeComprehensive income— — — (12,801)65,898 53,097 
Stock-based compensation plans, net – 29,392 sharesStock-based compensation plans, net – 29,392 shares— — 2,989 — — 2,989 
Dividends on preferred stockDividends on preferred stock— — — — (13)(13)
Dividends on common stock – $0.17 per shareDividends 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 $2,942,241 
Three Months Ended September 30, 2019Three Months Ended September 30, 2019          Three Months Ended September 30, 2019
Balance, June 30, 2019 (Unaudited)$
 $966
 $1,705,262
 $15,316
 $747,969
 $2,469,513
Balance, June 30, 2019 (Unaudited)$$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)$$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


See Condensed Notes to Consolidated Financial Statements.
7





Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Nine Months Ended September 30, 20192020 and 20182019


(In thousands, except share data)Preferred StockCommon
Stock
SurplusAccumulated
Other
Comprehensive
Income (Loss)
Undivided
Profits
Total
Nine Months Ended September 30, 2020
Balance, December 31, 2019$767 $1,136 $2,117,282 $20,891 $848,848 $2,988,924 
Impact of ASU 2016-13 adoption
— — — — (128,101)(128,101)
Comprehensive income— — — 20,618 201,936 222,554 
Stock issued for employee stock purchase plan – 43,681 shares— 955 — — 956 
Stock-based compensation plans, net – 273,835 shares— 7,393 — — 7,395 
Stock repurchases – 4,922,336 shares— (49)(93,258)— — (93,307)
Dividends on preferred stock— — — — (39)(39)
Dividends on common stock – $0.51 per share— — — — (56,141)(56,141)
Balance, September 30, 2020 (Unaudited)$767 $1,090 $2,032,372 $41,509 $866,503 $2,942,241 
Nine Months Ended September 30, 2019
Balance, December 31, 2018$$923 $1,597,944 $(27,374)$674,941 $2,246,434 
Comprehensive income— — — 51,083 185,445 236,528 
Stock issued for employee stock purchase plan – 60,413 shares— 1,311 — — 1,312 
Stock-based compensation plans, net – 206,176 shares— 6,013 — — 6,015 
Stock issued for Reliance acquisition – 3,999,623 shares42,000 40 102,790 — — 144,830 
Preferred stock retirement(42,000)— — — — (42,000)
Dividends on preferred stock— — — — (326)(326)
Dividends on common stock – $0.48 per share— — — — (45,722)(45,722)
Balance, September 30, 2019 (Unaudited)$$966 $1,708,058 $23,709 $814,338 $2,547,071 
(In thousands, except share data)Preferred Stock 
Common
Stock
 Surplus 
Accumulated
Other
Comprehensive
Income (Loss)
 
Undivided
Profits
 Total
Nine Months Ended September 30, 2019           
Balance, December 31, 2018$
 $923
 $1,597,944
 $(27,374) $674,941
 $2,246,434
            
Comprehensive income
 
 
 51,083
 185,445
 236,528
Stock issued for employee stock purchase plan – 60,413 shares
 1
 1,311
 
 
 1,312
Stock-based compensation plans, net – 206,176 shares
 2
 6,013
 
 
 6,015
Stock issued for Reliance acquisition – 3,999,623 shares42,000
 40
 102,790
 
 
 144,830
Preferred stock retirement(42,000) 
 
 
 
 (42,000)
Dividends on preferred stock
 
 
 
 (326) (326)
Dividends on common stock – $0.48 per share
 
 
 
 (45,722) (45,722)
            
Balance, September 30, 2019 (Unaudited)$
 $966

$1,708,058

$23,709

$814,338

$2,547,071
            
Nine Months Ended September 30, 2018           
Balance, December 31, 2017$
 $920

$1,586,034

$(17,264)
$514,874

$2,084,564
            
Comprehensive income
 
 
 (30,776) 160,067
 129,291
Stock issued for employee stock purchase plan – 39,782 shares
 
 1,026
 
 
 1,026
Stock-based compensation plans, net – 226,715 shares
 3
 10,201
 
 
 10,204
Dividends on common stock – $0.45 per share
 
 
 
 (41,766) (41,766)
            
Balance, September 30, 2018 (Unaudited)$
 $923

$1,597,261

$(48,040)
$633,175

$2,183,319





See Condensed Notes to Consolidated Financial Statements.
8






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 bankhas been in 1903. operation since 1903 (“Simmons Bank isBank” or the parent company of“Bank”). Simmons First Insurance Services, Inc. (an insurance agency) and Simmons First Insurance Services of TN, LLC (anare 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 administrationSmall 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 loancredit 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 ArrangementsFair 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. 

9





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.


10





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
9




effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluatingASU 2018-13 did not have a material impact on the impact this standard will have on itsCompany’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. TheIn preparation for implementation of ASU 2016-13, the Company has formed a cross functional team that continues to assessassessed its data and system needs and evaluateevaluated the potential impact of adopting the new guidance. The Company anticipatesanticipated 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 currentprior accounting practice that utilizesutilized 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 providesprovided 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. DueTier 1 capital (the “CECL Transition Provision”).

In March 2020 and in response to this finalthe 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.


10




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 continuingrequired to researchassess 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 optionsan allowance for recordingcredit loss is recorded through income as a one-time adjustment or structuring any capital impact over an allowable periodcomponent 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.

Basedtax effects. The Company has made the election to exclude accrued interest receivable on a preliminary analysis performed,AFS securities from the Company previously disclosed thatestimate 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% overare 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 increaseuncollectibility 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 (seecriteria 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% overbe 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 increaseamortized cost basis of the asset as of the measurement date. When repayment is expected to be 5% to 25% overfrom the total credit coverage ratio.

11





These estimates are subject to change based on continuing review and challengeoperation 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 varyare 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 electionsother 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.

11




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 20182019 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.

12




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 LandrumFair Value AdjustmentsFair Value
Assets Acquired
Cash and due from banks$215,285 $$215,285 
Due from banks - time248 248 
Investment securities1,021,755 4,228 1,025,983 
Loans acquired2,049,137 (43,651)2,005,486 
Allowance for loan losses(22,736)22,736 — 
Foreclosed assets373 (183)190 
Premises and equipment63,878 18,781 82,659 
Bank owned life insurance19,206 19,206 
Goodwill407 (407)— 
Core deposit intangible24,345 24,345 
Other intangibles412 4,704 5,116 
Other assets33,924 (13,290)20,634 
Total assets acquired$3,381,889 $17,263 $3,399,152 
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts$716,675 $$716,675 
Interest bearing transaction accounts and savings deposits1,465,429 1,465,429 
Time deposits867,197 299 867,496 
Total deposits3,049,301 299 3,049,600 
Other borrowings10,055 10,055 
Subordinated debentures34,794 (877)33,917 
Accrued interest and other liabilities31,057 9,869 40,926 
Total liabilities assumed3,125,207 9,291 3,134,498 
Equity256,682 (256,682)— 
Total equity assumed256,682 (256,682)— 
Total liabilities and equity assumed$3,381,889 $(247,391)$3,134,498 
Net assets acquired264,654 
Purchase price415,779 
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.

13




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 havewere 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.


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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 RelianceFair Value AdjustmentsFair Value
Assets Acquired
Cash and due from banks$25,693 $$25,693 
Due from banks - time502 502 
Investment securities287,983 (1,873)286,110 
Loans acquired1,138,527 (41,657)1,096,870 
Allowance for loan losses(10,808)10,808 
Foreclosed assets11,092 (5,180)5,912 
Premises and equipment32,452 (3,001)29,451 
Bank owned life insurance39,348 39,348 
Core deposit intangible18,350 18,350 
Other assets25,165 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 - time502
 
 502
Investment securities287,983
 (1,763) 286,220
Loans acquired1,138,527
 (41,657) 1,096,870
Allowance for loan losses(10,808) 10,808
 
Foreclosed assets11,092
 (5,180) 5,912
Premises and equipment32,452
 (3,001) 29,451
Bank owned life insurance39,348
 
 39,348
Core deposit intangible
 18,350
 18,350
Other assets25,165
 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 deposits639,798
 
 639,798
Time deposits478,415
 (1,758) 476,657
Total deposits1,227,058
 (1,791) 1,225,267
Securities sold under agreement to repurchase14,146
 
 14,146
Other borrowings162,900
 (5,500) 157,400
Accrued interest and other liabilities8,185
 936
 9,121
Total liabilities assumed1,412,289
 (6,355) 1,405,934
Equity137,665
 (95,665) 42,000
Total equity assumed137,665
 (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
14




(In thousands)Acquired from RelianceFair Value AdjustmentsFair Value
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts$108,845 $(33)$108,812 
Interest bearing transaction accounts and savings deposits639,798 639,798 
Time deposits478,415 (1,758)476,657 
Total deposits1,227,058 (1,791)1,225,267 
Securities sold under agreement to repurchase14,146 14,146 
Other borrowings162,900 (5,500)157,400 
Accrued interest and other liabilities8,185 268 8,453 
Total liabilities assumed1,412,289 (7,023)1,405,266 
Equity137,665 (137,665)
Total equity assumed137,665 (137,665)
Total liabilities and equity assumed$1,549,954 $(144,688)$1,405,266 
Net assets acquired129,046 
Purchase price207,539 
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 toCompany’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 analysisoperating results of the acquired assets and assumed liabilities in this transaction over the next few months, within one year of the merger. Therefore, adjustmentsReliance 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

13





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.
 

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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 otherOther 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 borrowingsmaturities.
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.


14
16






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 CostAllowance
for Credit Losses
Net Carrying AmountGross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
Held-to-Maturity   
September 30, 2020
Mortgage-backed securities$24,297 $$24,297 $701 $(1)$24,997 
State and political subdivisions22,003 (73)21,930 1,155 (1)23,084 
Other securities1,175 (300)875 108 983 
Total HTM$47,475 $(373)$47,102 $1,964 $(2)$49,064 
December 31, 2019
Mortgage-backed securities$10,796 $$10,796 $71 $(59)$10,808 
State and political subdivisions27,082 27,082 849 27,931 
Other securities3,049 3,049 67 3,116 
Total HTM$40,927 $$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 securities11,549
 93
 (42) 11,600
 13,346
 5
 (412) 12,939
State and political subdivisions28,692
 931
 
 29,623
 256,863
 3,029
 (954) 258,938
Other securities1,996
 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 securities1,332,130
 9,405
 (3,741) 1,337,794
 1,552,487
 3,097
 (32,684) 1,522,900
State and political subdivisions658,984
 22,290
 (72) 681,202
 320,142
 171
 (5,470) 314,843
Other securities158,280
 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 LossesGross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
Available-for-sale
September 30, 2020
U.S. Government agencies$472,078 $$1,257 $(1,362)$471,973 
Mortgage-backed securities882,076 22,050 (439)903,687 
State and political subdivisions1,105,341 (1,148)32,001 (3,188)1,133,006 
Other securities97,313 (60)1,429 (60)98,622 
Total AFS$2,556,808 $(1,208)$56,737 $(5,049)$2,607,288 
December 31, 2019
U.S. Treasury$449,729 $$112 $(112)$449,729 
U.S. Government agencies194,207 1,313 (1,271)194,249 
Mortgage-backed securities1,738,584 8,510 (4,149)1,742,945 
State and political subdivisions860,539 20,983 (998)880,524 
Other securities20,092 822 (18)20,896 
Total AFS$3,263,151 $$31,740 $(6,548)$3,288,343 

17




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, 20192020 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.


15





credit losses.

The following table shows the gross unrealized losses and fair value ofsummarizes the Company’s AFS investments within 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 atposition:

 Less Than 12 Months12 Months or MoreTotal
(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 securities95,213 (433)4,038 (6)99,251 (439)
State and political subdivisions108,153 (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 subdivisions635
 
 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 securities133,538
 (528) 435,207
 (3,213) 568,745
 (3,741)
State and political subdivisions24,278
 (41) 3,297
 (31) 27,575
 (72)
Total AFS$174,478

$(605)
$529,478

$(4,410)
$703,956

$(5,015)

The declines reflectedFurthermore, the decline in fair value for each of the preceding table primarily resulted fromabove AFS securities is attributable to the raterates for thesethose investments yielding less than current market rates. Based on evaluationManagement does not believe any of available evidence, managementthe securities are impaired due to reasons of credit quality. Management believes the declines in fair value for thesethe securities are temporary. Management does not have the intent to sell thesethe securities, and management believes it is more likely than not the Company will not have to sell thesethe securities before recovery of their amortized cost basis less any current periodbasis.

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.

DeclinesRegarding 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.


18




The following table details activity in the fair value ofallowance 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 deemedheld.
(In thousands)State and Political SubdivisionsOther SecuritiesTotal
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 recorded1,137 23 1,160 
Reduction due to sales(294)(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$$$
Impact of ASU 2016-13 adoption
58 311 369 
Provision for credit loss expense15 (11)
Ending balance, September 30, 2020$73 $300 $373 
Available-for-sale
Beginning balance, January 1, 2020$$$
Impact of ASU 2016-13 adoption
373 373 
Credit losses on securities not previously recorded1,130 78 1,208 
Reduction due to sales(244)(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 valueThe 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 had2020:

State and Political Subdivisions
(In thousands)Not Guaranteed or Pre-RefundedOther Credit Enhancement or InsurancePre-RefundedTotalOther Securities
Aaa/AAA$865 $$$865 $
Aa/AA11,270 5,445 16,715 
A960 1,058 2,018 
Baa426 426 
Not Rated1,611 368 1,979 1,175 
Total$14,706 $7,297 $$22,003 $1,175 


19




Historical loss rates associated with securities having similar grades as those in the abilityCompany’s portfolio have generally not been significant. Pre-refunded securities, if any, have been defeased by the issuer and intentare 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 duereached. Securities with other credit enhancement or insurance continue to reasonsmake 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 oflosses 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, 20192020 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-sale10,166
 10,364
 34,422
 29,614
        
Non-taxable:       
Held-to-maturity83
 1,828
 1,334
 5,661
Available-for-sale4,870
 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)2020201920202019
Taxable:  
Held-to-maturity$256 $248 $715 $975 
Available-for-sale6,937 9,266 26,604 31,563 
Non-taxable:
Held-to-maturity65 83 205 1,334 
Available-for-sale7,652 4,870 19,802 12,542 
Total$14,910 $14,467 $47,326 $46,414 
16





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 years17,346
 17,703
 70,442
 70,750
After five through ten years5,561
 5,858
 139,421
 142,101
After ten years2,742
 3,084
 632,504
 652,404
Securities not due on a single maturity date11,549
 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-MaturityAvailable-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 years13,117 13,698 33,170 33,657 
After five through ten years5,856 6,126 192,972 195,045 
After ten years1,432,064 1,458,119 
Securities not due on a single maturity date24,297 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, 20192020 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. DuringThe income tax expense/benefit related to security gains/losses was 26.135% of the third quartergross amounts in 2020 and 2019.


20




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 ofrecognized a plan to rebalance its investment portfolio resulting in a netcombined 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 monthsmonth 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.


17





NOTE 4:5: LOANS AND ALLOWANCE FOR LOANCREDIT 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)20202019
Consumer:  
Credit cards$172,880 $204,802 
Other consumer190,736 249,195 
Total consumer363,616 453,997 
Real Estate:
Construction and development1,853,360 2,248,673 
Single family residential1,997,070 2,414,753 
Other commercial6,132,823 6,358,514 
Total real estate9,983,253 11,021,940 
Commercial:
Commercial2,907,798 2,451,119 
Agricultural241,687 191,525 
Total commercial3,149,485 2,642,644 
Other521,088 307,123 
Total loans$14,017,442 $14,425,704 
(In thousands)September 30, 2019 December 31, 2018
Consumer: 
  
Credit cards$195,083
 $204,173
Other consumer208,643
 201,297
Total consumer403,726

405,470
Real Estate:   
Construction1,712,858
 1,300,723
Single family residential1,448,455
 1,440,443
Other commercial3,630,708
 3,225,287
Total real estate6,792,021

5,966,453
Commercial:   
Commercial1,894,819
 1,774,909
Agricultural213,753
 164,514
Total commercial2,108,572

1,939,423
Other339,046
 119,042
Loans9,643,365
 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
_____________________________
(1)    See Note 5, Loans Acquired, for segregationThe above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as net deferred origination fees totaling $69.9 million and $91.6 million at September 30, 2020 and December 31, 2019, respectively.
21




Accrued interest on loans, which is excluded from the amortized cost of loans acquired by loan class.held for investment, totaled $65.0 million and $48.9 million at September 30, 2020 and December 31, 2019, respectively, and is included in interest receivable on the consolidated balance sheets.

Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; providing an adequate allowance for loanscredit losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Furthermore, a factor that influenced the Company’s judgment regarding the allowance for loan losses consists of a nine-year historical loss average segregated by each primary loan sector. On an annual basis, historical loss rates are calculated for each sector.
 
Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
 
Real estate – The real estate loan portfolio consists of construction and development loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the

18





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

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

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

Nonaccrual
22




The amortized cost basis of nonaccrual loans excluding loans acquired, segregated by class of loans are as follows:
(In thousands)September 30, 2019 December 31, 2018
Consumer: 
  
Credit cards$521
 $296
Other consumer1,634
 2,159
Total consumer2,155

2,455
Real estate:   
Construction1,805
 1,269
Single family residential16,191
 11,939
Other commercial16,985
 7,205
Total real estate34,981

20,413
Commercial:   
Commercial35,018
 10,049
Agricultural567
 1,284
Total commercial35,585

11,333
Total$72,721

$34,201


September 30,December 31,
(In thousands)20202019
Consumer:  
Credit cards$253 $382 
Other consumer1,371 1,705 
Total consumer1,624 2,087 
Real estate:
Construction and development3,806 5,289 
Single family residential31,080 27,695 
Other commercial80,427 16,582 
Total real estate115,313 49,566 
Commercial:
Commercial50,239 40,924 
Agricultural537 753 
Total commercial50,776 41,677 
Total$167,713 $93,330 
19



Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2020 had an amortized cost of $17.8 million. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method.


An age analysis of the amortized cost basis of past due loans, excludingincluding nonaccrual loans, acquired, segregated by class of loans is as follows:
 
(In thousands)Gross
30-89 Days
Past Due
90 Days
or More
Past Due
Total
Past Due
CurrentTotal
Loans
90 Days
Past Due &
Accruing
September 30, 2020      
Consumer:      
Credit cards$672 $262 $934 $171,946 $172,880 $95 
Other consumer2,302 391 2,693 188,043 190,736 
Total consumer2,974 653 3,627 359,989 363,616 101 
Real estate:
Construction and development1,168 2,526 3,694 1,849,666 1,853,360 
Single family residential12,170 14,522 26,692 1,970,378 1,997,070 64 
Other commercial5,115 11,885 17,000 6,115,823 6,132,823 
Total real estate18,453 28,933 47,386 9,935,867 9,983,253 66 
Commercial:
Commercial6,984 5,824 12,808 2,894,990 2,907,798 
Agricultural290 328 618 241,069 241,687 
Total commercial7,274 6,152 13,426 3,136,059 3,149,485 
Other521,088 521,088 
Total$28,701 $35,738 $64,439 $13,953,003 $14,017,442 $174 
(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, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$958
 $650
 $1,608
 $193,475
 $195,083
 $130
Other consumer3,383
 694
 4,077
 204,566
 208,643
 14
Total consumer4,341

1,344

5,685

398,041

403,726

144
Real estate:           
Construction3,690
 613
 4,303
 1,708,555
 1,712,858
 
Single family residential10,022
 6,395
 16,417
 1,432,038
 1,448,455
 
Other commercial8,009
 3,385
 11,394
 3,619,314
 3,630,708
 
Total real estate21,721

10,393

32,114

6,759,907

6,792,021


Commercial:           
Commercial4,999
 10,990
 15,989
 1,878,830
 1,894,819
 11
Agricultural285
 349
 634
 213,119
 213,753
 
Total commercial5,284

11,339

16,623

2,091,949

2,108,572

11
Other
 
 
 339,046
 339,046
 
Total$31,346

$23,076

$54,422

$9,588,943

$9,643,365

$155
            
December 31, 2018           
Consumer:           
Credit cards$1,033
 $506
 $1,539
 $202,634
 $204,173
 $209
Other consumer4,264
 896
 5,160
 196,137
 201,297
 4
Total consumer5,297

1,402

6,699

398,771

405,470

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

7,208

18,889

5,947,564

5,966,453


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

6,160

11,099

1,928,324

1,939,423

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

$14,770

$36,687

$8,393,701

$8,430,388

$224
23




Impaired Loans – A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loans, including scheduled principal and interest payments. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of the collateral if the loan is collateral dependent.
(In thousands)Gross
30-89 Days
Past Due
90 Days
or More
Past Due
Total
Past Due
CurrentTotal
Loans
90 Days
Past Due &
Accruing
December 31, 2019
Consumer:
Credit cards$848 $641 $1,489 $203,313 $204,802 $259 
Other consumer4,884 735 5,619 243,576 249,195 
Total consumer5,732 1,376 7,108 446,889 453,997 259 
Real estate:
Construction and development5,792 1,078 6,870 2,241,803 2,248,673 
Single family residential26,318 13,789 40,107 2,374,646 2,414,753 597 
Other commercial7,645 6,450 14,095 6,344,419 6,358,514 
Total real estate39,755 21,317 61,072 10,960,868 11,021,940 597 
Commercial:
Commercial10,579 13,551 24,130 2,426,989 2,451,119 
Agricultural1,223 456 1,679 189,846 191,525 
Total commercial11,802 14,007 25,809 2,616,835 2,642,644 
Other307,123 307,123 
Total$57,289 $36,700 $93,989 $14,331,715 $14,425,704 $856 
 
Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

20





Impaired loans, net of government guarantees and excluding loans acquired, segregated by class of loans, are as follows:
(In thousands)
Unpaid
Contractual
Principal
Balance
 
Recorded Investment
With No
Allowance
 
Recorded
Investment
With Allowance
 
Total
Recorded
Investment
 
Related
Allowance
 
Average
Investment in
Impaired
Loans
 
Interest
Income
Recognized
 
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 consumer1,783
 1,634
 
 1,634
 
 1,603
 9
 1,730
 33
Total consumer2,304

2,155



2,155


 2,026
 49
 2,100
 143
Real estate:                 
Construction1,898
 1,708
 97
 1,805
 
 1,972
 10
 1,946
 38
Single family residential17,526
 13,985
 2,206
 16,191
 31
 15,920
 85
 14,812
 287
Other commercial15,642
 4,200
 11,007
 15,207
 628
 11,739
 77
 10,365
 201
Total real estate35,066

19,893

13,310

33,203

659
 29,631
 172
 27,123
 526
Commercial:                 
Commercial50,712
 10,153
 23,930
 34,083
 4,620
 32,020
 176
 26,379
 511
Agricultural583
 450
 116
 566
 
 873
 3
 1,010
 20
Total commercial51,295

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 consumer2,311
 2,159
 
 2,159
 
 3,561
 28
 4,109
 96
Total consumer2,607
 2,455
 
 2,455
 
 3,844
 63
 4,368
 156
Real estate:                 
Construction1,344
 784
 485
 1,269
 211
 1,411
 11
 1,747
 41
Single family residential12,906
 11,468
 616
 12,084
 36
 13,577
 98
 13,550
 315
Other commercial8,434
 5,442
 5,458
 10,900
 
 12,282
 108
 14,284
 332
Total real estate22,684
 17,694
 6,559
 24,253
 247
 27,270
 217
 29,581
 688
Commercial:                 
Commercial10,361
 7,254
 4,628
 11,882
 437
 11,840
 108
 9,533
 222
Agricultural2,419
 1,180
 
 1,180
 
 1,355
 12
 1,470
 34
Total commercial12,780
 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


At September 30, 2019 and December 31, 2018, impaired loans, net of government guarantees and excluding loans acquired, totaled $70.0 million and $39.8 million, respectively. Allocations of the allowance for loan losses relativeThe following table presents information pertaining to impaired loans were $5.3 million and $684,000 at September 30, 2019 andas of December 31, 2018, respectively. Approximately $400,000 and $1,200,0002019, in accordance with previous US GAAP prior to the adoption of interest income was recognized on average impaired loans of $64.6 million and $56.6 million for the three and nine months ended September 30, 2019. Interest income recognized on impaired loans on a cash basis during the three and nine months ended September 30, 2019 and 2018 was not material.ASU 2016-13.

Included in certain impaired loan categories are troubled debt restructurings (“TDRs”).
(In thousands)Unpaid
Contractual
Principal
Balance
Recorded Investment
With No
Allowance
Recorded
Investment
With Allowance
Total
Recorded
Investment
Related
Allowance
Average Investment in Impaired LoansInterest Income RecognizedAverage Investment in Impaired LoansInterest
Income
Recognized
December 31, 2019    Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Consumer:     
Credit cards$382 $382 $$382 $$423 $40 $370 $110 
Other consumer1,537 1,378 1,378 1,603 1,730 33 
Total consumer1,919 1,760 1,760 2,026 49 2,100 143 
Real estate:
Construction and development4,648 4,466 72 4,538 1,972 10 1,946 38 
Single family residential19,466 15,139 2,963 18,102 42 15,920 85 14,812 287 
Other commercial10,645 4,713 3,740 8,453 694 11,739 77 10,365 201 
Total real estate34,759 24,318 6,775 31,093 740 29,631 172 27,123 526 
Commercial:
Commercial53,436 6,582 28,998 35,580 5,007 32,020 176 26,379 511 
Agricultural525 383 116 499 873 1,010 20 
Total commercial53,961 6,965 29,114 36,079 5,007 32,893 179 27,389 531 
Total$90,639 $33,043 $35,889 $68,932 $5,747 $64,550 $400 $56,612 $1,200 

When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” (“TDR”) 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.


21
24





Under ASC Topic 310-10-35 – Subsequent Measurement, a TDR is considered to be impaired, and an impairment analysis must be performed. The Company assesses the exposure for each modification, either by collateral discounting or by calculation of the present value of future cash flows, and determines if a specific allocation to the allowance for loan losses is needed.
Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

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. As of September 30, 2020, the Company has modified 3,956 loans totaling approximately $3.21 billion to loan customers affected by COVID-19. The following table summarizes these modified loans due to COVID-19 by industry.

(Dollars in thousands)NumberBalance
Real Estate Rental and Leasing1,162$1,263,884 
Accommodation and Food Services386845,803 
Health Care and Social Assistance226278,200 
Construction186190,337 
Retail Trade145130,498 
Other Services (Except Public Administration)13158,169 
Other1,720444,053 
Total3,956$3,210,944 

Deferred interest on the above loans totaled $27.6 million as of September 30, 2020. The interest will be collected at the end of the note or once regular payments are resumed. As of September 30, 2020, over 2,900 loans totaling $1.9 billion that had previously been modified under the CARES Act had returned to regular payment terms in addition to those that have paid off.

TDRs are individually evaluated for expected credit losses. The Company assesses the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determines if a specific allowance for credit losses is needed.

The following table presents a summary of TDRs excluding loans acquired, segregated by class of loans.
 Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans
(Dollars in thousands)Number Balance Number Balance Number Balance
September 30, 2019           
Real estate:           
Construction
 $
 1
 $97
 1
 $97
Single-family residential6
 549
 10
 627
 16
 1,176
Other commercial2
 3,166
 2
 950
 4
 4,116
Total real estate8

3,715

13

1,674

21

5,389
Commercial:           
Commercial4
 2,804
 3
 84
 7
 2,888
Total commercial4

2,804

3

84

7

2,888
Total12

$6,519

16

$1,758

28

$8,277
            
December 31, 2018           
Real estate:           
Construction
 $
 3
 $485
 3
 $485
Single-family residential6
 230
 10
 616
 16
 846
Other commercial2
 3,306
 2
 1,027
 4
 4,333
Total real estate8

3,536

15

2,128

23

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

2,833

6

718

10

3,551
Total12

$6,369

21

$2,846

33

$9,215



 Accruing TDR LoansNonaccrual TDR LoansTotal TDR Loans
(Dollars in thousands)NumberBalanceNumberBalanceNumberBalance
September 30, 2020      
Real estate:
Single-family residential31 $2,700 18 $3,008 49 $5,708 
Other commercial49 15 64 
Total real estate32 2,749 19 3,023 51 5,772 
Commercial:
Commercial630 2,154 2,784 
Total commercial630 2,154 2,784 
Total35 $3,379 22 $5,177 57 $8,556 
22
25




 Accruing TDR LoansNonaccrual TDR LoansTotal TDR Loans
(Dollars in thousands)NumberBalanceNumberBalanceNumberBalance
December 31, 2019
Real estate:
Construction and development$$72 $72 
Single-family residential25 2,627 20 1,330 45 3,957 
Other commercial476 80 556 
Total real estate26 3,103 23 1,482 49 4,585 
Commercial:
Commercial2,784 79 2,863 
Total commercial2,784 79 2,863 
Total30 $5,887 26 $1,561 56 $7,448 

The following table presents loans that were restructured as TDRs during the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 and 2018, excluding loans acquired, segregated by class of loans. There were no loans restructured as TDRs during the three months ended September 30, 2020.

       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 residential1
 $330
 $330
 $330
 $
 $
Total real estate1
 330
 330
 330
 
��
Total1
 $330
 $330
 $330
 $
 $
            
Three Months Ended September 30, 2018           
Real estate:           
Construction1
 $99
 $98
 $98
 $
 $
Other commercial2
 392
 390
 390
 
 212
Total real estate3
 491
 488
 488
 
 212
Commercial:           
Commercial3
 2,363
 2,358
 2,358
 
 190
Total commercial3
 2,363
 2,358
 2,358
 
 190
Total6
 $2,854
 $2,846
 $2,846
 $
 $402
            
Nine Months Ended September 30, 2018          
Consumer:           
Other consumer1
 $91
 $91
 $91
 $
 $
Total consumer1
 91
 91
 91
 
 
Real estate:           
Construction1
 99
 98
 98
 
 
Single-family residential1
 61
 62
 62
 
 
Other commercial2
 392
 390
 390
 
 212
Total real estate4
 552
 550
 550
 
 212
Commercial:           
Commercial3
 2,363
 2,358
 2,358
 
 190
Total commercial3
 2,363
 2,358
 2,358
 
 190
Total8
 $3,006
 $2,999
 $2,999
 $
 $402

(Dollars in thousands)Number of loansBalance Prior to TDRBalance at September 30,Change in Maturity DateChange in RateFinancial Impact on Date of Restructure
Nine Months Ended September 30, 2020    
Real estate:
Single-family residential$1,948 $1,896 $1,896 $$
Total real estate$1,948 $1,896 $1,896 $$
Three and Nine Months Ended September 30, 2019
Real estate:
Single-family residential$330 $330 $330 $$
Total real estate$330 $330 $330 $$
During the nine months ended September 30, 2020, the Company modified 5 loans with a recorded investment of $1.9 million prior to modification which was deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity dates and requiring interest only payments for a period of up to 12 months. A specific reserve of $16,600 was determined necessary for these loans as of September 30, 2020. Additionally, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the three and nine months ended September 30, 2019, the Company modified 1 loan with a recorded investment of $330,000 prior to modification which was deemed troubled debt restructuring. The restructured loan was modified by deferring amortized principal payments, changing the maturity date and requiring interest-onlyinterest only payments for a period of up to 12 months. Also,A specific reserve was not considered necessary for this loan and there was no immediate financial impact from the restructuring of this loan, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the three months ended September 30, 2018, the Company modified 6 loans withThere was 1 commercial loan considered a recorded investment of $2.9 million andTDR for which a payment default occurred during the nine months ended September 30, 2018, the Company modified 8 loans with a recorded investment of $3.0 million prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date and requiring interest-only payments for a period of up to 12 months. Based on the fair value of the collateral, a specific reserve of $402,000 was determined necessary for these loans. Also, there was no immediate

23





financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.
2020. There were 4 loans consisting of commercial and real estate construction loans, considered TDRs for which a payment default occurred during the nine months ended September 30, 2019. The Company charged offcharged-off approximately $552,000 for these loans. There was 1 commercial real estate loan for which a payment default occurred during the nine months ended September 30, 2018. A charge-off of $66,300 was recorded for this loan and $294,300 was transferred to OREO. The Company defines a payment default as a payment received more than 90 days after its due date.
 
In addition to the TDRs that occurred during the periods provided in the preceding tables, the Company had TDRs with pre-modification loan balances, specifically in commercial real estate, of $294,300 at September 30, 2018, for which OREO was received in full or partial satisfaction of the loans. There were 0 TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the three or nine month periods ended September 30, 2020 or 2019. At September 30, 20192020 and December 31, 2018,2019, the Company had $3,925,000$6,876,000 and $3,899,000,$5,789,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At September 30, 20192020 and December 31, 2018,2019, the Company had $4,401,000$3,184,000 and $3,530,000,$4,458,000, respectively, of OREO secured by residential real estate properties.
26




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

The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the 8 risk ratings is as follows:
 
Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength.
Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”).
Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters.
Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability.
Risk Rate 5 – Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices.
Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan.
Risk Rate 7 – Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.
Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.
The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the delinquency credit quality indicators is as follows:

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

24
27





Risk Rate 7 – DoubtfulCurrent - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.
Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.
Loans acquiredin this category are evaluated usingeither current in payments or are under 30 days past due. These loans are considered to have a normal level of risk.
30-89 Days Past Due - Loans in this internal grading system. Loans acquiredcategory are evaluated individuallybetween 30 and include purchased credit impaired loans of $3.1 million and $4.1 million that are accounted for under ASC Topic 310-3089 days past due and are classified as substandard (Risk Rating 6)subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk.
90+ Days Past Due - Loans in this category are over 90 days past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced.
The following table presents a summary of loans by credit quality indicator, other than pass or current, as of September 30, 2019 and December 31, 2018, respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $37.4 million and $50.4 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at September 30, 2019 and December 31, 2018, respectively.2020 segregated by class of loans.
Purchased credit impaired loans are loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their fair value was initially based on the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the undiscounted cash flows expected at acquisition and the fair value at acquisition is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment.
Classified loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested for impairment and therefore are not included in impaired loans. (2) Of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans. Total classified loans, excluding loans accounted for under ASC Topic 310-30, were $146.2 million and $119.0 million, as of September 30, 2019 and December 31, 2018, respectively.

Term Loans Amortized Cost Basis by Origination Year
(In thousands)2020 (YTD)20192018201720162015 and PriorLines of Credit (“LOC”) Amortized Cost BasisLOC Converted to Term Loans Amortized Cost BasisTotal
Consumer - credit cards    
Delinquency:
30-89 days past due$$$$$$$672 $$672 
90+ days past due262 262 
Total consumer - credit cards934 934 
Consumer - other
Delinquency:
30-89 days past due213 404 344 634 505 124 78 2,302 
90+ days past due55 72 94 48 110 391 
Total consumer - other217 459 416 728 553 132 188 2,693 
Real estate - C&D
Risk rating:
5 internal grade504 357 173 2,171 19 238 4,707 8,169 
6 internal grade244 2,127 447 539 366 570 579 4,872 
7 internal grade
Total real estate - C&D748 2,484 620 2,710 385 808 5,286 13,041 
Real estate - SF residential
Delinquency:
30-89 days past due1,080 1,417 1,602 1,686 1,395 3,365 1,625 12,170 
90+ days past due26 2,308 2,873 2,438 918 3,743 2,217 14,523 
Total real estate - SF residential1,106 3,725 4,475 4,124 2,313 7,108 3,842 26,693 
Real estate - other commercial
Risk rating:
5 internal grade17,230 4,973 24,463 14,997 1,744 10,844 61,045 16,005 151,301 
6 internal grade29,267 9,544 13,940 5,751 15,069 10,114 54,571 48,444 186,700 
7 internal grade
Total real estate - other commercial46,497 14,517 38,403 20,748 16,813 20,958 115,616 64,449 338,001 
Commercial
Risk rating:
5 internal grade914 1,255 1,662 896 332 14 45,106 569 50,748 
6 internal grade7,062 3,434 19,418 2,407 1,232 1,077 51,387 522 86,539 
7 internal grade
Total commercial7,976 4,689 21,080 3,303 1,564 1,091 96,493 1,091 137,287 
Commercial - agriculture
Risk rating:
5 internal grade35 83 14 325 34 491 
6 internal grade72 140 166 53 42 10 83 566 
7 internal grade
Total commercial - agriculture107 223 180 378 42 10 117 1,057 
Total$56,651 $26,097 $65,174 $31,991 $21,670 $30,107 $222,476 $65,540 $519,706 
25
28





The following table presents a summary of loans by credit risk rating as of September 30, 2019 and December 31, 2018,2019 segregated by class of loans. Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.
 
(In thousands)Risk Rate
1-4
Risk Rate
5
Risk Rate
6
Risk Rate
7
Risk Rate
8
Total
December 31, 2019      
Consumer:      
Credit cards$204,161 $$641 $$$204,802 
Other consumer247,668 2,026 249,694 
Total consumer451,829 2,667 454,496 
Real estate:
Construction and development2,229,019 70 7,735 37 2,236,861 
Single family residential2,394,284 6,049 41,601 130 2,442,064 
Other commercial6,068,425 69,745 67,429 6,205,599 
Total real estate10,691,728 75,864 116,765 130 37 10,884,524 
Commercial:
Commercial2,384,263 26,713 84,317 43 180 2,495,516 
Agricultural309,741 41 5,672 315,454 
Total commercial2,694,004 26,754 89,989 43 180 2,810,970 
Other275,714 275,714 
Total$14,113,275 $102,618 $209,421 $173 $217 $14,425,704 
(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
September 30, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$194,433
 $
 $650
 $
 $
 $195,083
Other consumer206,647
 
 1,996
 
 
 208,643
Total consumer401,080



2,646





403,726
Real estate:           
Construction1,705,376
 1,456
 6,026
 
 
 1,712,858
Single family residential1,422,086
 3,246
 23,119
 4
 
 1,448,455
Other commercial3,571,706
 33,030
 25,972
 
 
 3,630,708
Total real estate6,699,168

37,732

55,117

4



6,792,021
Commercial:           
Commercial1,837,374
 10,420
 47,025
 
 
 1,894,819
Agricultural213,072
 69
 612
 
 
 213,753
Total commercial2,050,446

10,489

47,637





2,108,572
Other339,046
 
 
 
 
 339,046
Loans acquired3,272,024
 46,796
 40,639
 128
 
 3,359,587
Total$12,761,764

$95,017

$146,039

$132

$

$13,002,952
(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
December 31, 2018 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Credit cards$203,667
 $
 $506
 $
 $
 $204,173
Other consumer198,840
 
 2,457
 
 
 201,297
Total consumer402,507



2,963





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

20,707

35,182

235



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

8,432

26,165





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

$80,394

$118,407

$583

$

$11,723,171


26





Allowance for LoanCredit Losses

Allowance for LoanCredit Losses – The allowance for loancredit losses is a reserve established through a provision for loancredit losses charged to expense, which represents management’s best estimate of probablelifetime expected losses that have been incurred within the existing portfolio of loans.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 estimatedexpected loan losses and risks inherent in the loan portfolio. The Company’s allowance for loancredit loss methodology includes allowance allocationsreserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 310-10,326-20, Receivables, and allowance allocations calculated in accordance with ASC Topic 450-20, Loss ContingenciesFinancial Instruments - Credit Losses. Accordingly, the methodology is based on the Company’s internal grading system, specific impairment analysis,reasonable and supportable economic forecasts, historical loss experience, and other qualitative and quantitative factors.adjustments.

As mentioned above, allocationsLoans 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 relationship 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.

The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been 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 loan losses are categorized as either specific allocations or general allocations.in the reserve factor.
A loan is considered impaired when it is probable thatChanges in the Company will not receive all amounts due according to the contractual termsnature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors.
Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan 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 - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.
Changes in the value of 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.
29




Changes in and the existence and 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 local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within the Company’s 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 with a deteriorated internal risk rating or are classified as a troubled debt restructuring. The allowance for credit loss is determined based on several methods including scheduled principal and interest payments. estimating the fair value of the underlying collateral or the present value of expected cash flows.

For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis.analysis adjusted for selling costs, when appropriate. 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 loancredit 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.

Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $71.7 million as of September 30, 2020, as further detailed in the table below. The general allocation is calculated monthly based on management’s assessmentcollateral securing these loans consist of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. The Company establishes general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residentialcommercial real estate loansproperties, residential properties, other business assets, and other consumer loans.secured energy production assets.
(In thousands)Real Estate CollateralEnergyOther CollateralTotal
Construction and development$1,538 $$$1,538 
Single family residential6,722 6,722 
Other commercial real estate40,358 40,358 
Commercial19,100 4,009 23,109 
Total$48,618 $19,100 $4,009 $71,727 

The following table details activity in the allowance for loancredit losses by portfolio segment for legacy loans for the three and nine months ended September 30, 2019.2020. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. 

(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
Three Months Ended 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)
Recoveries65
 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)
Recoveries295
 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 impairment18,605
 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)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total
Allowance for credit losses:
Three Months Ended September 30, 2020
Beginning balance, July 1, 2020$59,138 $149,471 $10,979 $12,055 $231,643 
Provision for credit loss expense(6,499)33,479 (1,823)(2,844)22,313 
Charge-offs(4,327)(1,153)(832)(1,091)(7,403)
Recoveries936 120 276 366 1,698 
Net charge-offs(3,391)(1,033)(556)(725)(5,705)
Ending balance, September 30, 2020$49,248 $181,917 $8,600 $8,486 $248,251 
27
30





(In thousands)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total
Nine Months Ended September 30, 2020
Beginning balance, January 1, 2020 - prior to adoption of CECL$22,863 $39,161 $4,051 $2,169 $68,244 
Impact of CECL adoption22,733 114,314 2,232 12,098 151,377 
Provision for credit loss expense42,808 31,341 4,870 (3,829)75,190 
Charge-offs(40,537)(3,373)(3,326)(3,062)(50,298)
Recoveries1,381 474 773 1,110 3,738 
Net charge-offs(39,156)(2,899)(2,553)(1,952)(46,560)
Ending balance, September 30, 2020$49,248 $181,917 $8,600 $8,486 $248,251 
(1)    Provision
Activity in the allowance for loan losses of $0 and $2,464,000 attributable to loans acquired was excluded from this table for the three and nine months ended September 30, 2019, respectively (total provision for loancredit losses for the three and nine months ended September 30, 2019 was $21,973,000as follows:

(In thousands)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total
Allowance for credit losses:
Three Months Ended September 30, 2019
Beginning balance, July 1, 2019$21,354 $36,493 $3,951 $2,381 $64,179 
Provision for credit losses19,150 2,405 946 (528)21,973 
Charge-offs(17,778)(1,367)(1,117)(1,065)(21,327)
Recoveries65 55 223 1,422 1,765 
Net (charge-offs) recoveries(17,713)(1,312)(894)357 (19,562)
Ending balance, September 30, 2019$22,791 $37,586 $4,003 $2,210 $66,590 
Nine Months Ended September 30, 2019
Beginning balance, January 1, 2019$20,514 $29,838 $3,923 $2,419 $56,694 
Provision for credit losses23,980 10,393 2,644 1,320 38,337 
Charge-offs(22,893)(3,000)(3,298)(3,582)(32,773)
Recoveries1,190 355 734 2,053 4,332 
Net charge-offs(21,703)(2,645)(2,564)(1,529)(28,441)
Ending balance, September 30, 2019$22,791 $37,586 $4,003 $2,210 $66,590 


The primary driver for the provision for credit losses for the quarter ended September 30, 2020 was the continued uncertainty of a more prolonged recovery than initially anticipated to the economies that affect the loan portfolio as certain industries are being more adversely impacted by the COVID-19 pandemic, such as the restaurant, retail and $38,337,000)hotel industries. The provision for credit losses was partially offset due to a reduction in loan growth. The Company updated credit loss forecasts using multiple Moody’s economic scenarios published in September 2020. The baseline economic forecast was weighted 66% by the Company, while the downside scenario of S-2 was weighted 18% and the upside scenario of S-1 was weighted 16%. There were $515,000The weighting of the forecasts is characterized by, among others, market rates remaining low, the substantial decline of CRE prices, and $2,862,000 in charge-offsthe current national unemployment rate.

The provision for loans acquired duringcredit losses for the three and nine months ended September 30, 2019, respectively, and recoveries of $900,0002020 was primarily related to concern over the economic stresses related to COVID-19 as well as specific provisions for two energy credits that were previously identified as problem loans acquiredthat were impacted by the sharp decline in commodity pricing. Four energy credits within the Commercial segment were charged off during the nine month period endedsecond quarter of 2020 for a total of $32.6 million.


31




Reserve for Unfunded Commitments
In addition to the allowance for credit losses, the Company has established a reserve for unfunded commitments, classified in other liabilities. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The reserve for unfunded commitments as of September 30, 2019, resulting in an ending balance in the allowance related to loans acquired of $597,000.
(2)    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 June 30, 20192020 and December 31, 2018 includes $1,112,000 and $95,000, 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$24.4 million and total allowance$8.4 million, respectively. The increase from year end was due to the adoption of CECL. The adequacy of the reserve for loan losses at June 30, 2019 and December 31, 2018 was $64,179,000 and $56,694,000, respectively.

Activity inunfunded commitments is determined quarterly based on methodology similar to the methodology for determining the allowance for loan losses forcredit losses. For the three and nine months ended September 30, 20182020, net adjustments to the reserve for unfunded commitments resulted in a benefit of $8.0 million and was as follows:
(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
Three Months Ended September 30, 2018         
Balance, beginning of period (4)
$15,767
 $28,904
 $3,822
 $3,239
 $51,732
Provision for loan losses (3)
3,589
 5,308
 719
 729
 10,345
Charge-offs(592) (4,952) (919) (1,321) (7,784)
Recoveries450
 210
 229
 176
 1,065
Net charge-offs(142) (4,742) (690) (1,145) (6,719)
Balance, September 30, 2018 (4)
$19,214
 $29,470
 $3,851
 $2,823
 $55,358
          
Nine Months Ended September 30, 2018         
Balance, beginning of period (4)
$7,007
 $27,281
 $3,784
 $3,596
 $41,668
Provision for loan losses (3)
14,772
 7,133
 2,219
 2,567
 26,691
Charge-offs(3,143) (5,568) (2,930) (3,743) (15,384)
Recoveries578
 624
 778
 403
 2,383
Net charge-offs(2,565) (4,944) (2,152) (3,340) (13,001)
Balance, September 30, 2018 (4)
$19,214
 $29,470
 $3,851
 $2,823
 $55,358
          
Period-end amount allocated to:         
Loans individually evaluated for impairment$191
 $268
 $
 $
 $459
Loans collectively evaluated for impairment19,023
 29,202
 3,851
 2,823
 54,899
Balance, September 30, 2018 (4)
$19,214

$29,470

$3,851

$2,823

$55,358
          
Period-end amount allocated to:         
Loans individually evaluated for impairment$437
 $247
 $
 $
 $684
Loans collectively evaluated for impairment20,077
 29,496
 3,923
 2,419
 55,915
Balance, December 31, 2018 (5)
$20,514

$29,743

$3,923

$2,419

$56,599
______________________
(3)    Provision for loan losses of $0 and $1,837,000 attributable to loans acquired was excluded from this table for the three and nine months ended September 30, 2018, respectively (totalincluded in provision for loancredit losses for the three and nine months ended September 30, 2018 was $10,345,000 and $28,528,000, respectively). There were $699,000 and $910,000 in charge-offs for loans acquired during the three and nine months ended September 30, 2018, respectively, resulting in an ending balance in the allowance related to loans acquiredstatement of $1,345,000.income.
(4)    Allowance for loan losses at September 30, 2018, June 30, 2018 and December 31, 2017 includes $1,345,000, $2,044,000 and $418,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2018, June 30, 2018 and December 31, 2017 was $56,703,000, $53,776,000 and $42,086,000, respectively.
(5)    Allowance for loan losses at December 31, 2018 includes $95,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses at December 31, 2018 was $56,694,000.

28





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

(In thousands)Commercial 
Real
Estate
 
Credit
Card
 
Other
Consumer
and Other
 Total
September 30, 2019 
  
  
  
  
Loans individually evaluated for impairment$34,649
 $33,203
 $521
 $1,634
 $70,007
Loans collectively evaluated for impairment2,073,923
 6,758,818
 194,562
 546,055
 9,573,358
Balance, end of period$2,108,572

$6,792,021

$195,083

$547,689

$9,643,365
          
December 31, 2018         
Loans individually evaluated for impairment$13,062
 $24,253
 $296
 $2,159
 $39,770
Loans collectively evaluated for impairment1,926,361
 5,942,200
 203,877
 318,180
 8,390,618
Balance, end of period$1,939,423

$5,966,453

$204,173

$320,339

$8,430,388


NOTE 5: LOANS ACQUIRED
The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the loans acquired is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

The Company evaluates non-impaired loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method. The Company evaluates purchased impaired loans in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.
For impaired loans accounted for under ASC Topic 310-30, the Company continues to estimate cash flows expected to be collected on purchased credit impaired loans. The Company evaluates, at each balance sheet date, whether the present value of the purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in the consolidated statement of income. For any significant increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased credit impaired loan.

During the second quarter 2019, the Company evaluated $1.097 billion of net loans ($1.127 billion gross loans less $30.6 million discount) purchased in conjunction with the acquisition of Reliance, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20. The Company evaluated the remaining $176,000 of net loans ($385,000 gross loans less $209,000 discount) purchased in conjunction with the acquisition of Reliance for impairment in accordance with the provisions of ASC Topic 310-30.

29





The following table reflects the carrying value of all loans acquired as of September 30, 2019 and December 31, 2018: 

 Loans Acquired
(In thousands)September 30, 2019 December 31, 2018
Consumer: 
  
Other consumer$7,431
 $15,658
Real estate:   
Construction362,000
 429,605
Single family residential504,490
 566,188
Other commercial2,134,973
 1,848,679
Total real estate3,001,463
 2,844,472
Commercial:   
Commercial349,821
 430,914
Agricultural872
 1,739
Total commercial350,693
 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.

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

(In thousands)September 30, 2019 December 31, 2018
    
Consumer: 
  
Other consumer$71
 $140
Real estate:   
Construction48
 114
Single family residential4,492
 6,603
Other commercial1,029
 1,167
Total real estate5,569

7,884
Commercial:   
Commercial1,636
 13,578
Agricultural23
 38
Total commercial1,659

13,616
Total$7,299

$21,640



30





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

(In thousands)
Gross
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Total
Past Due
 Current 
Total
Loans
 
90 Days
Past Due &
Accruing
            
September 30, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Other consumer$131
 $36
 $167
 $7,264
 $7,431
 $4
Real estate:           
Construction30
 12
 42
 361,958
 362,000
 
Single family residential3,664
 1,790
 5,454
 499,036
 504,490
 17
Other commercial1,888
 943
 2,831
 2,132,142
 2,134,973
 
Total real estate5,582

2,745

8,327

2,993,136

3,001,463
 17
Commercial:           
Commercial607
 724
 1,331
 348,490
 349,821
 
Agricultural
 
 
 872
 872
 
Total commercial607

724

1,331

349,362

350,693
 
            
Total$6,320

$3,505

$9,825

$3,349,762

$3,359,587
 $21
December 31, 2018           
Consumer:           
Other consumer$337
 $49
 $386
 $15,272
 $15,658
 $2
Real estate:           
Construction8,283
 27
 8,310
 421,295
 429,605
 
Single family residential4,706
 3,049
 7,755
 558,433
 566,188
 
Other commercial168
 577
 745
 1,847,934
 1,848,679
 
Total real estate13,157
 3,653
 16,810
 2,827,662
 2,844,472
 
Commercial:           
Commercial1,302
 9,542
 10,844
 420,070
 430,914
 
Agricultural31
 5
 36
 1,703
 1,739
 
Total commercial1,333
 9,547
 10,880
 421,773
 432,653
 
            
Total$14,827
 $13,249
 $28,076
 $3,264,707
 $3,292,783
 $2



31





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

(In thousands)
Risk Rate
1-4
 
Risk Rate
5
 
Risk Rate
6
 
Risk Rate
7
 
Risk Rate
8
 Total
            
September 30, 2019 
  
  
  
  
  
Consumer: 
  
  
  
  
  
Other consumer$7,285
 $
 $146
 $
 $
 $7,431
Real estate:           
Construction344,075
 17,874
 51
 
 
 362,000
Single family residential492,826
 1,224
 10,312
 128
 
 504,490
Other commercial2,085,649
 26,207
 23,117
 
 
 2,134,973
Total real estate2,922,550

45,305

33,480

128



3,001,463
Commercial:           
Commercial341,385
 1,491
 6,945
 
 
 349,821
Agricultural804
 
 68
 
 
 872
Total commercial342,189

1,491

7,013





350,693
            
Total$3,272,024

$46,796

$40,639

$128

$

$3,359,587
December 31, 2018           
Consumer:           
Other consumer$15,380
 $
 $278
 $
 $
 $15,658
Real estate:           
Construction393,122
 27,621
 8,862
 
 
 429,605
Single family residential553,460
 2,081
 10,299
 348
 
 566,188
Other commercial1,822,179
 9,137
 17,363
 
 
 1,848,679
Total real estate2,768,761
 38,839
 36,524
 348
 
 2,844,472
Commercial:           
Commercial401,300
 12,416
 17,198
 
 
 430,914
Agricultural1,642
 
 97
 
 
 1,739
Total commercial402,942
 12,416
 17,295
 
 
 432,653
            
Total$3,187,083
 $51,255
 $54,097
 $348
 $
 $3,292,783


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

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



32





Changes in the carrying amount of the accretable yield for all purchased impaired loans were as follows for the three and nine months ended September 30, 2019 and 2018.

 Three Months Ended
September 30, 2019
 Nine Months Ended
September 30, 2019
(In thousands)
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
Beginning balance$1,461
 $3,487
 $1,460
 $4,050
Additions
 
 
 175
Accretable yield adjustments10
 
 38
 
Accretion(12) 12
 (39) 39
Payments and other reductions, net
 (422) 
 (1,187)
Balance, ending$1,459
 $3,077
 $1,459
 $3,077

 Three Months Ended
September 30, 2018
 Nine Months Ended
September 30, 2018
(In thousands)
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
Beginning balance$1,382
 $13,995
 $620
 $17,116
Additions
 
 
 
Accretable yield adjustments717
 
 1,895
 
Accretion(635) 635
 (1,051) 1,051
Payments and other reductions, net
 (9,664) 
 (13,201)
Balance, ending$1,464
 $4,966
 $1,464
 $4,966


Purchased impaired loans are evaluated on an individual borrower basis. Because some loans evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows, the Company recorded a provision and established an allowance for loan loss for loans acquired resulting in a total allowance on loans acquired of $597,000 at September 30, 2019 and $95,000 at December 31, 2018. The provision on loans acquired for the three and nine months ended September 30, 2019 was $0 and $2,464,000, respectively. The provision on loans acquired for the three and nine months ended September 30, 2018 was $0 and $1,837,000, respectively.



33





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

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

The Company’s leases are classified as operating leases with a term, including expected renewal or termination options, greater than one year, and are related to certain office facilities and office equipment. As of September 30, 2019,The following table presents information related to the Company’s right-of-use lease assets, included in premises and equipment, are $34.1 million and lease liabilities, included in other liabilities are $34.3 million. Duringliabilities.

September 30,December 31,
(Dollars in thousands)20202019
Right-of-use lease assets$32,528 $40,675 
Lease liabilities$32,804 $40,854 
Weighted average remaining lease term8.60 years8.37 years
Weighted average discount rate3.26 %3.27 %

Operating lease cost for the three and nine monthsmonth periods ended September 30, 2019,2020 was $3,453,600 and $10,097,200, respectively, as compared to $3,736,000 and $9,784,500 for the Company recognized lease expense of $2.8 millionsame periods in 2019.

NOTE 7: PREMISES AND EQUIPMENT

Premises and $8.1 million, respectively,equipment are stated at cost less accumulated depreciation and the weighted average discount rate was 3.47%. Atamortization. Total premises and equipment, net at September 30, 2020 and December 31, 2019 the weighted average remaining lease term was 8.63 years.were as follows:

September 30,December 31,
(In thousands)20202019
Right-of-use lease assets$32,528 $40,675 
Premises and equipment:
Land96,661 99,931 
Buildings and improvements306,995 309,290 
Furniture, fixtures and equipment100,821 99,343 
Software66,417 56,012 
Construction in progress3,787 6,998 
Accumulated depreciation and amortization(136,718)(119,865)
Total premises and equipment, net$470,491 $492,384 
32
See the

Recently Adopted Accounting Standards section of Note 1, Preparation of Interim Financial Statements, for additional information related to the adoption of ASC Topic 842.

NOTE 7:8: GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill is tested annually, or more often than annually, if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $926.6 million$1.075 billion at September 30, 20192020 and $845.7 million$1.056 billion at December 31, 2018.2019.

TheDuring 2019, the Company recorded $81.0$131.3 million and $78.5 million of goodwill during the second quarter 2019 as a result of its acquisitions of Landrum and Reliance, respectively. During the first nine months of 2020, goodwill increased $19.8 million related to the continued assessment of the fair value and assumed tax position of the Landrum acquisition of Reliance. which was finalized during the third quarter.

Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 20192020 or the year ended December 31, 2018.2019. During the first quarter of 2020, the Company’s 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 share price and other factors, the Company performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed. During the second quarter of 2020, the Company performed the annual goodwill impairment analysis and concluded that it is more likely-than-not that the fair value of goodwill continues to exceed its carrying value and therefore, goodwill is not impaired. During the third quarter of 2020, the Company once again performed an interim goodwill impairment assessment and concluded no impairment existed. While the goodwill impairment analysis indicated 0 impairment at September 30, 2020, the Company’s assessment depends on several assumptions which are dependent on market and economic conditions, and future changes in those conditions could impact the Company’s assessment in the future.
 
Core deposit premiums represent the value of the relationships that acquired banks had with their deposit customers and are amortized over periods ranging from 10 years to 15 years and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiumsOther intangible assets represent the value of $18.4 million were recorded during the second quarter 2019 as part of the Reliance acquisition. Additionally, intangible assetsother acquired relationships, including relationships with trust and wealth management customers, and are being amortized over various periods ranging from 10 years to 15 years.
 
TheChanges in the carrying amount and accumulated amortization of the Company’s goodwillcore deposit premiums and other intangibles (carrying basis and accumulated amortization)intangible assets at September 30, 20192020 and December 31, 2018,2019 were as follows: 
 
September 30,December 31,
(In thousands)20202019
Core deposit premiums:
Balance, beginning of year$111,808 $79,807 
Acquisitions(1)
42,695 
Disposition of intangible asset(2)
(2,324)
Amortization(9,114)(10,694)
Balance, end of period100,370 111,808 
Books of business and other intangibles:
Balance, beginning of year15,532 11,527 
Acquisitions(3)
5,116 
Disposition of intangible asset(413)
Amortization(1,029)(1,111)
Balance, end of period14,090 15,532 
Total other intangible assets, net$114,460 $127,340 
(In thousands)September 30, 2019 December 31, 2018
Goodwill$926,648
 $845,687
Core deposit premiums:   
Gross carrying amount124,334
 105,984
Accumulated amortization(33,918) (26,177)
Core deposit premiums, net90,416

79,807
Books of business intangible:   
Gross carrying amount15,234
 15,234
Accumulated amortization(4,501) (3,707)
Books of business intangible, net10,733

11,527
Other intangible assets, net101,149
 91,334
Total goodwill and other intangible assets$1,027,797

$937,021
_________________________
(1)    Core deposit premiums of $24.3 million and $18.4 million were recorded during 2019 as part of the Landrum and Reliance acquisitions, respectively. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019.
(2)    Adjustments recorded for the premiums on certain deposit liabilities associated with the sale of the Texas Branches and Colorado Branches.
(3)    The Company recorded $5.1 million during 2019 primarily related to the wealth management operations acquired from Landrum. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019.


34
33




The carrying basis and accumulated amortization of the Company’s other intangible assets at September 30, 2020 and December 31, 2019 were as follows:  

September 30,December 31,
(In thousands)20202019
Core deposit premiums:
Gross carrying amount$146,355 $148,679 
Accumulated amortization(45,985)(36,871)
Core deposit premiums, net100,370 111,808 
Books of business and other intangibles:
Gross carrying amount19,938 20,350 
Accumulated amortization(5,848)(4,818)
Books of business and other intangibles, net14,090 15,532 
Total other intangible assets, net$114,460 $127,340 

The Company’s estimated remaining amortization expense on intangiblesother intangible assets as of September 30, 20192020 is as follows:
 
(In thousands)YearAmortization
Expense
 Remainder of 2020$3,351 
 202113,379 
 202213,327 
 202313,044 
 202412,141 
 Thereafter59,218 
 Total$114,460 
(In thousands)Year 
Amortization
Expense
 Remainder of 2019 $2,947
 2020 11,776
 2021 11,714
 2022 11,662
 2023 11,379
 Thereafter 51,671
 Total $101,149


NOTE 8:9: TIME DEPOSITS
 
Time deposits includeincluded approximately $1.679$1.93 billion and $1.443$2.15 billion of certificates of deposit of $100,000 or more, at September 30, 2019,2020, and December 31, 2018,2019, respectively. Of this total approximately $777.5$849.1 million and $753.2$837.3 million of certificates of deposit were over $250,000 at September 30, 20192020 and December 31, 2018,2019, respectively.
 
NOTE 9:10: INCOME TAXES
 
The provision for income taxes is comprised of the following components for the periods indicated below:
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands)2020201920202019
Income taxes currently payable$19,329 $17,282 $51,000 $40,356 
Deferred income taxes(1,696)5,993 2,920 10,933 
Provision for income taxes$17,633 $23,275 $53,920 $51,289 
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(In thousands)2019 2018 2019 2018
Income taxes currently payable$17,282
 $5,638
 $40,356
 $31,335
Deferred income taxes5,993
 5,264
 10,933
 7,316
Provision for income taxes$23,275
 $10,902
 $51,289
 $38,651

34




The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their appropriateapproximate tax effects, are as follows:
(In thousands)September 30, 2019 December 31, 2018
Deferred tax assets: 
  
Loans acquired$15,906
 $12,536
Allowance for loan losses16,332
 13,947
Valuation of foreclosed assets2,706
 1,474
Tax NOLs from acquisition18,021
 7,242
Deferred compensation payable2,572
 2,707
Accrued equity and other compensation8,340
 8,182
Acquired securities2,598
 397
Unrealized loss on available-for-sale securities
 9,196
Other5,409
 7,042
Gross deferred tax assets71,884

62,723

35





(In thousands)September 30, 2019 December 31, 2018
Deferred tax liabilities:   
Goodwill and other intangible amortization$(34,304) $(30,471)
Accumulated depreciation(16,587) (13,361)
Unrealized gain on available-for-sale securities(6,811) 
Other(5,304) (5,360)
Gross deferred tax liabilities(63,006) (49,192)
    
Net deferred tax asset, included in other assets$8,878
 $13,531


September 30,December 31,
(In thousands)20202019
Deferred tax assets:  
Loans acquired$11,933 $20,783 
Allowance for credit losses59,918 16,732 
Valuation of foreclosed assets2,636 2,626 
Tax NOLs from acquisition16,165 18,118 
Deferred compensation payable3,009 2,750 
Accrued equity and other compensation7,179 6,677 
Acquired securities3,393 
Right-of-use lease liability8,230 10,221 
Allowance for unfunded commitments6,122 
Other6,004 7,886 
Gross deferred tax assets121,196 89,186 
Deferred tax liabilities:
Goodwill and other intangible amortization(39,495)(41,221)
Accumulated depreciation(36,731)(36,554)
Right-of-use lease asset(8,161)(10,176)
Unrealized gain on available-for-sale securities(12,321)(3,720)
Deferred loan fees and costs(2,696)(3,018)
Acquired securities(870)
Other(4,972)(4,633)
Gross deferred tax liabilities(105,246)(99,322)
Net deferred tax asset (liability)$15,950 $(10,136)

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown for the periods indicated below:
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In thousands)2020201920202019
Computed at the statutory rate (21%)
$17,539 $22,071 $53,719 $49,646 
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit1,143 2,956 5,502 5,721 
Tax exempt interest income(1,752)(1,105)(4,594)(3,090)
Tax exempt earnings on BOLI(308)(225)(839)(619)
Federal tax credits(434)(344)(1,252)(1,029)
Other differences, net1,445 (78)1,384 660 
Actual tax provision$17,633 $23,275 $53,920 $51,289 


35


 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(In thousands)2019 2018 2019 2018
Computed at the statutory rate (21%)
$22,071
 $13,880
 $49,646
 $41,731
Increase (decrease) in taxes resulting from:       
State income taxes, net of federal tax benefit2,956
 986
 5,721
 4,073
Tax exempt interest income(1,105) (833) (3,090) (2,292)
Tax exempt earnings on BOLI(225) (186) (619) (562)
Federal tax credits(730) 
 (2,188) 
Other differences, net308
 (2,945) 1,819
 (4,299)
Actual tax provision$23,275
 $10,902
 $51,289
 $38,651


The Company follows ASC Topic 740, Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in 2019 and in future years. The Company expects to fully realize its deferred tax assets in the future.

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

Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $85.9$74.7 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $53.6$44.2 million is related to the Reliance acquisition that closed during the second quarter of 2019. All of the acquired Reliance net operating losses are expected to be fully utilized by 2029,2027, with the remaining acquired net operating loss carryforwards expected to be fully utilized by 2036.


36





The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 20152016 tax year and forward. The Company’s various state income tax returns are generally open from the 20152016 and later tax return years based on individual state statute of limitations.

NOTE 10:11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
 
The Company utilizes securities sold under agreements to repurchase to facilitate the needs of its customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with the Company’s safekeeping agents.
 
The gross amount of recognized liabilities for repurchase agreements was $116.3$263.4 million and $95.5$133.2 million at September 30, 20192020 and December 31, 2018,2019, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of September 30, 20192020 and December 31, 20182019 is presented in the following tables.
 
 Remaining Contractual Maturity of the Agreements
(In thousands)Overnight and
Continuous
Up to 30 Days30-90 DaysGreater than
90 Days
Total
September 30, 2020     
Repurchase agreements:
U.S. Government agencies$263,444 $$$$263,444 
December 31, 2019
Repurchase agreements:
U.S. Government agencies$133,220 $$$$133,220 
 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, 2019         
Repurchase agreements:         
U.S. Government agencies$116,286
 $
 $
 $
 $116,286
          
December 31, 2018         
Repurchase agreements:         
U.S. Government agencies$95,542
 $
 $
 $
 $95,542



36




NOTE 11:12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES
 
Debt at September 30, 20192020 and December 31, 20182019 consisted of the following components: 
(In thousands)September 30, 2019 December 31, 2018
Other Borrowings 
  
FHLB advances, net of discount, due 2019 to 2033, 1.38% to 7.37% secured by real estate loans$1,098,395
 $1,345,450
Revolving credit agreement, due 10/4/2019, floating rate of 1.50% above the one month LIBOR rate, unsecured
 
Total other borrowings1,098,395

1,345,450
    
Subordinated Notes and Debentures   
Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00% through 3/31/2023, floating rate of 2.15% above the three month LIBOR rate, reset quarterly)330,000
 330,000
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly10,310
 10,310
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty10,310
 10,310
Trust preferred securities, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty6,702
 6,702
Unamortized debt issuance costs(3,099) (3,372)
Total subordinated notes and debentures354,223

353,950
Total other borrowings and subordinated debt$1,452,618

$1,699,400

September 30,December 31,
(In thousands)20202019
Other Borrowings  
FHLB advances, net of discount, due 2020 to 2035, 0.23% to 7.37% secured by real estate loans$1,308,994 $1,262,691 
Other long-term debt33,775 34,908 
Total other borrowings1,342,769 1,297,599 
Subordinated Notes and Debentures
Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00% through 3/31/2023, floating rate of 2.15% above the three month LIBOR rate, reset quarterly)330,000 330,000 
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly10,310 10,310 
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty10,310 10,310 
Trust preferred securities, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty6,702 6,702 
Trust preferred securities, net of discount, due 6/15/2037, floating rate of 1.85% above the three month LIBOR rate, reset quarterly, callable without penalty25,133 25,015 
Trust preferred securities, net of discount, due 12/15/2036, floating rate of 1.85% above the three month LIBOR rate, reset quarterly, callable without penalty3,018 3,004 
Other subordinated debentures, due 12/31/2036, floating rate of prime rate minus 1.1%, reset quarterly5,927 
Unamortized debt issuance costs(2,734)(3,008)
Total subordinated notes and debentures382,739 388,260 
Total other borrowings and subordinated debt$1,725,508 $1,685,859 

37





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

In 2017,The Company assumed subordinated debt of $33.9 million in connection with the Company entered into a Revolving Credit Agreement with U.S. Bank National Association (the “Credit Agreement”) and executed an unsecured Revolving Credit Note pursuant to which the Company may borrow, prepay and re-borrow up to $75.0 million, the proceedsLandrum acquisition in October 2019, of which were primarily used to pay off amounts outstanding under a term note assumed with$5.9 million was repaid during the First Texas acquisition. The Credit Agreement contained customary representations, warranties, and covenantssecond quarter of the Company, including, among other things, covenants that impose various financial ratio requirements. In October 2018, the Company and U.S. Bank National Association entered into a First Amendment to the Credit Agreement, which extended the expiration date from October 5, 2018 to October 4, 2019, reduced the $75.0 million to $50.0 million, and increased the commitment fee on the unused portion from an annual rate of 0.25% to 0.30%. In December 2018, the Company entered into a Second Amendment to the Credit Agreement that clarified the financial metrics contained in certain affirmative covenants are evaluated on a consolidated basis. 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.2020.

At September 30, 2019,2020, the Company had $1.09$1.30 billion of FHLB advances outstanding with original or expected maturities of one year or less, all of which $1.03 billion are FHLB Owns the Option (“FOTO”) advances. FOTO advances are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Typically, FOTO exercise dates follow a specified lockout period at the beginning of the term when FHLB cannot terminate the FOTO advance. If FHLB exercises its option to terminate the FOTO advance at one of the specified option exercise dates, there is no termination or prepayment fee, and replacement funding will be available at then-prevailing market rates, subject to FHLB’s credit and collateral requirements. The Company’s FOTO advances outstanding at the end of the third quarterSeptember 30, 2020 have maturity dates of ten years to fifteen years with lockout periods that have expired and, as a result, are considered and monitored by the Company as short-term advances. The possibility of the FHLB exercising the options is analyzed by the Company along with the market expected rate outcome.

37




The Company had total FHLB advances outstanding of $1.10$1.31 billion at September 30, 2019,2020, with approximately $3.1$2.5 billion of additional advances available from the FHLB. The FHLB advances are secured by mortgage loans and investment securities totaling approximately $5.4$5.9 billion at September 30, 2019.2020.
 
The trust preferred securities are tax-advantaged issues that qualified for Tier 1 capital treatment until December 31, 2017, when the Company reached $15 billion in assets. They still qualify for inclusion as Tier 2 capital at September 30, 2019.2020. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payments on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.


38





The Company’s long-term debt primarily includes subordinated debt and long-term FHLB advances with an original maturity of greater than one year. Aggregate annual maturities of long-term debt at September 30, 2019,2020, are as follows:
 
Year(In thousands)
Remainder of 2020$589 
20212,772 
20221,936 
20231,758 
20242,399 
Thereafter416,054 
Total$425,508 
(In thousands)Year 
Annual
Maturities
 2019 $356
 2020 2,105
 2021 1,804
 2022 948
 2023 925
 Thereafter 361,480
 Total $367,618


NOTE 12:13: CONTINGENT LIABILITIES
 
TheIn the ordinary course of its operations, the Company and/orand its subsidiaries haveare parties to various unrelated legal proceedings. Based on information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, which, in the aggregate, arewill not expected to have a material adverse effect on the financial position or results of the operations of the Company and its subsidiaries.
 
NOTE 13:14: CAPITAL STOCK
 
On January 18, 2018,February 27, 2009, at a special meeting, the BoardCompany’s shareholders approved an amendment to the Articles of DirectorsIncorporation 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 February 12, 2019, the Company filed its Amended and Restated Articles of Incorporation (“February Amended Articles”) with the Arkansas Secretary of State. The February Amended Articles classified and designated three series of preferred stock out of the Corporation’s authorized preferred stock: Series A Preferred Stock, Par Value $0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, 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, the Company approved a two-for-one stock splitfiled its Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share, out of the Company’s outstanding Class A common stock (“Common Stock”) inauthorized preferred stock. The October Amended Articles also canceled the formCompany’s 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C Preferred Stock, of a 100% stock dividend for shareholders of record as of the close of business on January 30, 2018. The newwhich 0 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 2-for-one stock split.ever issued or outstanding.

On March 19, 2018, the Company filed a shelf registration with the SEC. The shelf registration statement provides increased flexibility and more efficient access to raise capital from time to time through the sale of common stock, preferred stock, debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, units or a combination thereof, subject to market conditions. Specific terms and prices are determined at the time of any offering under a separate prospectus supplement that the Company is required to file with the SEC at the time of the specific offering.
38
On April 19, 2018, shareholders of the Company approved an increase in the number of authorized shares from 120,000,000 to 175,000,000.



On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares (split adjusted) of Common Stock.common stock. On October 22, 2019, the Company announced a new stock repurchase program (“Program”) that replacesreplaced the stock repurchase program approved on July 23, 2012. See Note 22,2012, under which the Company may repurchase up to $60,000,000 of its Class A common stock currently issued and outstanding. On March 5, 2020, the Company 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, 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 the Company’s management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of the Company’s common stock, corporate considerations, the Company’s working capital 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.

During the three months ended March 31, 2020, the Company repurchased 4,922,336 shares at an average price of $18.96 under the Program. Subsequent Events, forto March 31, 2020, the Company did not repurchase any additional informationshares under the Program in the nine months ended September 30, 2020. Market conditions and the Company’s capital needs will drive decisions regarding this subsequent event.additional, future stock repurchases. The Company had 0 repurchases of its common stock pursuant to the repurchase program during the three and nine month periods ended September 30, 2019.

On April 12, 2019, as part of the acquisition of Reliance,October 22, 2020, the Company issued 40,000 sharesannounced the resumption of Simmons Series A Preferred Stock and 2,000 shares Simmons Series B Preferred Stock in exchange forstock repurchases under the outstanding shares of Reliance’s Series A Preferred Stock and Series B Preferred Stock. On May 13, 2019, the Company redeemed all of the preferred stock, including accrued and unpaid dividends.Program.
 


39





NOTE 14:15: UNDIVIDED PROFITS
 
TheSimmons Bank, the Company’s subsidiary bank, is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent (75%) of the total of its net profits, as defined, for that year combined with seventy-five percent (75%) of its retained net profits of the preceding year. At September 30, 2019, the Company’s subsidiary bank2020, Simmons Bank had approximately $128.8$105.0 million available for payment of dividends to the Company, without prior regulatory approval.
 
The risk-based capital guidelines of the Federal Reserve Board and the Arkansas State Bank Department include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under the Basel III Rules effective January 1, 2015, the criteria for a well-capitalized institution are: a 5% “Tier l leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, 10% “total risk-based capital” ratio; and a 6.50%6.5% “common equity Tier 1 (CET1)” ratio.
 
The Company and Simmons Bank, must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and was phased in over a four year period (increasing by that amount on each subsequent January 1 until it reached 2.5% on January 1, 2019). Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. As of September 30, 2019,2020, the Company and its subsidiary bankSimmons Bank met all capital adequacy requirements, including the capital conservation buffer, under the Basel III Capital Rules. The Company’s CET1 ratio was 10.25%12.55% at September 30, 2019.2020. 


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NOTE 15: STOCK BASED16: STOCK-BASED COMPENSATION
 
The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awardingawards of performancestock appreciation rights, stock awards or bonusunits, or performance shares granted to directors, officers and other key employees.

The table below summarizes the transactions under the Company’s active stockstock-based compensation plans for the nine months ended September 30, 2019:2020: 
 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, 2020692 $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, 2020658 $22.48 10 $23.87 1,128 $24.90 
Exercisable, September 30, 2020658 $22.48 
 
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, 2019695
 $22.42
 72
 $21.45
 817
 $27.65
Granted
 
 
 
 516
 26.07
Stock options exercised(1) 10.65
 
 
 
 
Stock awards/units vested (earned)
 
 (39) 20.12
 (334) 26.45
Forfeited/expired
 
 (2) 21.82
 (90) 28.29
            
Balance, September 30, 2019694
 $22.43
 31
 $23.16
 909
 $27.18
            
Exercisable, September 30, 2019694
 $22.43
        


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The following table summarizes information about stock options under the plans outstanding at September 30, 2019:2020:
 
  Options OutstandingOptions 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 11.30$9.461$9.46
10.65 10.65 32.3310.65310.65
20.29 20.29 663.4520.296620.29
20.36 20.36 24.1320.36220.36
22.20 22.20 743.3822.207422.20
22.75 22.75 4124.1422.7541222.75
23.51 23.51 934.5423.519323.51
24.07 24.07 74.9624.07724.07
$9.46 $24.07 6584.03$22.48658$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 2.30 $9.46 1 $9.46
10.65
  10.65
 3 3.32 10.65 3 10.65
10.76
  10.76
 2 0.30 10.76 2 10.76
20.29
  20.29
 71 5.25 20.29 71 20.29
20.36
  20.36
 3 5.13 20.36 3 20.36
22.20
  22.20
 74 5.48 22.20 74 22.20
22.75
  22.75
 436 5.86 22.75 436 22.75
23.51
  23.51
 97 6.30 23.51 97 23.51
24.07
  24.07
 7 5.96 24.07 7 24.07
$9.46
  $24.07
 694 5.78 $22.43 694 $22.43

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The table below summarizes the Company’s performance stock unit activity for the nine months ended September 30, 2019:2020:

(In thousands)Performance Stock Units
Non-vested, January 1, 20192020177199 
Granted118122 
Vested (earned)(93(80))
Forfeited(3(19))
Non-vested, September 30, 20192020199222 


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, 20192020 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, 20192020 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, 20192020 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, 20192020 and 2018.2019.
 


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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)2020201920202019
Net income available to common stockholders$65,885 $81,826 $201,897 $185,119 
Average common shares outstanding109,019 96,608 110,292 95,090 
Average potential dilutive common shares189 360 189 360 
Average diluted common shares109,208 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 outstanding96,608
 92,290
 95,090
 92,246
Average potential dilutive common shares360
 551
 360
 551
Average diluted common shares96,968
 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 calculationcalculations 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.


41




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) paid34,028
 25,576
Transfers of loans to foreclosed assets held for sale3,666
 7,745
Transfers of premises to foreclosed assets and other real estate owned556
 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)20202019
Interest paid$95,040 $130,904 
Income taxes paid30,708 34,028 
Transfers of loans to foreclosed assets held for sale3,083 3,666 
Transfers of premises to foreclosed assets and other real estate owned3,120 556 
Transfers of premises to premises held for sale1,072 
Transfers of other real estate owned to premises held for sale3,504 
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02)32,757 
Transfers of loans to other assets held for sale114,925 0 
Transfers of deposits to other liabilities held for sale58,405 
 


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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 consistconsisted 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
Postage1,471
 1,262
 4,642
 4,103
Telephone2,507
 1,248
 5,605
 4,217
Credit card expense4,200
 3,405
 11,822
 9,820
Marketing7,021
 2,912
 12,514
 6,334
Software and technology6,531
 4,733
 16,607
 10,716
Operating supplies493
 585
 1,671
 1,917
Amortization of intangibles2,947
 2,772
 8,535
 8,394
Branch right sizing expense160
 970
 3,092
 1,049
Other expense8,239
 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)2020201920202019
Professional services$3,779 $4,310 $13,529 $12,125 
Postage1,932 1,471 5,937 4,642 
Telephone2,103 2,506 6,738 5,605 
Credit card expense5,190 4,200 14,154 11,822 
Marketing3,517 7,021 11,430 12,514 
Software and technology9,552 6,531 29,021 16,607 
Operating supplies824 493 2,588 1,671 
Amortization of intangibles3,362 2,947 10,144 8,535 
Branch right sizing expense442 160 2,401 3,092 
Other expense7,478 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.
 

42




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, 20192020 and December 31, 2018,2019, the Company had 0 deferred revenue under standby letter of credit agreements.


43





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.


43




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.
44





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, 20192020 and December 31, 2018.2019.
 
  Fair Value Measurements Using
(In thousands)Fair ValueQuoted 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 $$471,973 $
Mortgage-backed securities903,687 903,687 
State and political subdivisions1,133,006 1,133,006 
Other securities98,622 98,622 
Other assets held for sale389 389 
Derivative asset42,021 42,021 
Derivative liability(42,356)(42,356)
December 31, 2019
Available-for-sale securities
U.S. Treasury$449,729 $449,729 $$
U.S. Government agencies194,249 194,249 
Mortgage-backed securities1,742,945 1,742,945 
States and political subdivisions880,524 880,524 
Other securities20,896 20,896 
Other assets held for sale260,332 260,332 
Derivative asset14,903 14,903 
Other liabilities held for sale(159,853)(159,853)
Derivative liability(12,650)(12,650)
   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 securities1,337,794
 
 1,337,794
 
State and political subdivisions681,202
 
 681,202
 
Other securities158,999
 
 158,999
 
Derivative asset14,377
 
 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 securities1,522,900
 
 1,522,900
 
States and political subdivisions314,843
 
 314,843
 
Other securities159,708
 
 159,708
 
Derivative asset6,242
 
 6,242
 
Derivative liability(5,283) 
 (5,283) 
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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:

ImpairedIndividually assessed loans (collateral dependent)(collateral-dependent)Loan impairment is reportedWhen 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. Impairedexpected 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 usinghierarchy. 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

45





Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loancredit 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, 20192020 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, 20192020 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 ValueQuoted 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 $$$67,316 
Foreclosed assets and other real estate owned (1)
3,581 3,581 
December 31, 2019
Individually assessed loans (1) (2) (collateral-dependent)
$49,190 $$$49,190 
Foreclosed assets and other real estate owned (1)
18,798 18,798 
________________________
(1)These amounts represent the resulting carrying amounts on the consolidated balance sheets for impaired collateral dependentcollateral-dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period.
(2)Specific allocationsIdentified reserves of $1,297,000$12,586,000 and $2,738,000$1,297,000 were related to the impaired collateral dependentcollateral-dependent loans for which fair value re-measurements took place during the periods ended September 30, 20192020 and December 31, 2018,2019, respectively.

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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.


47
46





The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:
 
 CarryingFair Value Measurements
(In thousands)AmountLevel 1Level 2Level 3Total
September 30, 2020     
Financial assets:     
Cash and cash equivalents$2,522,131 $2,522,131 $$$2,522,131 
Interest bearing balances due from banks - time4,061 4,061 4,061 
Held-to-maturity securities47,102 49,064 49,064 
Mortgage loans held for sale192,729 192,729 192,729 
Interest receivable77,352 77,352 77,352 
Loans, net13,769,191 13,864,914 13,864,914 
Financial liabilities:
Non-interest bearing transaction accounts4,451,385 4,451,385 4,451,385 
Interest bearing transaction accounts and savings deposits8,993,255 8,993,255 8,993,255 
Time deposits2,802,007 2,820,224 2,820,224 
Federal funds purchased and securities sold under agreements to repurchase313,694 313,694 313,694 
Other borrowings1,342,769 1,459,468 1,459,468 
Subordinated notes and debentures382,739 400,421 400,421 
Interest payable13,694 13,694 13,694 
December 31, 2019
Financial assets:
Cash and cash equivalents$996,623 $996,623 $$$996,623 
Interest bearing balances due from banks - time4,554 4,554 4,554 
Held-to-maturity securities40,927 41,855 41,855 
Mortgage loans held for sale58,102 58,102 58,102 
Interest receivable62,707 62,707 62,707 
Loans, net14,357,460 14,290,188 14,290,188 
Financial liabilities:
Non-interest bearing transaction accounts3,741,093 3,741,093 3,741,093 
Interest bearing transaction accounts and savings deposits9,090,878 9,090,878 9,090,878 
Time deposits3,276,969 3,270,333 3,270,333 
Federal funds purchased and securities sold under agreements to repurchase150,145 150,145 150,145 
Other borrowings1,297,599 1,298,011 1,298,011 
Subordinated debentures388,260 397,088 397,088 
Interest payable12,898 12,898 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 - time5,041
 
 5,041
 
 5,041
Held-to-maturity securities42,237
 
 43,302
 
 43,302
Mortgage loans held for sale50,099
 
 
 50,099
 50,099
Interest receivable53,966
 
 53,966
 
 53,966
Legacy loans, net9,577,372
 
 
 9,505,701
 9,505,701
Loans acquired, net3,359,587
 
 
 3,334,446
 3,334,446
          
Financial liabilities:         
Non-interest bearing transaction accounts3,044,330
 
 3,044,330
 
 3,044,330
Interest bearing transaction accounts and savings deposits7,337,571
 
 7,337,571
 
 7,337,571
Time deposits3,086,108
 
 
 3,080,775
 3,080,775
Federal funds purchased and securities sold under agreements to repurchase116,536
 
 116,536
 
 116,536
Other borrowings1,098,395
 
 1,099,171
 
 1,099,171
Subordinated notes and debentures354,223
 
 366,289
 
 366,289
Interest payable15,404
 
 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 - time4,934
 
 4,934
 
 4,934
Held-to-maturity securities289,194
 
 290,830
 
 290,830
Mortgage loans held for sale26,799
 
 
 26,799
 26,799
Interest receivable49,938
 
 49,938
 
 49,938
Legacy loans, net8,373,789
 
 
 8,280,690
 8,280,690
Loans acquired, net3,292,783
 
 
 3,256,174
 3,256,174
          
Financial liabilities:         
Non-interest bearing transaction accounts2,672,405
 
 2,672,405
 
 2,672,405
Interest bearing transaction accounts and savings deposits6,830,191
 
 6,830,191
 
 6,830,191
Time deposits2,896,156
 
 
 2,872,342
 2,872,342
Federal funds purchased and securities sold under agreements to repurchase95,792
 
 95,792
 
 95,792
Other borrowings1,345,450
 
 1,342,868
 
 1,342,868
Subordinated debentures353,950
 
 355,812
 
 355,812
Interest payable9,897
 
 9,897
 
 9,897


The fair value of commitments to extend credit, letters of credit and lines of credit is not presented since management believes the fair value to be insignificant.



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NOTE 22: SUBSEQUENT EVENTS23: 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, 2020December 31, 2019
(In thousands)NotionalFair ValueNotionalFair Value
Derivative assets$426,796 $42,021 $401,969 $14,903 
Derivative liabilities436,001 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 thebegan 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 terminateserves as an intermediary on October 31, 2021 (unless terminated sooner). The new Program replacesenergy 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.

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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 oncustomer 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 varietypredetermined hedge line for each borrower and by monitoring the exchange margin.

The outstanding notional value as of factors, including, but not limitedSeptember 30, 2020 for energy hedging Customer Sell to trading volumeCompany swaps were $17.8 million and market pricethe 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 capitalderivative 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.

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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, 20192020 and 2018,2019, and cash flows for the nine-month periods ended September 30, 20192020 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, 20196, 2020



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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, 20192020 was $81.8$65.9 million, or $0.84$0.60 diluted earnings per share, increasesa 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 20192020 and 20182019 results were non-core items related to our acquisitions, early retirement program expensesprograms and branch right sizing initiatives. Excluding all non-core items, core earnings for the three months ended September 30, 20192020 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, 2019of 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 “Reconciliation2019. 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” below2020. 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 discussionthe first nine months of non-GAAP measures.2020 were $1.83 compared to $2.08 for the same period in 2019.

In April 2019, weWe completed the acquisition of Reliance Bancshares, Inc. (“Reliance”). Contemporaneously with the Reliance acquisition, Reliance’sThe Landrum Company, including its wholly-owned bank subsidiary, bank, RelianceLandmark 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 announcedcompleted 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 themthe efficiency with updated and/or enhancedwhich we deliver banking technologies. This initiative will,services to our markets, including, among other things, assist uschanges in our efforts to create a differentiated experience for our customers across all channels, including digital.

We are beginning to see real changes ascustomer traffic and preferences. As a result of our NGB investments. For example,this ongoing evaluation, we accomplished a major milestoneclosed 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 whenof 2020, adding over 15,000 additional users, a 7% increase. In March 2020, for the first time, we successfullyhad 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 migrationconversion of our core banking platformall consumer customers to our vendor hosted environment. The transition was very successfulnew online platform. All consumer customers are now on the same online and has increased securitymobile platforms, including acquired institutions. In September 2020, we completed the development of new credit card functionality which allows mobile and the reliabilityonline 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, 20192020 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, 20192020 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 wasfrom 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

51





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 loancredit losses for legacyon loans was $66.0$248.3 million. TheWe adopted the new credit loss methodology, CECL, on January 1, 2020. Upon adoption, we recorded an additional allowance for loancredit losses of approximately $151.4 million, an adjustment to the reserve for loans acquired was $597,000unfunded commitments of $24.0 million, and a related $128.1 million adjustment to retained earnings net of taxes.
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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 allowancespresentation of non-GAAP financial measures provides a meaningful basis for loan lossesperiod-to-period and credit marks provide a totalcompany-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of $127.0 millionthe Company and predicting future performance. See the GAAP Reconciliation of coverage, which equates to a total coverage ratioNon-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 throughoutin 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 LoansNumber ofBalance
(Dollars in thousands)Loans% of LoansSeptember 30, 2020% of Balance
Less than $50,0005,21663 %$94,401 10 %
$50,000 to $350,0002,44130 %304,815 31 %
More than $350,000 to less than $2 million481%357,943 37 %
$2 million to $10 million61%213,329 22 %
Total8,199100 %$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.

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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 principlesUS 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 loancredit 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 LoanCredit 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 lossesand 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.
TheOur allowance for loancredit 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 uponqualitative adjustments. For further information see the aforementioned factors and allocated to the individual loan categories. Allowances are accruedsection 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 loancredit losses is inherently subjective as it requires material estimates. The actual amounts of loancredit losses realized in the near term could differ from the amounts estimated in arriving at the allowance for loancredit losses reported in the financial statements.

Refer to On January 1, 2020, the Recently Issued Accounting Standards section inCompany 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 accountingadditional information.


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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 purchaseacquisition 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 iswas 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 includeincluded 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 Based16, 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

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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.
54
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.

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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 increasedecrease in interest incomeexpense partially offset by a $11.1 million increasereduction in interest expense.income of $15.7 million.

The increasereduction in interest income primarily resulted from a $17.6decrease of $16.7 million increase in interest income on loans andpartially offset by an increase of $1.1$1.4 million in interest income on investment securities. The increase in loan volume during 2019During 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 RelianceLandrum acquisition completed during Aprilthe 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 increasedmay increase or decrease based on payment histories and reduced loss expectations of the loans. This resulted in increasedThe 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, 20192020 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 increasedecrease in interest expense is mostly due to the growthdecline 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 quarterdecrease in 2018. Interest expense increased $4.2yield of 44 basis points on FHLB borrowings. These decreases were partially offset by an increase of $3.4 million duerelated 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 bycoupled with a $47.4$39.2 million increasedecrease 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. IncreasesThe 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 increasewhile 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, 20192020 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 increasedecrease in interest expense is due to growth in deposit accounts, higher cost of depositsmostly due to the rising-rate environment during 2018decrease in our deposit account rates and the first half of 2019 and the increase in rates forour FHLB borrowings.borrowing rates. Interest expense increased $10.9 million due to deposit growth, $33.2decreased $51.6 million due to the increasedecrease in yield of 4864 basis points on interest-bearing deposit accounts
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and $3.2$5.7 million due to the increasedecrease 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 decreasedecreases 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 corelower yielding PPP loans originated during the second and third quarters of 2020. The impact of these items on net interest margin for the threethird 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 resultexcess liquidity to 3.51%.

During March 2020, the Federal Open Market Committee, or FOMC, of the prior risingFederal 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. Weloan 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 fromfor the recent Federal Reserve rate reductions due to immediate downward repricing on the portionremainder of our loans that are variable rate while the ability to reprice deposits will lag the reductions.2020.


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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, 20192020 and 2018,2019, respectively, as well as changes in fully taxable equivalent net interest margin for the three and nine months ended September 30, 20192020 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)2020201920202019
Interest income$179,725 $196,406 $580,610 $569,732 
FTE adjustment2,864 1,843 7,519 5,150 
Interest income – FTE182,589 198,249 588,129 574,882 
Interest expense26,115 47,142 95,836 135,045 
Net interest income – FTE$156,474 $151,107 $492,293 $439,837 
Yield on earning assets – FTE3.74 %5.02 %4.10 %5.07 %
Cost of interest bearing liabilities0.74 %1.55 %0.90 %1.54 %
Net interest spread – FTE3.00 %3.47 %3.20 %3.53 %
Net interest margin – FTE3.21 %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 adjustment1,843
 1,393
 5,150
 3,831
Interest income – FTE199,149
 180,377
 577,741

506,222
Interest expense47,142
 36,016
 135,045
 87,620
Net interest income – FTE$152,007
 $144,361
 $442,696

$418,602
        
Yield on earning assets – FTE4.99% 4.98% 5.04% 4.89%
Cost of interest bearing liabilities1.55% 1.29% 1.54% 1.10%
Net interest spread – FTE3.44% 3.69% 3.50% 3.79%
Net interest margin – FTE3.81% 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. 20192020 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 liabilities26,043 58,044 
Increase in net interest income$5,367 $52,456 
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 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, 20192020 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.


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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,
20202019
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
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 - taxable1,534,742 7,193 1.86 1,561,308 9,514 2.42 
Investment securities - non-taxable1,155,099 10,382 3.58 681,505 6,687 3.89 
Mortgage loans held for sale145,226 1,012 2.77 39,551 382 3.83 
Loans14,315,014 163,379 4.54 13,053,540 180,080 5.47 
Total interest earning assets19,415,314 182,589 3.74 15,680,665 198,249 5.02 
Non-earning assets2,350,007 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 deposits2,998,091 9,437 1.25 3,122,422 15,573 1.98 
Total interest bearing deposits11,975,977 16,206 0.54 10,444,817 36,936 1.40 
Federal funds purchased and securities sold under agreements to repurchase386,631 335 0.34 123,883 249 0.80 
Other borrowings1,357,278 4,943 1.45 1,127,886 5,381 1.89 
Subordinated debt and debentures382,672 4,631 4.81 354,178 4,576 5.13 
Total interest bearing liabilities14,102,558 26,115 0.74 12,050,764��47,142 1.55 
Non-interest bearing liabilities:
Non-interest bearing deposits4,529,782 3,012,544 
Other liabilities190,169 288,517 
Total liabilities18,822,509 15,351,825 
Stockholders’ equity2,942,812 2,368,773 
Total liabilities and stockholders’ equity$21,765,321 $17,720,598 
Net interest spread3.00 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 - taxable1,712,672
 10,414
 2.41 1,775,193
 10,892
 2.43
Investment securities - non-taxable681,505
 6,687
 3.89 539,135
 5,064
 3.73
Mortgage loans held for sale39,551
 382
 3.83 43,554
 501
 4.56
Loans13,052,943
 180,080
 5.47 11,641,843
 162,515
 5.54
Total interest earning assets15,831,432
 199,149
 4.99 14,373,253
 180,377
 4.98
Non-earning assets1,889,166
     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 deposits3,122,422
 15,573
 1.98 2,379,142
 8,017
 1.34
Total interest bearing deposits10,444,817
 36,936
 1.40 9,219,545
 24,390
 1.05
Federal funds purchased and securities sold under agreements to repurchase123,883
 249
 0.80 107,770
 104
 0.38
Other borrowings1,127,886
 5,381
 1.89 1,375,052
 6,240
 1.80
Subordinated debt and debentures354,178
 4,576
 5.13 379,168
 5,282
 5.53
Total interest bearing liabilities12,050,764
 47,142
 1.55 11,081,535
 36,016
 1.29
            
Non-interest bearing liabilities:           
Non-interest bearing deposits3,012,544
     2,679,469
    
Other liabilities288,517
     103,315
    
Total liabilities15,351,825
     13,864,319
    
Stockholders’ equity2,368,773
     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



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Nine Months Ended September 30,
20202019
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
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 - taxable1,832,577 27,319 1.99 1,642,335 32,538 2.65 
Investment securities - non-taxable974,748 26,888 3.68 632,780 18,730 3.96 
Mortgage loans held for sale91,889 1,961 2.85 29,852 924 4.14 
Loans14,530,938 528,294 4.86 12,531,355 517,829 5.52 
Total interest earning assets19,172,318 588,129 4.10 15,174,671 574,882 5.07 
Non-earning assets2,331,246 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 deposits3,068,459 33,563 1.46 2,993,336 42,499 1.90 
Total interest bearing deposits12,108,512 65,489 0.72 10,065,699 102,482 1.36 
Federal funds purchased and securities sold under agreements to repurchase370,116 1,431 0.52 122,195 642 0.70 
Other borrowings1,357,543 14,783 1.45 1,209,511 18,393 2.03 
Subordinated debt and debentures386,129 14,133 4.89 354,088 13,528 5.11 
Total interest bearing liabilities14,222,300 95,836 0.90 11,751,493 135,045 1.54 
Non-interest bearing liabilities:
Non-interest bearing deposits4,164,189 2,852,687 
Other liabilities205,942 208,397 
Total liabilities18,592,431 14,812,577 
Stockholders’ equity2,911,133 2,327,842 
Total liabilities and stockholders’ equity$21,503,564 $17,140,419 
Net interest spread3.20 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 - taxable1,795,103
 35,397
 2.64 1,714,898
 31,255
 2.44
Investment securities - non-taxable632,780
 18,730
 3.96 505,170
 13,918
 3.68
Mortgage loans held for sale29,852
 924
 4.14 29,111
 964
 4.43
Loans12,530,348
 517,829
 5.53 11,209,992
 456,257
 5.44
Total interest earning assets15,326,432
 577,741
 5.04 13,837,639
 506,222
 4.89
Non-earning assets1,813,987
     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 deposits2,993,336
 42,499
 1.90 2,206,873
 19,034
 1.15
Total interest bearing deposits10,065,699
 102,482
 1.36 8,871,220
 58,448
 0.88
Federal funds purchased and securities sold under agreements to repurchase122,195
 642
 0.70 111,760
 302
 0.36
Other borrowings1,209,511
 18,393
 2.03 1,311,781
 16,520
 1.68
Subordinated debt and debentures354,088
 13,528
 5.11 336,990
 12,350
 4.90
Total interest bearing liabilities11,751,493
 135,045
 1.54 10,631,751
 87,620
 1.10
            
Non-interest bearing liabilities:           
Non-interest bearing deposits2,852,687
     2,673,285
    
Other liabilities208,397
     129,908
    
Total liabilities14,812,577
     13,434,944
    
Stockholders’ equity2,327,842
     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


58





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. 20192020 vs. 2019
(In thousands, on a fully taxable equivalent basis)VolumeYield/
Rate
TotalVolumeYield/
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-taxable4,299 (604)3,695 9,510 (1,352)8,158 
Mortgage loans held for sale764 (134)630 1,402 (365)1,037 
Loans16,325 (33,026)(16,701)76,964 (66,499)10,465 
Total22,956 (38,616)(15,660)97,238 (83,991)13,247 
Interest expense:
Interest bearing transaction and savings accounts3,993 (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 repurchase292 (206)86 999 (210)789 
Other borrowings974 (1,412)(438)2,059 (5,669)(3,610)
Subordinated notes and debentures355 (300)55 1,189 (584)605 
Total5,016 (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-taxable1,388
 235
 1,623
 3,718
 1,094
 4,812
Mortgage loans held for sale(43) (76) (119) 24
 (64) (40)
Loans19,487
 (1,922) 17,565
 54,470
 7,102
 61,572
Total20,336
 (1,564) 18,772
 59,278

12,241

71,519
            
Interest expense:           
Interest bearing transaction and savings accounts1,216
 3,774
 4,990
 2,542
 18,027
 20,569
Time deposits2,979
 4,577
 7,556
 8,341
 15,124
 23,465
Federal funds purchased and securities sold under agreements to repurchase18
 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
Total2,710
 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




59





PROVISION FOR LOANCREDIT LOSSES
 
The provision for loancredit 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 loancredit 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 loancredit 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 loancredit 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, 20182020, 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 resultcurrent 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 decreasemore 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 fromfirst quarter of 2020 and were negatively impacted by the evaluationsharp 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.

59




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 increase2020, 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 bothmortgage lending income in the three and nine month periods ended September 30, 20192020, 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.

60





Table 5 shows non-interest income for the three and nine month periods ended September 30, 20192020 and 2018,2019, respectively, as well as changes in 20192020 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)202020192019202020192019
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 accounts10,825
 10,837
 (12) (0.1) 31,450
 31,245
 205
 0.7
Service charges on deposit accounts10,385 10,825 (440)(4.1)32,283 31,450 833 2.7
Other service charges and fees1,308
 1,201
 107
 8.9
 3,909
 5,968
 (2,059) (34.5)Other service charges and fees1,764 1,308 456 34.94,841 3,909 932 23.8
Mortgage lending income4,509
 1,521
 2,988
 196.5
 10,988
 7,773
 3,215
 41.4
Mortgage lending income13,971 4,509 9,462 *31,476 10,988 20,488 186.5
SBA lending income956
 304
 652
 214.5
 2,348
 1,627
 721
 44.3
SBA lending income304 956 (652)(68.2)845 2,348 (1,503)(64.0)
Investment banking income513
 664
 (151) (22.7) 1,491
 2,312
 (821) (35.5)Investment banking income557 513 44 8.62,005 1,491 514 34.5
Debit and credit card fees7,059
 6,820
 239
 3.5
 20,369
 25,721
 (5,352) (20.8)Debit and credit card fees8,850 7,059 1,791 25.424,760 20,369 4,391 21.6
Bank owned life insurance income1,302
 1,105
 197
 17.8
 3,357
 3,310
 47
 1.4
Bank owned life insurance income1,591 1,302 289 22.24,334 3,357 977 29.1
Gain (loss) on sale of securities, net7,374
 54
 7,320
 * 12,937
 53
 12,884
 *
Gain on sale of securities, netGain on sale of securities, net22,305 7,374 14,931 *54,790 12,937 41,853 *
Gain on sale of Visa, Inc. class B common stock42,860
 
 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, netGain on sale of banking operations, net— — — 8,093 — 8,093 *
Other income961
 4,942
 (3,981) (80.6) 9,223
 14,151
 (4,928) (34.8)Other income5,380 1,861 3,519 189.119,897 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, 20192020 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 decreasean increase of $6.7$9.7 million from the samenine 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.

60




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, 20192020 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. The2019. Non-interest expense during the third quarter 2019of 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-rightnet branch right sizing costs. Normalizing for these non-core costs, core non-interest expense for the three months ended September 30, 20192020 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, 20192020 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, 20192020 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 NGBNext Generation Banking (“NGB”) technology initiative is well underwayhas made substantial progress and the incremental software and technology expenditures of $5.9$12.4 million during the first nine months of 20192020 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.

61





Table 6 below shows non-interest expense for the three and nine month periods ended September 30, 20192020 and 2018,2019, respectively, as well as changes in 20192020 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)202020192019202020192019
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 program177
 
 177
 * 3,464
 
 3,464
 *Early retirement program2,346 177 2,169 *2,839 3,464 (625)(18.0)
Occupancy expense, net8,342
 7,713
 629
 8.2
 22,736
 22,594
 142
 0.6
Occupancy expense, net9,647 8,342 1,305 15.628,374 22,736 5,638 24.8
Furniture and equipment expense4,898
 3,761
 1,137
 30.2
 12,462
 12,184
 278
 2.3
Furniture and equipment expense6,231 4,898 1,333 27.218,098 12,462 5,636 45.2
Other real estate and foreclosure expense1,125
 538
 587
 109.1
 2,353
 2,940
 (587) (20.0)Other real estate and foreclosure expense602 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 insurance2,244 — 2,244 *7,557 4,550 3,007 66.1
Merger related costs2,556
 804
 1,752
 217.9 11,548
 3,980
 7,568
 190.2
Merger related costs902 2,556 (1,654)(64.7)3,800 11,548 (7,748)(67.1)
Other operating expenses:               Other operating expenses:
Professional services4,310
 4,616
 (306) (6.6) 12,125
 13,896
 (1,771) (12.7)Professional services3,779 4,310 (531)(12.3)13,529 12,125 1,404 11.6
Postage1,471
 1,262
 209
 16.6
 4,642
 4,103
 539
 13.1
Postage1,932 1,471 461 31.35,937 4,642 1,295 27.9
Telephone2,507
 1,248
 1,259
 100.9
 5,605
 4,217
 1,388
 32.9
Telephone2,103 2,506 (403)(16.1)6,738 5,605 1,133 20.2
Credit card expenses4,200
 3,405
 795
 23.4
 11,822
 9,820
 2,002
 20.4
Credit card expenses5,190 4,200 990 23.614,154 11,822 2,332 19.7
Marketing7,021
 2,912
 4,109
 141.1
 12,514
 6,334
 6,180
 97.6
Marketing3,517 7,021 (3,504)(49.9)11,430 12,514 (1,084)(8.7)
Software and technology6,531
 4,733
 1,798
 38.0
 16,607
 10,716
 5,891
 55.0
Software and technology9,552 6,531 3,021 46.329,021 16,607 12,414 74.8
Operating supplies493
 585
 (92) (15.7) 1,671
 1,917
 (246) (12.8)Operating supplies824 493 331 67.12,588 1,671 917 54.9
Amortization of intangibles2,947
 2,772
 175
 6.3
 8,535
 8,394
 141
 1.7
Amortization of intangibles3,362 2,947 415 14.110,144 8,535 1,609 18.9
Branch right sizing expense160
 970
 (810) (83.5) 3,092
 1,049
 2,043
 194.8Branch right sizing expense442 160 282 176.32,401 3,092 (691)(22.4)
Other expense8,239
 7,171
 1,068
 14.9
 24,195
 20,907
 3,288
 15.7
Other expense7,478 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 

61




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 20192020 and 2018,2019, respectively. As of September 30, 2019,2020, total loans excluding loans acquired, were $9.64$14.02 billion, an increasea 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 loancredit 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 loancredit 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.


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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)20202019
Consumer:  
Credit cards$172,880 $204,802 
Other consumer190,736 249,195 
Total consumer363,616 453,997 
Real estate:
Construction and development1,853,360 2,248,673 
Single family residential1,997,070 2,414,753 
Other commercial6,132,823 6,358,514 
Total real estate9,983,253 11,021,940 
Commercial:
Commercial2,907,798 2,451,119 
Agricultural241,687 191,525 
Total commercial3,149,485 2,642,644 
Other521,088 307,123 
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 consumer208,643
 201,297
Total consumer403,726

405,470
Real estate:   
Construction1,712,858
 1,300,723
Single family residential1,448,455
 1,440,443
Other commercial3,630,708
 3,225,287
Total real estate6,792,021

5,966,453
Commercial:   
Commercial1,894,819
 1,774,909
Agricultural213,753
 164,514
Total commercial2,108,572

1,939,423
Other339,046
 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 increase2019, 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 increaseddecreased by $8.0$417.7 million, or 0.6%17.3%, and commercial real estate (“CRE”)CRE loans increaseddecreased by $405.4$225.7 million, or 12.6%3.5%. The increases are primarilyReal estate loans declined approximately $104.6 million due to the recent Reliance mergerColorado Branch Sale. The remaining decrease was due to less activity as well as loans migrating froma 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.


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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-agricultural19.2%, 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.


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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:   
Construction362,000
 429,605
Single family residential504,490
 566,188
Other commercial2,134,973
 1,848,679
Total real estate3,001,463

2,844,472
Commercial:   
Commercial349,821
 430,914
Agricultural872
 1,739
Total commercial350,693

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 induring the first nine months of 2019. During2020.

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 $2.5economic 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 theseother loans charge-offsprimarily 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 loancredit losses.

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CreditWhen 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, 20182019 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 inand foreclosed assets held for sale of $6.0and 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 duerelated to twovarious other CRE loans that became reportable as non-performing legacy loans during the quarter. One particular acquiredand commercial loan migrated from loans acquiredrelationships. 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 decreasedincreased to $8.3$8.6 million at September 30, 2019, compared to $9.22020 from $7.4 million at December 31, 2018. The majority2019.

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 withunderlying collateral or the largest balance comprisedpresent 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.

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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 Estate7,209 1.3 
Restaurants - Non-Real Estate1,897 0.4 
Retail15,836 2.9 
Nursing/Extended Care42,674 7.7 
Multifamily62,320 11.3 
All Other100,905 18.3 
Total$550,832 100.0 %

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

(Dollars in thousands)Loan BalanceNumber of Loans
Internal Status Category 4$335,798 105
Internal Status Category 5195,312 71
Internal Status Category 617,242 44
Internal Status Category 72,480 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.
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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 loancredit 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 loancredit losses was 91%148% of non-performing loans. Our annualized net charge-offs to total loans for the first nine months of 20192020 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 204229 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.


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Table 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)20202019
Nonaccrual loans (1)
$167,713 $93,330 
Loans past due 90 days or more (principal or interest payments)174 856 
Total non-performing loans167,887 94,186 
Other non-performing assets:
Foreclosed assets held for sale and other real estate owned12,590 19,121 
Other non-performing assets1,983 1,964 
Total other non-performing assets14,573 21,085 
Total non-performing assets$182,460 $115,271 
Performing TDRs$3,379 $5,887 
Allowance for credit losses to non-performing loans148 %72 %
Non-performing loans to total loans1.20 %0.65 %
Non-performing assets (including performing TDRs) to total assets0.87 %0.57 %
Non-performing assets to total assets0.85 %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 loans72,876

34,425
Other non-performing assets:   
Foreclosed assets held for sale19,576
 25,565
Other non-performing assets540
 553
Total other non-performing assets20,116

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

$60,543
    
Performing TDRs$6,519
 $6,369
Allowance for loan losses to non-performing loans91% 164%
Non-performing loans to total loans0.76% 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, 20192020 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.



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ALLOWANCE FOR LOANCREDIT LOSSES
 
Overview
The allowance for loancredit losses is a reserve established through a provision for loancredit losses charged to expense which represents management’s best estimate of probablelifetime 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 judgmentreserve factor.
Changes in the nature and volume of management, is necessarythe portfolio - Adjustments related to reserve for estimated loan losses and risks inherentcurrent changes in the loan portfolio. The Company’s allowanceportfolio 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 quantitativereserve factors.
As mentioned above, allocations to the allowance forChanges 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 obtainedunderlying 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 acquisitionthe existence and (8) other factorseffect 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 trendslocal economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that will affect specificare 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 whichwith a deteriorated internal risk rating or that are collectively evaluated for loss suchclassified as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.
Reserve for Unfunded Commitments
In addition to thea TDR. The allowance for loan losses, we have established a reserve for unfunded commitments, classified in other liabilities. This reservecredit loss is maintained at a level sufficient to absorb losses arising from unfunded loan commitments. The adequacydetermined 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 determiningunderlying 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.


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An analysis of the allowance for loancredit losses for legacy loans is shown in Table 10.11.
 
Table 10:11: Allowance for LoanCredit Losses 
(In thousands)20202019
Balance, beginning of year$68,244 $56,694 
Impact of CECL adoption151,377 — 
Loans charged off:
Credit card3,326 3,298 
Other consumer3,062 3,582 
Real estate3,373 3,000 
Commercial40,537 22,893 
Total loans charged off50,298 32,773 
Recoveries of loans previously charged off:
Credit card773 734 
Other consumer1,110 2,053 
Real estate474 355 
Commercial1,381 1,190 
Total recoveries3,738 4,332 
Net loans charged off46,560 28,441 
Provision for credit losses75,190 38,337 
Balance, September 30$248,251 $66,590 
Loans charged off:
Credit card1,287 
Other consumer1,425 
Real estate892 
Commercial459 
Total loans charged off4,063 
Recoveries of loans previously charged off:
Credit card287 
Other consumer304 
Real estate146 
Commercial77 
Total recoveries814 
Net loans charged off3,249 
Provision for credit losses4,903 
Balance, end of year$68,244 
(In thousands)2019 2018
Balance, beginning of year$56,599
 $41,668
Loans charged off:   
Credit card3,298
 2,930
Other consumer3,497
 3,743
Real estate1,552
 5,568
Commercial21,564
 3,143
Total loans charged off29,911

15,384
Recoveries of loans previously charged off:   
Credit card734
 778
Other consumer2,053
 403
Real estate350
 624
Commercial295
 578
Total recoveries3,432

2,383
Net loans charged off26,479
 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.


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Provision for LoanCredit Losses
 
The amount of provision added to the allowance during the three and nine months ended September 30, 20192020 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. 

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Allowance for LoanCredit Losses Allocation
 
As of September 30, 2019,2020, the allowance for loancredit losses reflectsreflected an increase of approximately $9.4$180.0 million from December 31, 2018,2019 while total loans excluding loans acquired, increased by $1.2 billiondecreased $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 loancredit 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. TheseThe 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 LoanCredit 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 consumer2,100
 2.2% 2,380
 2.4%
Real estate36,470
 70.4% 29,743
 70.8%
Commercial23,225
 21.9% 20,514
 23.0%
Other195
 3.5% 39
 1.4%
Total (2)
$65,993

100.0%
$56,599

100.0%
 September 30, 2020December 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 consumer7,175 1.4 %1,998 1.7 %
Real estate181,917 71.2 %39,161 76.5 %
Commercial49,248 22.5 %22,863 18.3 %
Other1,311 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 212approximately 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.


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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.


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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 $190.0decreased $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, 20192020 and December 31, 2018,2019, respectively. The outstanding balance for September 30, 20192020 includes $1.1$1.3 billion in FHLB short-term advances, $13.4advances; $9.0 million in FHLB long-term advances,advances; $330.0 million in subordinated notes and $24.2notes; $52.7 million of trust preferred securities and unamortized debt issuance costs; and $33.8 million of other subordinatedlong-term debt.

The FHLB short-term advances mostly consistoutstanding at the end of the third quarter 2020 are FHLB Owns the Option (“FOTO”) advances thatwhich 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’sOur FOTO advances outstanding at the end of the third quarterSeptember 30, 2020 have ten10 to fifteen15 year maturity dates with lockout periods that have expired and, as a result, are considered and monitored by the Company as short-term advances. TheWe 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 assetsasset 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 BoardFebruary 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 valueIncorporation (“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,

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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 registrationAmended Articles”) with the SEC.Arkansas Secretary of State. The shelf registration statement provides increased flexibilityFebruary Amended Articles classified and more efficient access to raise capital from time to time through the saledesignated 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 ofour 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 Simmonspreferred stock: Series A Preferred Stock, and 2,000.02 shares SimmonsPar Value $0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, in exchange for the outstanding shares of Reliance’s Series APar 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).


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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 allStock, Par Value $0.01 Per Share, out of theour 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 hadOn 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, oncommon stock (“2012 Program”). On October 22, 2019, we announced a new stock repurchase program which replaces(“Program”) that replaced the previous program and2012 Program, under which we may repurchase up to $60,000,000 of our Common StockClass 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 programProgram 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 programProgram 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 subsidiarySimmons Bank is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative DisclosureDisclosures 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.
 

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Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of September 30, 2019,2020, we meet all capital adequacy requirements to which we are subject.
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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 BanksBank 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, 20192020 and December 31, 20182019 are presented in Table 1213 below:
 
Table 12:13: Risk-Based Capital

September 30,December 31,
(Dollars in thousands)20202019
Tier 1 capital:  
Stockholders’ equity$2,942,241 $2,988,924 
CECL transition provision134,798 — 
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 capital1,868,173 1,807,954 
Tier 2 capital:
Trust preferred securities and subordinated debt382,739 388,260 
Qualifying allowance for credit losses and reserve for unfunded commitments96,734 76,644 
Total Tier 2 capital479,473 464,904 
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 ratio9.05 %9.59 %
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)
9.49 %N/A
Tier 1 risk-based capital ratio12.56 %10.92 %
Total risk-based capital ratio15.78 %13.73 %
Minimum guidelines:
Common equity Tier 1 ratio (CET1)4.50 %4.50 %
Tier 1 leverage ratio4.00 %4.00 %
Tier 1 risk-based capital ratio6.00 %6.00 %
Total risk-based capital ratio8.00 %8.00 %

(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.

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(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 capital1,510,053

1,361,380
Tier 2 capital:   
Trust preferred securities and subordinated debt354,223
 353,950
Qualifying allowance for loan losses74,455
 63,608
Total Tier 2 capital428,678

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 ratio9.05% 8.78%
Tier 1 risk-based capital ratio10.25% 10.22%
Total risk-based capital ratio13.17% 13.35%
Minimum guidelines:   
Common equity Tier 1 ratio4.50% 4.50%
Tier 1 leverage ratio4.00% 4.00%
Tier 1 risk-based capital ratio6.00% 6.00%
Total risk-based capital ratio8.00% 8.00%


Regulatory Capital Changes
 
In 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.
 

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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.
 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this quarterly report may not be based on historical facts and areshould 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 loancredit 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 loancredit losses, fair value for loans, and other real estate owned;owned, and other cautionary statements

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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.


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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 reconciliationcomputation of tangible book value per share (non-GAAP), tangible common equity to tangible equityassets (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 basebasis 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, 20192020 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 oncalculations 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.
 

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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

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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)2020201920202019
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 costs902 2,556 3,800 11,548 
Early retirement program2,346 177 2,839 3,464 
Branch right sizing72 160 2,031 3,092 
Tax effect (1)
(867)(756)(151)(4,731)
Net non-core items2,453 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 costs0.01 0.04 0.03 0.12 
Early retirement program0.02 — 0.02 0.04 
Branch right sizing— — 0.02 0.03 
Tax effect (1)
— (0.01)— (0.05)
Net non-core items0.03 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.


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 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 costs2,556
 804
 11,548
 3,980
Early retirement program177
 
 3,464
 
Branch right sizing160
 970
 3,092
 1,049
Tax effect (1)
(756) (463) (4,731) (1,314)
Net non-core items2,137
 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 costs0.04
 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 items0.03
 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)2020201920202019
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)20202019
Total stockholders’ equity$2,942,241 $2,988,924 
Preferred stock(767)(767)
Total common stockholders’ equity2,941,474 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 outstanding109,023,781 113,628,601 
Book value per common share$26.98 $26.30 
Tangible book value per common share (non-GAAP)$16.07 $15.89 


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(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 outstanding96,613,855
 92,347,643
    
Book value per common share$26.36
 $24.33
    
Tangible book value per common share (non-GAAP)$15.73
 $14.18



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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)20202019
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 assets13.72 %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 assets14.34% 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 ratio9.05 %
Tier 1 leverage ratio excluding average PPP loans (non-GAAP)9.49 %


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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)2020201920202019
Net interest income$153,610 $149,264 $484,774 $434,687 
FTE adjustment2,864 1,843 7,519 5,150 
Fully tax equivalent net interest income156,474 151,107 492,293 439,837 
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 margin3.21 %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 yield4.54 %
Loan yield excluding PPP loans (non-GAAP)4.70 %

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 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 adjustment1,843
 1,393
 5,150
 3,831
Fully tax equivalent net interest income152,007
 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 margin3.81% 3.98% 3.86% 4.04%
Core net interest margin (non-GAAP)3.58% 3.71% 3.63% 3.74%


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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 Federalfederal 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 Federalfederal 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 subsidiarySimmons 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.


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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 20025 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 points4.64%9.48%
Up 100 basis points2.24%4.58%
Down 10025 basis points(2.37)(0.52)%
Down 200 basis points(3.40)%


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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 discussedfaced by the Company from those disclosed in Part 1, Item 1A of ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (“20182019 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 notQuarterly 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.
 

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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 informationProgram 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 indicatedcommon stock is as follows:

Period
Total Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 - July 31, 20201,224 $17.28 — $76,560,000 
August 1, 2020 - August 31, 2020— — — $76,560,000 
September 1, 2020 - September 30, 2020689 16.80 — $76,560,000 
Total1,913 $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, 20191,394
 $23.22
 
 308,272
August 1, 2019 - August 31, 2019
 
 
 308,272
September 1, 2019 - September 30, 20192,001
 25.11
 
 308,272
Total3,395
 $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
Agreement and Plan of Merger, dated as of March 24, 2014, by and between Simmons First National Corporation and Delta Trust & Banking Corporation (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on July 23, 2014 (File No. 000-06253)).

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

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

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

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

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

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


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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)).

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)).

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)).
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 forfiled November 1, 2019 (File No. 000-06253)).

As Amended By-Laws of Simmons First National Corporation, (incorporated by reference to Exhibit 3.2 to the Registration Statementas 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.

Executive Severance Agreement for George Makris III dated July 28, 2020.*
Executive Severance Agreement for John Barber dated July 24, 2020.*
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)).
Awareness Letter of BKD, LLP.*

Rule 13a-15(e) and 15d-15(e) Certification – George A. Makris, Jr., Chairman and Chief Executive Officer.*
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Exhibit No.Description
Rule 13a-15(e) and 15d-15(e) Certification – Robert A. Fehlman, Senior Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer.*

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

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

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

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

104Cover 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.

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SIGNATURES

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

SIMMONS FIRST NATIONAL CORPORATION
(Registrant)


Date:November 7, 20196, 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, ControllerExecutive Director of Finance and
Accounting and Chief Accounting Officer


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