Home Bancshares 10Q 2021 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 2021


☐	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: 000-51904

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Arkansas		71-0682831
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

719 Harkrider, Suite 100, Conway, Arkansas		72032
(Address of principal executive offices)		(Zip Code)

(501) 339-2929
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HOMB	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 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 definition 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 filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock Issued and Outstanding: 163,845,498 shares as of November 4, 2021.


HOME BANCSHARES, INC. FORM 10-Q September 30, 2021

INDEX

		Page No.
Part I:	Financial Information

Item 1:	Financial Statements

	Consolidated Balance Sheets –
	September 30, 2021 (Unaudited) and December 31, 2020	4

	Consolidated Statements of Income (Unaudited) –
	Three and nine months ended September 30, 2021 and 2020	5

	Consolidated Statements of Comprehensive Income (Unaudited) –
	Three and nine months ended September 30, 2021 and 2020	6

	Consolidated Statements of Stockholders’ Equity (Unaudited) –
	Three and nine months ended September 30, 2021 and 2020	7-8

	Consolidated Statements of Cash Flows (Unaudited) –
	Nine months ended September 30, 2021 and 2020	9

	Condensed Notes to Consolidated Financial Statements (Unaudited)	10-49

	Report of Independent Registered Public Accounting Firm	50

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51-93

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	93-96

Item 4:	Controls and Procedures	96

Part II:	Other Information

Item 1:	Legal Proceedings	97

Item 1A:	Risk Factors	97

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 3:	Defaults Upon Senior Securities	97

Item 4:	Mine Safety Disclosures	97

Item 5:	Other Information	97

Item 6:	Exhibits	98-99

Signatures		100

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this document, including matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, including through prospective or potential acquisitions, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

•

the effects of future local, regional, national and international economic conditions, including inflation, a decrease in commercial real estate and residential housing values and unemployment;

•

changes in the level of nonperforming assets and charge-offs, and credit risk generally;

•

the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest-sensitive assets and liabilities;

•

disruptions, uncertainties and related effects on credit quality, liquidity, other aspects of our business and our operations as a result of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic, including the recently proposed federal vaccine and testing mandate for employers of 100 or more employees;

•

the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate any businesses that we acquire;

•

the risk that expected cost savings and other benefits from acquisitions may not be fully realized or may take longer to realize than expected;

•

the possibility that an acquisition does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

•

the reaction to a proposed acquisition transaction of the respective companies’ customers, employees and counterparties;

•

diversion of management time on acquisition-related issues;

•

the ability to enter into and/or close additional acquisitions;

•

the availability of and access to capital on terms acceptable to us;

•

increased regulatory requirements and supervision that applies as a result of our exceeding $10 billion in total assets;

•

legislation and regulation affecting the financial services industry as a whole, and the Company and its subsidiaries in particular, including the effects resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), recent reforms to the Dodd-Frank Act, legislation and regulations in response to the COVID-19 pandemic and other future legislative and regulatory changes;

•

changes in governmental monetary and fiscal policies;

•

the effects of terrorism and efforts to combat it;

•

political instability;

•

risks associated with our customer relationship with the Cuban government and our correspondent banking relationship with Banco Internacional de Comercio, S.A. (BICSA), a Cuban commercial bank;

•

adverse weather events, including hurricanes, and other natural disasters;

•

the ability to keep pace with technological changes, including changes regarding cybersecurity;

•

an increase in the incidence or severity of fraud, illegal payments, cybersecurity breaches or other illegal acts impacting our bank subsidiary, our vendors or our customers;

•

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 competitors offering banking products and services by mail, telephone and the Internet;

•

potential claims, expenses and other adverse effects related to current or future litigation, regulatory examinations or other government actions;

•

the effect of changes in accounting policies and practices and auditing requirements, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

•

higher defaults on our loan portfolio than we expect; and

•

the failure of assumptions underlying the establishment of our allowance for credit losses or changes in our estimate of the adequacy of the allowance for credit losses.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021.

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets

(In thousands, except share data)	September 30, 2021			December 31, 2020
	(Unaudited)
Assets
Cash and due from banks	$	146,378		$	242,173
Interest-bearing deposits with other banks		3,133,878			1,021,615
Cash and cash equivalents		3,280,256			1,263,788
Investment securities – available-for-sale, net of allowance for credit losses		3,150,608			2,473,781
Loans receivable		9,901,100			11,220,721
Allowance for credit losses		(238,673	)		(245,473	)
Loans receivable, net		9,662,427			10,975,248
Bank premises and equipment, net		276,972			278,614
Foreclosed assets held for sale		1,171			4,420
Cash value of life insurance		104,638			103,519
Accrued interest receivable		48,577			60,528
Deferred tax asset, net		69,724			70,249
Goodwill		973,025			973,025
Core deposit and other intangibles		26,466			30,728
Other assets		171,192			164,904
Total assets	$	17,765,056		$	16,398,804
Liabilities and Stockholders’ Equity
Deposits:
Demand and non-interest-bearing	$	4,139,149		$	3,266,753
Savings and interest-bearing transaction accounts		8,813,326			8,212,240
Time deposits		1,050,896			1,246,797
Total deposits		14,003,371			12,725,790
Securities sold under agreements to repurchase		141,002			168,931
FHLB and other borrowed funds		400,000			400,000
Accrued interest payable and other liabilities		113,721			127,999
Subordinated debentures		370,900			370,326
Total liabilities		15,028,994			13,793,046
Stockholders’ equity:
Common stock, par value $0.01; shares authorized 300,000,000 in 2021 and 2020; shares issued and outstanding 164,007,998 in 2021 and 165,095,252 in 2020		1,640			1,651
Capital surplus		1,492,588			1,520,617
Retained earnings		1,215,831			1,039,370
Accumulated other comprehensive income		26,003			44,120
Total stockholders’ equity		2,736,062			2,605,758
Total liabilities and stockholders’ equity	$	17,765,056		$	16,398,804

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Income

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per share data)	2021			2020			2021			2020
	(Unaudited)
Interest income:
Loans	$	142,609		$	154,787		$	435,210		$	471,931
Investment securities
Taxable		8,495			7,227			21,933			25,696
Tax-exempt		4,839			4,367			14,815			11,179
Deposits – other banks		1,117			252			2,234			1,579
Federal funds sold		—			—			—			21
Total interest income		157,060			166,633			474,192			510,406
Interest expense:
Interest on deposits		5,642			13,200			19,781			52,514
Federal funds purchased		—			—			—			13
FHLB and other borrowed funds		1,917			2,235			5,688			7,589
Securities sold under agreements to repurchase		102			237			399			959
Subordinated debentures		4,788			4,823			14,373			14,801
Total interest expense		12,449			20,495			40,241			75,876
Net interest income		144,611			146,138			433,951			434,530
Provision for credit losses		—			14,000			—			112,264
Provision for credit losses - unfunded commitments		—			—			(4,752	)		16,989
Total credit loss (benefit) expense		—			14,000			(4,752	)		129,253
Net interest income after provision for credit losses		144,611			132,138			438,703			305,277
Non-interest income:
Service charges on deposit accounts		5,941			4,910			16,059			15,837
Other service charges and fees		8,051			8,539			25,318			22,261
Trust fees		479			378			1,445			1,213
Mortgage lending income		5,948			10,177			20,317			18,994
Insurance commissions		586			271			1,556			1,482
Increase in cash value of life insurance		509			548			1,548			1,666
Dividends from FHLB, FRB, FNBB & other		2,661			3,433			13,916			11,505
Gain on sale of SBA loans		439			—			1,588			341
(Loss) gain on sale of branches, equipment and other assets, net		(34	)		(27	)		(86	)		109
Gain on OREO, net		246			470			1,266			982
Gain on securities, net		—			—			219			—
Fair value adjustment for marketable securities		61			(1,350	)		7,093			(6,249	)
Other income		4,322			2,602			15,366			9,760
Total non-interest income		29,209			29,951			105,605			77,901
Non-interest expense:
Salaries and employee benefits		42,469			41,511			126,990			120,928
Occupancy and equipment		9,305			9,566			27,584			28,611
Data processing expense		6,024			4,921			17,787			13,861
Merger and acquisition expenses		1,006			—			1,006			711
Other operating expenses		16,815			15,714			48,100			49,033
Total non-interest expense		75,619			71,712			221,467			213,144
Income before income taxes		98,201			90,377			322,841			170,034
Income tax expense		23,209			21,057			77,177			37,380
Net income	$	74,992		$	69,320		$	245,664		$	132,654
Basic earnings per share	$	0.46		$	0.42		$	1.49		$	0.80
Diluted earnings per share	$	0.46		$	0.42		$	1.49		$	0.80

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Comprehensive Income

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2021			2020			2021			2020
	(Unaudited)
Net income	$	74,992		$	69,320		$	245,664		$	132,654
Net unrealized (loss) gain on available-for-sale securities		(4,218	)		(896	)		(24,527	)		29,952
Other comprehensive (loss) income. before tax effect		(4,218	)		(896	)		(24,527	)		29,952
Tax effect on other comprehensive (loss) income		1,102			234			6,410			(7,828	)
Other comprehensive (loss) income		(3,116	)		(662	)		(18,117	)		22,124
Comprehensive income	$	71,876		$	68,658		$	227,547		$	154,778

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2021
(In thousands, except share data)	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2021	$	1,651		$	1,520,617		$	1,039,370		$	44,120		$	2,605,758
Comprehensive income:
Net income		—			—			91,602			—			91,602
Other comprehensive income		—			—			—			(24,671	)		(24,671	)
Net issuance of 161,434 shares of common stock from exercise of stock options		1			2,321			—			—			2,322
Repurchase of 330,000 shares of common stock		(3	)		(8,767	)		—			—			(8,770	)
Share-based compensation net issuance of 214,684 shares of restricted common stock		2			2,115			—			—			2,117
Cash dividends – Common Stock, $0.14 per share		—			—			(23,154	)		—			(23,154	)
Balances at March 31, 2021 (unaudited)	$	1,651		$	1,516,286		$	1,107,818		$	19,449		$	2,645,204
Comprehensive income:
Net Income		—			—			79,070			—			79,070
Other comprehensive income		—			—			—			9,670			9,670
Net issuance of 3,628 shares of common stock from exercise of stock options		—			—			—			—			—
Repurchase of 635,000 shares of common stock		(6	)		(16,947	)		—			—			(16,953	)
Share-based compensation net forfeiture of 21,500 shares of restricted common stock		—			2,276			—			—			2,276
Cash dividends – Common Stock, $0.14 per share		—			—			(23,078	)		—			(23,078	)
Balances at June 30, 2021 (unaudited)	$	1,645		$	1,501,615		$	1,163,810		$	29,119		$	2,696,189
Comprehensive income:
Net Income		—			—			74,992			—			74,992
Other comprehensive loss		—			—			—			(3,116	)		(3,116	)
Repurchase of 476,500 shares of common stock		(5	)		(11,274	)								(11,279	)
Share-based compensation net forfeiture of 4,000 shares of restricted stock		—			2,247			—			—			2,247
Cash dividends – Common Stock, $0.14 per share		—			—			(22,971	)		—			(22,971	)
Balances at September 30, 2021 (unaudited)	$	1,640		$	1,492,588		$	1,215,831		$	26,003		$	2,736,062

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020
(In thousands, except share data)	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2020	$	1,664		$	1,537,091		$	956,555		$	16,221		$	2,511,531
Cumulative change in accounting principle (adoption of ASC 326)		—			—			(43,956	)		—			(43,956	)
Balance at January 1, 2020 (as adjusted for change in accounting principle)	$	1,664		$	1,537,091		$	912,599		$	16,221		$	2,467,575
Comprehensive income:
Net income		—			—			507			—			507
Other comprehensive income		—			—			—			4,750			4,750
Net issuance of 22,864 shares of common stock from exercise of stock options		—			422			—			—			422
Repurchase of 1,423,560 shares of common stock		(14	)		(23,843	)		—			—			(23,857	)
Share-based compensation net issuance of 175,249 shares of restricted common stock		1			2,481			—			—			2,482
Cash dividends – Common Stock, $0.13 per share		—			—			(21,608	)		—			(21,608	)
Balances at March 31, 2020 (unaudited)	$	1,651		$	1,516,151		$	891,498		$	20,971		$	2,430,271
Comprehensive income:
Net income		—			—			62,827			—			62,827
Other comprehensive income		—			—			—			18,036			18,036
Share-based compensation net issuance of 58,140 shares of restricted common stock		1			2,480			—			—			2,481
Cash dividends – Common Stock, $0.13 per share		—			—			(21,469	)		—			(21,469	)
Balances at June 30, 2020 (unaudited)	$	1,652		$	1,518,631		$	932,856		$	39,007		$	2,492,146
Comprehensive income:
Net income		—			—			69,320			—			69,320
Other comprehensive loss		—			—			—			(662	)		(662	)
Share-based compensation net forfeiture of 43,500 shares of restricted stock		—			1,472			—			—			1,472
Cash dividends – Common Stock, $0.13 per share		—			—			(21,477	)		—			(21,477	)
Balances at September 30, 2020 (unaudited)	$	1,652		$	1,520,103		$	980,699		$	38,345		$	2,540,799

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
(In thousands)	2021			2020
	(Unaudited)
Operating Activities
Net income	$	245,664		$	132,654
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		14,457			15,236
(Increase) decrease in value of equity securities		(7,093	)		6,249
Amortization of securities, net		21,018			14,292
Accretion of purchased loans		(16,150	)		(21,640	)
Share-based compensation		6,640			6,435
Gain on assets		(2,987	)		(1,432	)
Provision for credit losses		—			112,264
Provision for credit losses - unfunded commitments		(4,752	)		16,989
Deferred income tax effect		6,936			(38,695	)
Increase in cash value of life insurance		(1,548	)		(1,666	)
Originations of mortgage loans held for sale		(599,787	)		(607,494	)
Proceeds from sales of mortgage loans held for sale		632,721			571,623
Changes in assets and liabilities:
Accrued interest receivable		11,951			(27,283	)
Other assets		3,891			2,552
Accrued interest payable and other liabilities		(9,526	)		20,086
Net cash provided by operating activities		301,435			200,170
Investing Activities
Net decrease (increase) in loans, excluding purchased loans		1,278,846			(372,691	)
Purchases of investment securities – available-for-sale		(1,227,507	)		(819,629	)
Proceeds from maturities of investment securities – available-for-sale		487,242			556,386
Proceeds from sales of investment securities – available-for-sale		18,112			—
Purchases of equity securities		(10,460	)		(15,015	)
Proceeds from sales of equity securities		15,354			—
(Purchase) redemption of other investments		(7,970	)		13,414
Proceeds from foreclosed assets held for sale		6,572			7,476
Proceeds from sale of SBA loans		16,722			4,057
Purchases of premises and equipment, net		(8,065	)		(10,282	)
Return of investment on cash value of life insurance		418			47,258
Net cash paid – market acquisitions		—			(421,211	)
Net cash provided by (used in) investing activities		569,264			(1,010,237	)
Financing Activities
Net increase in deposits		1,277,581			1,659,083
Net (decrease) increase in securities sold under agreements to repurchase		(27,929	)		14,720
Net decrease in federal funds purchased		—			(5,000	)
Net decrease in FHLB and other borrowed funds		—			(218,011	)
Proceeds from exercise of stock options		2,322			422
Repurchase of common stock		(37,002	)		(23,857	)
Dividends paid on common stock		(69,203	)		(64,554	)
Net cash provided by financing activities		1,145,769			1,362,803
Net change in cash and cash equivalents		2,016,468			552,736
Cash and cash equivalents – beginning of year		1,263,788			490,601
Cash and cash equivalents – end of period	$	3,280,256		$	1,043,337

See Condensed Notes to Consolidated Financial Statements.

Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Home BancShares, Inc. (the “Company” or “HBI”) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly-owned community bank subsidiary – Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). The Bank has branch locations in Arkansas, Florida, South Alabama and New York City. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

A summary of the significant accounting policies of the Company follows:

Operating Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed, and financial performance is evaluated on a Company-wide basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into 1 reportable operating segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

Principles of Consolidation

The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

Interim financial information

The accompanying unaudited consolidated financial statements as of September 30, 2021 and 2020 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2020 Form 10-K, filed with the Securities and Exchange Commission.

New Accounting Pronouncements

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million as of January 1, 2020. In addition, the Company recorded a $15.5 million reserve on unfunded commitments which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans was recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools. The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools. The projected losses for these loans were less than the total credit mark. As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category. As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As of December 31, 2019, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined than an allowance for credit losses on available-for-sale securities was not deemed material. However, the Company evaluated the investment portfolio during the first quarter of 2020 and determined that an $842,000 provision for credit losses was necessary. NaN additional provision was deemed necessary during the remaining quarters of 2020 or the first three quarters of 2021. See Note 3 for further discussion.

The following table illustrates the impact of the adoption of ASC 326 on the Company’s 2020 consolidated balance sheet.

	January 1, 2020
	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
	(In thousands)
Assets:
Allowance for credit losses on loans	$	146,110	$	102,122	$	43,988
Liabilities:
Allowance for credit losses on OBS credit exposures (included in other liabilities)		15,521		—		15,521

Revenue Recognition

Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows:

•

Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

•

Other service charges and fees – These represent credit card interchange fees and Centennial Commercial Finance Group (“Centennial CFG”) loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.

Earnings per Share

Basic earnings per share is computed based on the weighted-average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted-average shares and all potential dilutive shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the following periods:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Net income	$	74,992	$	69,320	$	245,664	$	132,654
Average shares outstanding		164,126		165,200		164,717		165,458
Effect of common stock options		477		—		333		—
Average diluted shares outstanding		164,603		165,200		165,050		165,458
Basic earnings per share	$	0.46	$	0.42	$	1.49	$	0.80
Diluted earnings per share	$	0.46	$	0.42	$	1.49	$	0.80

As of September 30, 2020, options to purchase 3.3 million shares of common stock with a weighted average exercise price of $19.56 were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock.

2. Business Combinations

Acquisition of LH-Finance

On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A. The Company paid a purchase price of approximately $421.2 million in cash. LH-Finance provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, LH-Finance provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded.

The acquired portfolio of loans is now housed in the Shore Premier Finance (“SPF”) division. The SPF division of Centennial is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial opened a loan production office in Baltimore, Maryland.

Future Acquisition of Happy Bancshares, Inc.

On September 15, 2021, the Company and Centennial entered into an Agreement and Plan of Merger (the “Agreement”) with Happy Bancshares, Inc., a Texas corporation (“Happy”), and its wholly-owned bank subsidiary, Happy State Bank, a Texas banking association (“HSB”), under which the Company and Centennial will acquire Happy and HSB. The Agreement, as amended on October 18, 2021, provides that, in a series of transactions, an acquisition subsidiary of the Company will merge into Happy and Happy will merge into the Company, with the Company as the surviving entity (collectively, the “Merger”). As soon as reasonably practicable following the Merger, HSB will merge into Centennial, with Centennial as the surviving entity.

Under the terms of the Agreement, as amended, the Company will issue approximately 42.3 million shares of its common stock to the shareholders of Happy upon the completion of the Merger, for a purchase price of approximately $1.02 billion, valued based on the volume-weighted average closing price per share of the Company’s common stock as reported on the Nasdaq Global Select Market (“Nasdaq”) for the 20 consecutive trading day period ending on November 1, 2021. NaN cash consideration will be paid in connection with the Merger, except that holders of outstanding shares of Happy common stock at the time of the Merger will receive cash payments in lieu of any fractional shares of Company common stock to which they are otherwise entitled in connection with the Merger. In addition, the Company expects to pay an aggregate of up to approximately $11.0 million in cash in cancellation of certain stock appreciation rights issued by Happy that remain outstanding at the time of the Merger.

Subject to the terms and conditions set forth in the Agreement, as amended, at the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of Happy will be converted into the right to receive, without interest, 2.17 shares of the Company’s common stock (the “Merger Consideration”). Each unvested restricted share of Happy common stock outstanding at the Effective Time will fully vest and be converted into the right to receive the Merger Consideration. In addition, at the Effective Time, each outstanding option to purchase Happy common stock will be cancelled and converted into the right to receive the number of whole shares of the Company’s common stock, together with any cash in lieu of fractional shares, equal to the product of (i) the number of shares of Happy common stock subject to the option, multiplied by (ii) the excess, if any, of the Merger Consideration value over the exercise price of the option, less applicable tax withholdings, divided by (iii) the Company’s Average Closing Price (defined below). Similarly, each stock appreciation right of Happy outstanding at the Effective Time will be cancelled and converted into the right to receive a cash payment, without interest, equal to the product of (i) the number of shares of Happy common stock subject to the stock appreciation right, multiplied by (ii) the excess, if any, of the Merger Consideration value over the grant price of the stock appreciation right, less applicable tax withholdings. For purposes of these calculations, the Merger Consideration value will be determined using a volume-weighted average closing price of the Company’s common stock as reported on Nasdaq over the 20 consecutive trading day period ending on the third business day prior to the closing of the Merger (“the Company’s Average Closing Price”), multiplied by 2.17.

The Merger is expected to close during the first quarter of 2022, and is subject to the approval of the shareholders of the Company and Happy, regulatory approvals, and other conditions set forth in the Agreement.

3. Investment Securities

The following table summarizes the amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

	September 30, 2021
	Available-for-Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
	(In thousands)
U.S. government-sponsored enterprises	$	439,181	$	2,702	$	(1,720	)	$	440,163
Residential mortgage-backed securities		1,198,016		6,812		(9,064	)		1,195,764
Commercial mortgage-backed securities		403,840		10,656		(922	)		413,574
State and political subdivisions		965,993		27,356		(2,205	)		991,144
Other securities		109,216		1,137		(390	)		109,963
Total	$	3,116,246	$	48,663	$	(14,301	)	$	3,150,608

	December 31, 2020
	Available-for-Sale
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
	(In thousands)
U.S. government-sponsored enterprises	$	325,860	$	2,338	$	(1,207	)	$	326,991
Residential mortgage-backed securities		703,138		10,607		(688	)		713,057
Commercial mortgage-backed securities		446,964		18,048		(126	)		464,886
State and political subdivisions		898,174		31,173		(1,454	)		927,893
Other securities		40,755		434		(235	)		40,954
Total	$	2,414,891	$	62,600	$	(3,710	)	$	2,473,781

Assets, principally investment securities, having a carrying value of approximately $1.17 billion and $1.08 billion at September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately $141.0 million and $168.9 million at September 30, 2021 and December 31, 2020, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale at September 30, 2021, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	Available-for-Sale
	Amortized Cost		Estimated Fair Value
	(In thousands)
Due in one year or less	$	9,391	$	9,399
Due after one year through five years		78,839		79,824
Due after five years through ten years		348,801		350,567
Due after ten years		1,075,359		1,099,480
Mortgage - backed securities: Residential		1,198,016		1,195,764
Mortgage - backed securities: Commercial		403,840		413,574
Other		2,000		2,000
Total	$	3,116,246	$	3,150,608

During the three months ended September 30, 2021, 0 available-for-sale securities were sold. There were 0 realized gains or losses recorded on sales for the three months ended September 30, 2021. During the nine months ended September 30, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the nine months ended September 30, 2021.

During the three and nine months ended September 30, 2020, 0 available-for-sale securities were sold. There were 0 realized gains or losses recorded on the sales for the three and nine months ended September 30, 2020.

The following table shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of September 30, 2021 and December 31, 2020.

	September 30, 2021
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. government-sponsored enterprises	$	80,986	$	(1,015	)	$	56,150	$	(705	)	$	137,136	$	(1,720	)
Residential mortgage-backed securities		762,805		(8,216	)		31,319		(848	)		794,124		(9,064	)
Commercial mortgage-backed securities		81,615		(906	)		6,245		(16	)		87,860		(922	)
State and political subdivisions		149,056		(980	)		16,887		(1,225	)		165,943		(2,205	)
Other securities		41,421		(340	)		4,263		(50	)		45,684		(390	)
Total	$	1,115,883	$	(11,457	)	$	114,864	$	(2,844	)	$	1,230,747	$	(14,301	)

	December 31, 2020
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
U.S. government-sponsored enterprises	$	54,611	$	(383	)	$	95,249	$	(824	)	$	149,860	$	(1,207	)
Residential mortgage-backed securities		143,458		(643	)		4,900		(45	)		148,358		(688	)
Commercial mortgage-backed securities		26,886		(126	)		—		—			26,886		(126	)
State and political subdivisions		78,349		(1,454	)		—		—			78,349		(1,454	)
Other securities		5,434		(100	)		8,748		(135	)		14,182		(235	)
Total	$	308,738	$	(2,706	)	$	108,897	$	(1,004	)	$	417,635	$	(3,710	)

The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that 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 an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2021, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainties related to the COVID-19 pandemic, was adequate for the investment portfolio. No additional provision for credit losses was considered necessary for the portfolio.

	September 30, 2021		December 31, 2020
	(In thousands)
Allowance for credit losses:
Beginning balance	$	842	$	—
Provision for credit loss - investment securities		—		842
Balance, September 30	$	842	$	842
Provision for credit loss - investment securities				—
Balance, December 31, 2020			$	842

For the nine months ended September 30, 2021, the Company had investment securities with approximately $2.8 million in unrealized losses, which have been in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition or downgrades by rating agencies. In addition, approximately 58.6% of the principal balance from the Company’s investment portfolio will mature and be repaid to the Company within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

As of September 30, 2021, the Company's securities portfolio consisted of 1,335 investment securities, 304 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $14.3 million. The U.S government-sponsored enterprises portfolio contained unrealized losses of $1.7 million on 44 securities. The residential mortgage-backed securities portfolio contained $9.1 million of unrealized losses on 161 securities, and the commercial mortgage-backed securities portfolio contained $922,000 of unrealized losses on 35 securities. The state and political subdivisions portfolio contained $2.2 million of unrealized losses on 51 securities. In addition, the other securities portfolio contained $390,000 of unrealized losses on 13 securities. The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. As of September 30, 2021, the Company does not consider an allowance for credit losses on the other portions of the investment portfolio because the decline in market value was attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.

Income earned on available-for sale securities for the three and nine months ended September 30, 2021 and 2020, is as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Taxable	$	8,495	$	7,227	$	21,933	$	25,696
Non-taxable		4,839		4,367		14,815		11,179
Total	$	13,334	$	11,594	$	36,748	$	36,875

4. Loans Receivable

The various categories of loans receivable are summarized as follows:

	September 30,			December 31,
	2021			2020
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	4,005,841		$	4,429,060
Construction/land development		1,742,687			1,562,298
Agricultural		138,881			114,431
Residential real estate loans
Residential 1-4 family		1,273,988			1,536,257
Multifamily residential		274,131			536,538
Total real estate		7,435,528			8,178,584
Consumer		814,732			864,690
Commercial and industrial		1,414,079			1,896,442
Agricultural		68,272			66,869
Other		168,489			214,136
Total loans receivable		9,901,100			11,220,721
Allowance for credit losses		(238,673	)		(245,473	)
Loans receivable, net	$	9,662,427		$	10,975,248

During the three and nine months ended September 30, 2021, the Company sold $3.9 million and $15.0 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $440,000 and $1.6 million. During the three months ended September 30, 2020, the Company did 0t sell any guaranteed portions of certain SBA loans. During the nine months ended September 30, 2020, the Company sold $3.7 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $341,000.

Mortgage loans held for sale of approximately $81.9 million and $114.8 million at September 30, 2021 and December 31, 2020, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at September 30, 2021 and December 31, 2020 were not material.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In 2019, the Company reevaluated its loan pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans was recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools. The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools. The projected losses for these loans were less than the total credit mark. As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterial and was reclassified out of the purchased credit impaired loans category. As of December 31, 2019, the Company 0 longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

A description of our accounting policies for loans, impaired loans and non-accrual loans are set forth in our 2020 Form 10-K filed with the SEC on February 26, 2021. The Company adopted ASC 326 effective January 1, 2020. See Notes 1 and 5 for further discussion.

5. Allowance for Credit Losses, Credit Quality and Other

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balance of the allowance for credit losses to $146.1 million as of January 1, 2020. In addition, the Company recorded a $15.5 million reserve on unfunded commitments as of January 1, 2020, which was recognized through an $11.5 million adjustment to retained earnings, net of tax.

The Company uses the discounted cash flow (“DCF”) method to estimate expected losses for all of Company’s loan pools. These pools are as follows: construction & land development; other commercial real estate; residential real estate; commercial & industrial; and consumer & other. The loan portfolio pools were selected in order to generally align with the loan categories specified in the quarterly call reports required to be filed with the Federal Financial Institutions Examination Council. For each of these loan pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the first quarter of 2021, management determined that changes to several of the economic factors for the various loss driver segments were necessary. The identified loss drivers by segment are included below as of September 30, 2021 and December 31, 2020, respectively.

September 30, 2021
Loss Driver Segment	Call Report Segment(s)	Modeled Economic Factors
1-4 Family Construction	1a1	National Unemployment (%) & Housing Price Index (%)
All Other Construction	1a2	National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Revolving HELOC & Junior Liens	1c1	National Unemployment (%) & Housing Price Index – CoreLogic (%)
1-4 Family Revolving HELOC & Junior Liens	1c2b	National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Senior Liens	1c2a	National Unemployment (%) & Gross Domestic Product (%)
Multifamily	1d	Rental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%)
Owner Occupied CRE	1e1	National Unemployment (%) & Gross Domestic Product (%)
Non-Owner Occupied CRE	1e2,1b,8	National Unemployment (%) & Gross Domestic Product (%)
Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other	4a, 3, 9a, 9b1, 9b2, Other	National Unemployment (%) & National Retail Sales (%)
Consumer Auto	6c	National Unemployment (%) & National Retail Sales (%)
Other Consumer	6b, 6d	National Unemployment (%) & National Retail Sales (%)
Other Consumer - SPF	6d	National Unemployment (%)

	December 31, 2020
Loss Driver Segment	Call Report Segment(s)	Modeled Economic Factors
1-4 Family Construction	1a1	National Unemployment (%) & Housing Price Index (%)
All Other Construction	1a2	National Unemployment (%) & Commercial Real Estate Price Index (%)
1-4 Family Revolving HELOC & Junior Liens	1c1, 1c2b	National Unemployment (%) & Housing Price Index (%)
1-4 Family Senior Liens	1c2a	National Unemployment (%) & Housing Price Index (%)
Multifamily	1d	National Unemployment (%) & Housing Price Index (%)
Owner Occupied CRE	1e1	National Unemployment (%) & Commercial Real Estate Price Index (%)
Non-Owner Occupied CRE	1e2,1b,8	National Unemployment (%) & Commercial Real Estate Price Index (%)
Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other	4a, 3, 9a, 9b1, 9b2, Other	National Unemployment (%) & National Retail Sales (%)
Consumer Auto	6c	National Unemployment (%) & National Retail Sales (%)
Other Consumer	6b, 6d	National Unemployment (%) & National Retail Sales (%)
Other Consumer - SPF	6d	National Unemployment (%)

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.

Construction/Land Development and Other Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

Consumer & Other Loans. Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats as a result of our acquisitions of SPF on June 30, 2018 and LH-Finance on February 29, 2020. The performance of consumer & other loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit loss on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company uses the DCF method to estimate expected losses for all of Company’s off-balance sheet credit exposures through the use of the existing DCF models for the Company’s loan portfolio pools. The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

As of September 30, 2021, the Company remains optimistic that the markets in which it operates will experience continued economic recovery as long as unemployment rates continue to decline, more COVID-19 vaccinations are administered, and communities continue to reopen for business activity. Uncertainty remains about the duration of the pandemic as well as the timing and extent of the economic recovery. The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2021. During the nine-month period ended September 30, 2021, the Company recorded a negative provision for unfunded commitments of $4.8 million. This was primarily due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position.

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition. During the first quarter of 2020, we completed the acquisition of $406.2 million of loans from LH-Finance. As a result, the Company recorded a $6.6 million loan discount and a $9.3 million increase in the allowance for credit losses for this acquisition. A small portion of the loans acquired during the quarter were purchase credit deteriorated (“PCD”) loans, so the Company recorded a $357,000 allowance for credit losses on these loans.

The following tables present the activity in the allowance for credit losses for the three and nine months ended September 30, 2021:

	Three Months Ended September 30, 2021
	Construction/ Land Development			Other Commercial Real Estate			Residential Real Estate			Commercial & Industrial			Consumer & Other			Total
	(In thousands)
Allowance for credit losses:
Beginning balance	$	22,145		$	93,127		$	51,182		$	52,282		$	21,715		$	240,451
Loans charged off		—			(9	)		(220	)		(1,682	)		(558	)		(2,469	)
Recoveries of loans previously charged off		8			44			388			80			171			691
Net loans recovered (charged off)		8			35			168			(1,602	)		(387	)		(1,778	)
Provision for credit losses		3,830			(4,664	)		(447	)		1,922			(641	)		—
Balance, September 30	$	25,983		$	88,498		$	50,903		$	52,602		$	20,687		$	238,673

	Nine Months Ended September 30, 2021
	Construction/ Land Development			Other Commercial Real Estate			Residential Real Estate			Commercial & Industrial			Consumer & Other			Total
	(In thousands)
Allowance for credit losses:
Beginning balance	$	32,861		$	88,453		$	53,216		$	46,530		$	24,413		$	245,473
Loans charged off		—			(646	)		(543	)		(5,892	)		(1,458	)		(8,539	)
Recoveries of loans previously charged off		47			112			554			382			644			1,739
Net loans recovered (charged off)		47			(534	)		11			(5,510	)		(814	)		(6,800	)
Provision for credit losses		(6,925	)		579			(2,324	)		11,582			(2,912	)		—
Balance, September 30	$	25,983		$	88,498		$	50,903		$	52,602		$	20,687		$	238,673

The following tables present the balances in the allowance for credit losses for the nine-month period ended September 30, 2020 and the year ended December 31, 2020.

	Nine Months Ended September 30, 2020 and Year Ended December 31, 2020
	Construction/ Land Development			Other Commercial Real Estate			Residential Real Estate			Commercial & Industrial			Consumer & Other			Total
	(In thousands)
Allowance for credit losses:
Beginning balance	$	26,433		$	33,529		$	20,135		$	16,615		$	5,410		$	102,122
Impact of adoption ASC 326		(5,296	)		15,912			16,680			11,584			5,108			43,988
Allowance for credit losses on PCD loans		—			—			—			—			357			357
Loans charged off		(443	)		(3,003	)		(450	)		(6,207	)		(1,343	)		(11,446	)
Recoveries of loans previously charged off		94			614			305			142			626			1,781
Net loans charged off		(349	)		(2,389	)		(145	)		(6,065	)		(717	)		(9,665	)
Provision for credit loss - loans		18,027			50,912			8,550			18,023			6,601			102,113
Provision for credit loss - acquired loans		—			—			—			—			9,309			9,309
Balance, September 30		38,815			97,964			45,220			40,157			26,068			248,224
Loans charged off		(775	)		(38	)		(35	)		(1,557	)		(635	)		(3,040	)
Recoveries of loans previously charged off		13			33			32			76			135			289
Net loans charged off		(762	)		(5	)		(3	)		(1,481	)		(500	)		(2,751	)
Provision for credit loss - loans		(5,192	)		(9,506	)		7,999			7,854			(1,155	)		—
Balance, December 31	$	32,861		$	88,453		$	53,216		$	46,530		$	24,413		$	245,473

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of September 30, 2021 and December 31, 2020:

		September 30, 2021
		Nonaccrual		Nonaccrual with Reserve		Loans Past Due Over 90 Days Still Accruing
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential		$	8,819	$	2,244	$	2,413
Construction/land development			1,870		—		—
Agricultural			743		—		—
Residential real estate loans
Residential 1-4 family			17,495		2,984		855
Multifamily residential			161		—		—
Total real estate			29,088		5,228		3,268
Consumer			1,921		—		2
Commercial and industrial			15,989		4,272		41
Agricultural & other			606		—		—
Total		$	47,604	$	9,500	$	3,311

		December 31, 2020
		Nonaccrual		Nonaccrual with Reserve		Loans Past Due Over 90 Days Still Accruing
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential		$	20,947	$	6,794	$	6,088
Construction/land development			1,381		2,089		1,296
Agricultural			879		—		—
Residential real estate loans
Residential 1-4 family			19,334		3,000		1,821
Multifamily residential			173		—		—
Total real estate			42,714		11,883		9,205
Consumer			3,506		—		174
Commercial and industrial			17,251		—		231
Agricultural & other			1,057		—		—
Total		$	64,528	$	11,883	$	9,610

The Company had $47.6 million and $64.5 million in nonaccrual loans for the periods ended September 30, 2021 and December 31, 2020, respectively. In addition, the Company had $3.3 million and $9.6 million in loans past due 90 days or more and still accruing for the periods ended September 30, 2021 and December 31, 2020, respectively.

The Company had $9.5 million and $11.9 million in nonaccrual loans with a specific reserve as of September 30, 2021 and December 31, 2020, respectively. The Company did 0t recognize any interest income on nonaccrual loans during the period ended September 30, 2021 or September 30, 2020.

The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of September 30, 2021 and December 31, 2020:

	September 30, 2021
	Commercial		Residential
	Real Estate		Real Estate		Other
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	249,783	$	—	$	—
Construction/land development		5,201		—		—
Agricultural		743		—		—
Residential real estate loans
Residential 1-4 family		—		21,393		—
Multifamily residential		—		161		—
Total real estate		255,727		21,554		—
Consumer		—		—		1,936
Commercial and industrial		—		—		20,264
Agricultural & other		—		—		607
Total	$	255,727	$	21,554	$	22,807

	December 31, 2020
	Commercial		Residential
	Real Estate		Real Estate		Other
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	47,429	$	—	$	—
Construction/land development		6,012		—		—
Agricultural		879		—		—
Residential real estate loans
Residential 1-4 family		—		32,413		—
Multifamily residential		—		173		—
Total real estate		54,320		32,586		—
Consumer		—		—		3,694
Commercial and industrial		—		—		21,027
Agricultural & other		—		—		1,057
Total	$	54,320	$	32,586	$	25,778

The Company had $300.1 million and $112.7 million in collateral-dependent impaired loans for the periods ended September 30, 2021 and December 31, 2020, respectively. The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impaired loans, excluding lodging and assisted living loans, 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 be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan 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 cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs 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 loan.

The following is an aging analysis for loans receivable as of September 30, 2021 and December 31, 2020:

	September 30, 2021
	Loans Past Due 30-59 Days		Loans Past Due 60-89 Days		Loans Past Due 90 Days or More		Total Past Due		Current Loans		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	2,213	$	—	$	11,232	$	13,445	$	3,992,396	$	4,005,841	$	2,413
Construction/land development		66		171		1,870		2,107		1,740,580		1,742,687		—
Agricultural		434		295		743		1,472		137,409		138,881		—
Residential real estate loans														—
Residential 1-4 family		2,452		3,072		18,350		23,874		1,250,114		1,273,988		855
Multifamily residential		—		—		161		161		273,970		274,131		—
Total real estate		5,165		3,538		32,356		41,059		7,394,469		7,435,528		3,268
Consumer		401		12		1,923		2,336		812,396		814,732		2
Commercial and industrial		752		592		16,030		17,374		1,396,705		1,414,079		41
Agricultural & other		619		1		606		1,226		235,535		236,761		—
Total	$	6,937	$	4,143	$	50,915	$	61,995	$	9,839,105	$	9,901,100	$	3,311

	December 31, 2020
	Loans Past Due 30-59 Days		Loans Past Due 60-89 Days		Loans Past Due 90 Days or More		Total Past Due		Current Loans		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	3,856	$	68	$	27,035	$	30,959	$	4,398,101	$	4,429,060	$	6,088
Construction/land development		178		44		2,677	$	2,899		1,559,399		1,562,298		1,296
Agricultural		522		—		879		1,401		113,030		114,431		—
Residential real estate loans
Residential 1-4 family		4,833		7,787		21,155		33,775		1,502,482		1,536,257		1,821
Multifamily residential		111		—		173		284		536,254		536,538		—
Total real estate		9,500		7,899		51,919		69,318		8,109,266		8,178,584		9,205
Consumer		2,899		802		3,680		7,381		857,309		864,690		174
Commercial and industrial		960		515		17,482		18,957		1,877,485		1,896,442		231
Agricultural and other		1,125		3,713		1,057		5,895		275,110		281,005		—
Total	$	14,484	$	12,929	$	74,138	$	101,551	$	11,119,170	$	11,220,721	$	9,610

Non-accruing loans at September 30, 2021 and December 31, 2020 were $47.6 million and $64.5 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2021 was approximately $3.3 million and $9.8 million, respectively. Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2020 was approximately $694,000 and $2.1 million, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

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 risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Alabama and New York.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. Descriptions of the general characteristics of the 8 risk ratings are as follows:

•

Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

•

Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

•

Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.

•

Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure.

•

Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM 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. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

•

Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.

•

Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.

•

Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.

The Company’s classified loans 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. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually 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.

Based on the most recent analysis performed, the risk category of loans by class of loans as of September 30, 2021 and December 31, 2020 is as follows:

	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		—		209,027		209,027
Risk rating 3		182,402		280,163		314,000		396,848		247,852		981,970		68,510		2,471,745
Risk rating 4		106,983		35,274		120,584		257,933		112,120		358,937		87		991,918
Risk rating 5		—		10,825		2,308		20,791		37,848		197,539		—		269,311
Risk rating 6		—		—		15,219		1,803		11,939		34,797		—		63,758
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		82		—		82
Total non-farm/non-residential		289,385		326,262		452,111		677,375		409,759		1,573,325		277,624		4,005,841
Construction/land development
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		235		—		235
Risk rating 3		150,620		228,246		100,935		33,933		23,005		42,863		166,151		745,753
Risk rating 4		117,314		215,084		501,761		45,824		40,377		39,461		23,650		983,471
Risk rating 5		—		—		416		—		—		1,177		1		1,594
Risk rating 6		—		115		874		8		—		10,636		—		11,633
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		1		—		—		1
Total construction/land development		267,934		443,445		603,986		79,765		63,383		94,372		189,802		1,742,687
Agricultural
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		—		—		—
Risk rating 3		18,093		30,708		8,005		6,673		5,412		21,538		6,616		97,045
Risk rating 4		4,389		2,120		367		1,164		771		30,233		1,388		40,432
Risk rating 5		—		—		—		—		—		—		—		—
Risk rating 6		—		45		—		—		—		1,359		—		1,404
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total agricultural		22,482		32,873		8,372		7,837		6,183		53,130		8,004		138,881
Total commercial real estate loans	$	579,801	$	802,580	$	1,064,469	$	764,977	$	479,325	$	1,720,827	$	475,430	$	5,887,409
Residential real estate loans
Residential 1-4 family
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	80	$	90	$	170
Risk rating 2		—		—		—		—		—		29		—		29
Risk rating 3		173,712		153,260		140,787		111,458		89,445		324,888		86,267		1,079,817
Risk rating 4		8,346		4,250		6,071		17,677		23,144		60,710		30,830		151,028
Risk rating 5		—		—		3,064		1,506		529		5,114		197		10,410
Risk rating 6		788		2,003		2,406		1,931		1,525		16,914		6,933		32,500
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		6		28		—		34
Total residential 1-4 family		182,846		159,513		152,328		132,572		114,649		407,763		124,317		1,273,988
Multifamily residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		—		—		—
Risk rating 3		8,496		10,243		35,143		34,974		9,825		46,473		7,782		152,936
Risk rating 4		—		11,271		27,202		3,435		3,009		21,128		37,047		103,092
Risk rating 5		—		—		—		7,621		8,170		—		—		15,791
Risk rating 6		—		—		—		—		897		1,415		—		2,312
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total multifamily residential		8,496		21,514		62,345		46,030		21,901		69,016		44,829		274,131
Total real estate	$	771,143	$	983,607	$	1,279,142	$	943,579	$	615,875	$	2,197,606	$	644,576	$	7,435,528

	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year, Continued
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Consumer
Risk rating 1	$	2,930	$	2,109	$	1,556	$	1,064	$	259	$	1,777	$	1,753	$	11,448
Risk rating 2		—		—		45		647		—		9		—		701
Risk rating 3		153,432		189,046		147,510		116,833		72,351		102,108		6,801		788,081
Risk rating 4		2,993		1,107		3,110		1,908		185		2,407		74		11,784
Risk rating 5		—		116		—		99		172		134		—		521
Risk rating 6		—		46		347		120		—		1,641		41		2,195
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		1		1		—		2
Total consumer		159,355		192,424		152,568		120,671		72,968		108,077		8,669		814,732
Commercial and industrial
Risk rating 1	$	210,222	$	28,846	$	371	$	157	$	169	$	21,457	$	11,885	$	273,107
Risk rating 2		19		19		—		—		87		280		175		580
Risk rating 3		75,240		77,113		95,166		52,322		25,516		55,060		148,891		529,308
Risk rating 4		132,855		35,907		107,294		98,787		35,085		37,893		75,883		523,704
Risk rating 5		6,197		158		2,019		8,387		5,725		3,077		672		26,235
Risk rating 6		1,222		15,430		6,736		25,441		5,570		4,633		330		59,362
Risk rating 7		—		—		—		1,777		—		—		—		1,777
Risk rating 8		—		2		1		—		—		1		2		6
Total commercial and industrial		425,755		157,475		211,587		186,871		72,152		122,401		237,838		1,414,079
Agricultural and other
Risk rating 1	$	11,231	$	203	$	43	$	—	$	—	$	112	$	375	$	11,964
Risk rating 2		—		—		3,467		—		—		908		809		5,184
Risk rating 3		58,313		60,137		5,395		7,572		2,187		50,145		14,162		197,911
Risk rating 4		6,034		376		157		1,542		1,408		1,487		9,441		20,445
Risk rating 5		—		—		—		—		—		597		—		597
Risk rating 6		—		—		27		14		33		586		—		660
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total agricultural and other		75,578		60,716		9,089		9,128		3,628		53,835		24,787		236,761
Total	$	1,431,831	$	1,394,222	$	1,652,386	$	1,260,249	$	764,623	$	2,481,919	$	915,870	$	9,901,100

	December 31, 2020
	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior			Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—
Risk rating 2		—		—		—		—		—		—			25		25
Risk rating 3		301,237		340,562		546,670		286,173		289,483		942,449			266,867		2,973,441
Risk rating 4		27,239		139,354		161,461		265,684		197,979		300,055			17,305		1,109,077
Risk rating 5		10,591		16,865		67,089		7,764		108,885		84,609			750		296,553
Risk rating 6		—		859		2,289		987		4,577		40,600			86		49,398
Risk rating 7		—		—		—		—		—		552			—		552
Risk rating 8		—		—		—		—		—		14			—		14
Total non-farm/non-residential		339,067		497,640		777,509		560,608		600,924		1,368,279			285,033		4,429,060
Construction/land development
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—
Risk rating 2		—		—		—		—		—		283			—		283
Risk rating 3		211,567		181,257		91,323		33,986		25,600		54,245			115,120		713,098
Risk rating 4		129,599		417,737		92,032		46,249		17,161		32,060			76,845		811,683
Risk rating 5		—		—		392		21,892		—		1,227			545		24,056
Risk rating 6		—		763		98		63		157		12,065			—		13,146
Risk rating 7		—		—		—		—		—		—			—		—
Risk rating 8		—		—		—		1		—		31			—		32
Total construction/land development		341,166		599,757		183,845		102,191		42,918		99,911			192,510		1,562,298
Agricultural
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—
Risk rating 2		—		—		—		—		—		—			—		—
Risk rating 3		33,428		8,885		9,119		5,397		3,935		25,159			5,538		91,461
Risk rating 4		2,141		535		1,206		681		5,499		10,735			665		21,462
Risk rating 5		—		—		—		—		—		116			—		116
Risk rating 6		47		—		—		—		—		1,345			—		1,392
Risk rating 7		—		—		—		—		—		—			—		—
Risk rating 8		—		—		—		—		—		—			—		—
Total agricultural		35,616		9,420		10,325		6,078		9,434		37,355			6,203		114,431
Total commercial real estate loans	$	715,849	$	1,106,817	$	971,679	$	668,877	$	653,276	$	1,505,545		$	483,746	$	6,105,789
Residential real estate loans
Residential 1-4 family
Risk rating 1	$	—	$	47	$	—	$	—	$	76	$	12		$	120	$	255
Risk rating 2		—		—		—		—		—		423			1,540		1,963
Risk rating 3		237,991		184,578		151,478		139,096		119,642		343,381			119,186		1,295,352
Risk rating 4		4,626		12,716		32,594		20,687		16,148		68,328	��		30,137		185,236
Risk rating 5		—		—		1,363		4,700		383		5,344			516		12,306
Risk rating 6		554		5,973		829		2,084		3,222		18,074			10,257		40,993
Risk rating 7		—		—		—		—		—		—			—		—
Risk rating 8		—		—		—		—		—		8			144		152
Total residential 1-4 family		243,171		203,314		186,264		166,567		139,471		435,570			161,900		1,536,257
Multifamily residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—
Risk rating 2		—		—		—		—		—		—			—		—
Risk rating 3		19,033		60,175		87,104		11,477		8,092		59,592			6,386		251,859
Risk rating 4		477		6,358		101,364		93,475		1,924		17,672			37,286		258,556
Risk rating 5		—		—		—		—		—		24,945			—		24,945
Risk rating 6		—		—		—		894		—		284			—		1,178
Risk rating 7		—		—		—		—		—		—			—		—
Risk rating 8		—		—		—		—		—		—			—		—
Total multifamily residential		19,510		66,533		188,468		105,846		10,016		102,493			43,672		536,538
Total real estate	$	978,530	$	1,376,664	$	1,346,411	$	941,290	$	802,763	$	2,043,608		$	689,318	$	8,178,584

	December 31, 2020
	Term Loans Amortized Cost Basis by Origination Year, Continued
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Consumer
Risk rating 1	$	3,389	$	2,375	$	1,596	$	485	$	828	$	1,428	$	1,957	$	12,058
Risk rating 2		—		47		931		—		—		12		57		1,047
Risk rating 3		229,189		192,054		152,646		97,812		68,585		68,871		20,094		829,251
Risk rating 4		3,699		3,479		2,769		1,411		1,371		1,991		117		14,837
Risk rating 5		144		737		22		198		568		321		—		1,990
Risk rating 6		12		361		566		3		2,052		2,468		45		5,507
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total consumer		236,433		199,053		158,530		99,909		73,404		75,091		22,270		864,690
Commercial and industrial
Risk rating 1	$	632,735	$	506	$	271	$	183	$	20,199	$	1,445	$	10,023	$	665,362
Risk rating 2		29		187		2		96		67		623		268		1,272
Risk rating 3		80,586		131,717		62,814		35,651		39,502		52,743		135,590		538,603
Risk rating 4		68,032		144,867		149,445		42,416		15,138		43,065		115,341		578,304
Risk rating 5		3,195		16,341		11,283		346		251		448		10,637		42,501
Risk rating 6		1,261		4,086		30,834		22,992		2,615		5,198		3,405		70,391
Risk rating 7		—		3		—		—		—		—		—		3
Risk rating 8		1		—		1		—		4		—		—		6
Total commercial and industrial		785,839		297,707		254,650		101,684		77,776		103,522		275,264		1,896,442
Agricultural and other
Risk rating 1	$	59,248	$	51	$	53	$	—	$	110	$	27	$	1,036	$	60,525
Risk rating 2		16		4,571		—		—		—		2,859		1,159		8,605
Risk rating 3		78,305		7,045		5,050		5,045		18,445		36,925		42,401		193,216
Risk rating 4		1,043		5,041		1,592		1,096		895		1,703		4,600		15,970
Risk rating 5		—		—		—		—		—		605		—		605
Risk rating 6		—		219		18		—		223		1,624		—		2,084
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total agricultural and other		138,612		16,927		6,713		6,141		19,673		43,743		49,196		281,005
Total	$	2,139,414	$	1,890,351	$	1,766,304	$	1,149,024	$	973,616	$	2,265,964	$	1,036,048	$	11,220,721

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the amortized cost of performing and nonperforming loans as of September 30, 2021 and December 31, 2020.

	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Performing	$	289,385	$	316,115	$	437,231	$	657,174	$	371,874	$	1,406,655	$	277,624	$	3,756,058
Non-performing		—		10,147		14,880		20,201		37,885		166,670		—		249,783
Total non-farm/ non-residential		289,385		326,262		452,111		677,375		409,759		1,573,325		277,624		4,005,841
Construction/land development
Performing	$	267,934	$	443,330	$	602,793	$	79,757	$	63,382	$	90,488	$	189,802	$	1,737,486
Non-performing		—		115		1,193		8		1		3,884		—		5,201
Total construction/ land development		267,934		443,445		603,986		79,765		63,383		94,372		189,802		1,742,687
Agricultural
Performing	$	22,482	$	32,873	$	8,372	$	7,837	$	6,183	$	52,387	$	8,004	$	138,138
Non-performing		—		—		—		—		—		743		—		743
Total agricultural		22,482		32,873		8,372		7,837		6,183		53,130		8,004		138,881
Total commercial real estate loans	$	579,801	$	802,580	$	1,064,469	$	764,977	$	479,325	$	1,720,827	$	475,430	$	5,887,409
Residential real estate loans
Residential 1-4 family
Performing	$	182,588	$	156,843	$	150,130	$	131,375	$	113,265	$	400,128	$	118,266	$	1,252,595
Non-performing		258		2,670		2,198		1,197		1,384		7,635		6,051		21,393
Total residential 1-4 family		182,846		159,513		152,328		132,572		114,649		407,763		124,317		1,273,988
Multifamily residential
Performing	$	8,496	$	21,514	$	62,345	$	46,030	$	21,901	$	68,855	$	44,829	$	273,970
Non-performing		—		—		—		—		—		161		—		161
Total multifamily residential		8,496		21,514		62,345		46,030		21,901		69,016		44,829		274,131
Total real estate	$	771,143	$	983,607	$	1,279,142	$	943,579	$	615,875	$	2,197,606	$	644,576	$	7,435,528
Consumer
Performing	$	159,355

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