UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
For Quarter EndedSeptember 30, 2017Commission File Number000-06253
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

 Commission File Number 000-06253
sfnc-20200630_g1.jpgSIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

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

870-541-1000

(870) 541-1000
(Registrant'sRegistrant’s telephone number, including area code)

Not Applicable

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

report) 


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

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

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

☒Yes   ☐No

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

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 Act.).  ☐Yes   ☒ No


The number of shares outstanding of the Registrant’s Common Stock as of October 31, 2017,August 3, 2020, was 45,970,797.

109,016,379.




Simmons First National Corporation

Quarterly Report on Form 10-Q

September

June 30, 2017

2020


Table of Contents


Page
Part I:Financial InformationPage
3
4
5
6
7
8-499
5049
51-7650
76-7877
79
79
79
7980
Item 3.Defaults Upon Senior Securities*
Item 4.Mine Safety Disclosures*
Item 5.Other Information*
79-8180
82

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

* No reportable information under this item.




Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Simmons First National Corporation

Consolidated Balance Sheets

September

June 30, 20172020 and December 31, 2016

2019
June 30,December 31,
(In thousands, except share data) September 30,
2017		 December 31,
2016		(In thousands, except share data)20202019
 (Unaudited)   (Unaudited) 
ASSETS    ASSETS  
Cash and non-interest bearing balances due from banks $108,675  $117,007 Cash and non-interest bearing balances due from banks$234,998  $277,208  
Interest bearing balances due from banks and federal funds sold  323,615   168,652 Interest bearing balances due from banks and federal funds sold2,310,162  719,415  
Cash and cash equivalents  432,290   285,659 Cash and cash equivalents2,545,160  996,623  
Interest bearing balances due from banks - time  4,059   4,563 Interest bearing balances due from banks - time4,561  4,554  
Investment securities:        Investment securities:
Held-to-maturity  406,033   462,096 
Available-for-sale  1,317,420   1,157,354 
Held-to-maturity, net of allowance for credit losses of $307 at June 30, 2020Held-to-maturity, net of allowance for credit losses of $307 at June 30, 202051,720  40,927  
Available-for-sale, net of allowance for credit losses of $609 at June 30, 2020 (amortized cost of $2,428,548 and $3,263,151 at June 30, 2020 and December 31, 2019, respectively)Available-for-sale, net of allowance for credit losses of $609 at June 30, 2020 (amortized cost of $2,428,548 and $3,263,151 at June 30, 2020 and December 31, 2019, respectively)2,496,896  3,288,343  
Total investments  1,723,453   1,619,450 Total investments2,548,616  3,329,270  
Mortgage loans held for sale  12,614   27,788 Mortgage loans held for sale120,034  58,102  
Assets held in trading accounts  49   41 
Other assets held for sale  182,378   -- Other assets held for sale399  260,332  
Loans:        
Legacy loans  5,211,312   4,327,207 
Allowance for loan losses  (42,717)  (36,286)
Loans acquired, net of discount and allowance  1,092,039   1,305,683 
LoansLoans14,606,900  14,425,704  
Allowance for credit losses on loansAllowance for credit losses on loans(231,643) (68,244) 
Net loans  6,260,634   5,596,604 Net loans14,375,257  14,357,460  
Premises and equipment  224,376   199,359 Premises and equipment478,896  492,384  
Premises held for sale  --   6,052 Premises held for sale4,576  —  
Foreclosed assets and other real estate owned  31,477   26,895 Foreclosed assets and other real estate owned14,111  19,121  
Interest receivable  30,749   27,788 Interest receivable79,772  62,707  
Bank owned life insurance  148,984   138,620 Bank owned life insurance256,643  254,152  
Goodwill  375,731   348,505 Goodwill1,064,765  1,055,520  
Other intangible assets  55,501   52,959 Other intangible assets117,823  127,340  
Other assets  53,075   65,773 Other assets293,071  241,578  
Total assets $9,535,370  $8,400,056 Total assets$21,903,684  $21,259,143  
        
LIABILITIES AND STOCKHOLDERS’ EQUITY        LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:        Deposits:
Non-interest bearing transaction accounts $1,669,860  $1,491,676 Non-interest bearing transaction accounts$4,608,098  $3,741,093  
Interest bearing transaction accounts and savings deposits  4,344,779   3,956,483 Interest bearing transaction accounts and savings deposits8,978,045  9,090,878  
Time deposits  1,310,951   1,287,060 Time deposits3,029,975  3,276,969  
Total deposits  7,325,590   6,735,219 Total deposits16,616,118  16,108,940  
Federal funds purchased and securities sold under agreements to repurchase  121,687   115,029 Federal funds purchased and securities sold under agreements to repurchase387,025  150,145  
Other borrowings  522,541   273,159 Other borrowings1,393,689  1,297,599  
Subordinated debentures  67,418   60,397 Subordinated debentures382,604  388,260  
Other liabilities held for sale  176,964   -- Other liabilities held for sale—  159,853  
Accrued interest and other liabilities  63,971   65,141 Accrued interest and other liabilities219,545  165,422  
Total liabilities  8,278,171   7,248,945 Total liabilities18,998,981  18,270,219  
        
Stockholders’ equity:        Stockholders’ equity:
Common stock, Class A, $0.01 par value; 120,000,000 shares authorized; 32,212,242 and 31,277,723 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively  322   313 
Preferred stock, 40,040,000 shares authorized; Series D, $0.01 par value, $1,000 liquidation value per share; 767 shares issued and outstanding at June 30, 2020 and December 31, 2019Preferred stock, 40,040,000 shares authorized; Series D, $0.01 par value, $1,000 liquidation value per share; 767 shares issued and outstanding at June 30, 2020 and December 31, 2019767  767  
Common stock, Class A, $0.01 par value; 175,000,000 shares authorized at June 30, 2020 and December 31, 2019; 108,994,389 and 113,628,601 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectivelyCommon stock, Class A, $0.01 par value; 175,000,000 shares authorized at June 30, 2020 and December 31, 2019; 108,994,389 and 113,628,601 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively1,090  1,136  
Surplus  763,443   711,976 Surplus2,029,383  2,117,282  
Undivided profits  504,085   454,034 Undivided profits819,153  848,848  
Accumulated other comprehensive loss  (10,651)  (15,212)
Accumulated other comprehensive incomeAccumulated other comprehensive income54,310  20,891  
Total stockholders’ equity  1,257,199   1,151,111 Total stockholders’ equity2,904,703  2,988,924  
Total liabilities and stockholders’ equity $9,535,370  $8,400,056 Total liabilities and stockholders’ equity$21,903,684  $21,259,143  



See Condensed Notes to Consolidated Financial Statements.


3




Simmons First National Corporation

Consolidated Statements of Income

Three and NineSix Months Ended SeptemberJune 30, 20172020 and 2016

2019
  

Three Months Ended

September30,

 Nine Months Ended
September 30,
(In thousands, except per share data) 2017 2016 2017 2016
  (Unaudited) (Unaudited)
INTEREST INCOME        
Loans $77,457  $65,078  $219,734  $194,765 
Interest bearing balances due from banks and federal funds sold  650   263   986   511 
Investment securities  9,218   7,774   28,659   24,779 
Mortgage loans held for sale  159   299   430   872 
Assets held in trading accounts  --   4   --   13 
TOTAL INTEREST INCOME  87,484   73,418   249,809   220,940 
                 
INTEREST EXPENSE                
Deposits  6,030   3,732   15,050   11,162 
Federal funds purchased and securities sold under agreements to repurchase  83   59   250   183 
Other borrowings  1,875   1,048   4,628   3,114 
Subordinated debentures  677   516   1,870   1,603 
TOTAL INTEREST EXPENSE  8,665   5,355   21,798   16,062 
                 
NET INTEREST INCOME  78,819   68,063   228,011   204,878 
Provision for loan losses  5,462   8,294   16,792   15,733 
                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  73,357   59,769   211,219   189,145 
                 
NON-INTEREST INCOME                
Trust income  4,225   3,873   12,550   11,160 
Service charges on deposit accounts  8,907   8,771   25,492   23,748 
Other service charges and fees  2,433   3,261   7,145   8,846 
Mortgage and SBA lending income  3,219   4,339   9,603   11,903 
Investment banking income  680   1,131   2,007   2,999 
Debit and credit card fees  8,864   7,825   25,457   22,713 
Bank owned life insurance income  725   606   2,402   2,429 
Gain on sale of securities  3   315   2,302   4,403 
Other income  7,276   6,755   15,178   15,066 
TOTAL NON-INTEREST INCOME  36,332   36,876   102,136   103,267 
                 
NON-INTEREST EXPENSE                
Salaries and employee benefits  35,285   31,784   105,026   99,660 
Occupancy expense, net  4,928   4,690   14,459   14,151 
Furniture and equipment expense  4,840   4,272   13,833   12,296 
Other real estate and foreclosure expense  1,071   1,849   2,177   3,782 
Deposit insurance  1,020   1,136   2,480   3,380 
Merger related costs  752   1,524   7,879   1,989 
Other operating expenses  18,263   17,179   58,035   53,102 
TOTAL NON-INTEREST EXPENSE  66,159   62,434   203,889   188,360 
                 
INCOME BEFORE INCOME TAXES  43,530   34,211   109,466   104,052 
Provision for income taxes  14,678   10,782   35,429   34,209 
                 
NET INCOME  28,852   23,429   74,037   69,843 
Preferred stock dividends  --   --   --   24 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $28,852  $23,429  $74,037  $69,819 
BASIC EARNINGS PER SHARE $0.90  $0.77  $2.33  $2.29 
DILUTED EARNINGS PER SHARE $0.89  $0.76  $2.31  $2.28 

 Three Months Ended
June 30,		Six Months Ended June 30,
(In thousands, except per share data)2020201920202019
 (Unaudited)(Unaudited)
INTEREST INCOME
Loans$176,910  $178,122  $364,476  $337,562  
Interest bearing balances due from banks and federal funds sold603  1,121  3,044  3,275  
Investment securities13,473  15,666  32,416  31,947  
Mortgage loans held for sale668  332  949  542  
TOTAL INTEREST INCOME191,654  195,241  400,885  373,326  
INTEREST EXPENSE
Deposits18,006  34,796  49,283  65,546  
Federal funds purchased and securities sold under agreements to repurchase337  257  1,096  393  
Other borrowings4,963  6,219  9,840  13,012  
Subordinated notes and debentures4,667  4,541  9,502  8,952  
TOTAL INTEREST EXPENSE27,973  45,813  69,721  87,903  
NET INTEREST INCOME163,681  149,428  331,164  285,423  
Provision for credit losses26,915  7,079  53,049  16,364  
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES136,766  142,349  278,115  269,059  
NON-INTEREST INCOME
Trust income7,253  5,794  14,404  11,502  
Service charges on deposit accounts8,570  10,557  21,898  20,625  
Other service charges and fees1,489  1,312  3,077  2,601  
Mortgage lending income12,459  3,656  17,505  6,479  
SBA lending income245  895  541  1,392  
Investment banking income571  360  1,448  978  
Debit and credit card fees7,996  7,212  15,910  13,310  
Bank owned life insurance income1,445  1,260  2,743  2,055  
Gain on sale of securities, net390  2,823  32,485  5,563  
Other income9,809  6,065  22,610  10,221  
TOTAL NON-INTEREST INCOME50,227  39,934  132,621  74,726  
NON-INTEREST EXPENSE
Salaries and employee benefits57,644  56,128  125,568  112,495  
Occupancy expense, net9,217  6,919  18,727  14,394  
Furniture and equipment expense6,144  4,206  11,867  7,564  
Other real estate and foreclosure expense274  591  599  1,228  
Deposit insurance2,838  2,510  5,313  4,550  
Merger related costs1,830  7,522  2,898  8,992  
Other operating expenses34,651  32,867  73,439  62,929  
TOTAL NON-INTEREST EXPENSE112,598  110,743  238,411  212,152  
INCOME BEFORE INCOME TAXES74,395  71,540  172,325  131,633  
Provision for income taxes15,593  15,616  36,287  28,014  
NET INCOME58,802  55,924  136,038  103,619  
Preferred stock dividends13  326  26  326  
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$58,789  $55,598  $136,012  $103,293  
BASIC EARNINGS PER SHARE$0.54  $0.58  $1.23  $1.10  
DILUTED EARNINGS PER SHARE$0.54  $0.58  $1.22  $1.09  
See Condensed Notes to Consolidated Financial Statements.


4




Simmons First National Corporation

Consolidated Statements of Comprehensive Income

Three and NineSix Months Ended SeptemberJune 30, 20172020 and 2016

2019
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands, except per share data) 2017 2016 2017 2016
  (Unaudited) (Unaudited)
         
NET INCOME $28,852  $23,429  $74,037  $69,843 
                 
OTHER COMPREHENSIVE INCOME                
Unrealized holding gains (losses) arising during the period on available-for-sale securities  1,107   (3,175)  9,807   12,271 
Less: Reclassification adjustment for realized gains included in net income  3   315   2,302   4,403 
Other comprehensive gain (loss), before tax effect  1,104   (3,490)  7,505   7,868 
                 
Less: Tax effect of other comprehensive gain (loss)  433   (1,369)  2,944   3,086 
                 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)  671   (2,121)  4,561   4,782 
                 
COMPREHENSIVE INCOME $29,523  $21,308  $78,598  $74,625 

 Three Months Ended
June 30,		Six Months Ended June 30,
(In thousands)2020201920202019
 (Unaudited)(Unaudited)
NET INCOME$58,802  $55,924  $136,038  $103,619  
OTHER COMPREHENSIVE INCOME
Unrealized holding gains arising during the period on available-for-sale securities22,159  31,681  77,728  60,811  
Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-12—  —  —  2,547  
Less: Reclassification adjustment for realized gains included in net income390  2,823  32,485  5,563  
Other comprehensive income, before tax effect21,769  28,858  45,243  57,795  
Less: Tax effect of other comprehensive income5,689  7,542  11,824  15,105  
TOTAL OTHER COMPREHENSIVE INCOME16,080  21,316  33,419  42,690  
COMPREHENSIVE INCOME$74,882  $77,240  $169,457  $146,309  

See Condensed Notes to Consolidated Financial Statements.


5




Simmons First National Corporation

Consolidated Statements of Cash Flows

Nine

Six Months Ended SeptemberJune 30, 20172020 and 2016

2019
(In thousands) September 30,
2017		 September 30,
2016		(In thousands)June 30, 2020June 30, 2019
 (Unaudited) (Unaudited)
OPERATING ACTIVITIES        OPERATING ACTIVITIES  
Net income $74,037  $69,843 Net income$136,038  $103,619  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Adjustments to reconcile net income to net cash (used in) provided by operating activities:Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization  14,589   12,229 Depreciation and amortization24,148  16,019  
Provision for loan losses  16,792   15,733 
Provision for credit lossesProvision for credit losses53,049  16,364  
(Benefit) provision for credit losses on unfunded commitments(Benefit) provision for credit losses on unfunded commitments(8,000) 950  
Gain on sale of investments  (2,302)  (4,403)Gain on sale of investments(32,485) (5,563) 
Net accretion of investment securities and assets  (19,472)  (22,863)Net accretion of investment securities and assets(30,078) (22,663) 
Net amortization on borrowings  319   314 Net amortization on borrowings271  182  
Stock-based compensation expense  5,675   2,679 Stock-based compensation expense7,577  6,249  
Gain on sale of premises and equipment, net of impairment  (615)  (159)
Gain on sale of foreclosed assets and other real estate owned  (801)  (1,731)
Gain on sale of foreclosed assets held for saleGain on sale of foreclosed assets held for sale(400) (16) 
Gain on sale of mortgage loans held for sale  (8,809)  (11,150)Gain on sale of mortgage loans held for sale(14,993) (8,257) 
Gain on sale of other intangiblesGain on sale of other intangibles(301) —  
Gain on sale of branchesGain on sale of branches(8,094) —  
Fair value write-down of closed branches  325   3,000 Fair value write-down of closed branches1,465  —  
Deferred income taxes  4,962   1,070 Deferred income taxes4,616  4,940  
Increase in cash surrender value of bank owned life insurance  (2,402)  (2,429)
Income from bank owned life insuranceIncome from bank owned life insurance(3,245) (2,136) 
Originations of mortgage loans held for sale  (353,714)  (472,902)Originations of mortgage loans held for sale(470,797) (282,204) 
Proceeds from sale of mortgage loans held for sale  377,697   486,248 Proceeds from sale of mortgage loans held for sale423,858  282,861  
Changes in assets and liabilities:        Changes in assets and liabilities:
Interest receivable  (1,129)  (799)Interest receivable(18,021) (1,494) 
Assets held in trading accounts  (8)  1,453 
Lease right-of-use assetsLease right-of-use assets5,995  (2,469) 
Other assets  8,249   16,680 Other assets(19,676) 18,911  
Accrued interest and other liabilities  (9,738)  (13,950)Accrued interest and other liabilities70,270  (5,326) 
Income taxes payable  4,819   (2,286)Income taxes payable(34,233) 2,553  
Net cash provided by operating activities  108,474   76,577 Net cash provided by operating activities86,964  122,520  
INVESTING ACTIVITIES        INVESTING ACTIVITIES
Net originations of loans  (427,789)  (140,240)Net originations of loans(318,795) (302,151) 
Decrease in due from banks - time  2,488   9,714 
Proceeds from sale of loansProceeds from sale of loans4,600  —  
(Increase) decrease in due from banks - time(Increase) decrease in due from banks - time(7) 395  
Purchases of premises and equipment, net  (28,971)  (8,840)Purchases of premises and equipment, net(19,784) (21,689) 
Proceeds from sale of premises and equipment  3,475   890 
Purchases of other real estate owned  (1,021)  -- 
Proceeds from sale of foreclosed assets and other real estate owned  11,401   24,095 
Proceeds from sale of foreclosed assets held for saleProceeds from sale of foreclosed assets held for sale6,173  9,870  
Proceeds from sale of available-for-sale securities  327,218   249,079 Proceeds from sale of available-for-sale securities1,201,778  449,107  
Proceeds from maturities of available-for-sale securities  76,615   137,832 Proceeds from maturities of available-for-sale securities2,048,453  296,409  
Purchases of available-for-sale securities  (380,308)  (498,011)Purchases of available-for-sale securities(2,386,878) (383,416) 
Proceeds from maturities of held-to-maturity securities  57,896   215,846 Proceeds from maturities of held-to-maturity securities5,932  25,406  
Purchases of held-to-maturity securities  (860)  (6,162)Purchases of held-to-maturity securities(16,997) —  
Proceeds from bank owned life insurance death benefits  --   2,043 Proceeds from bank owned life insurance death benefits763  1,310  
Purchases of bank owned life insurance  (143)  (143)
Proceeds from the sale of insurance lines of business  3,707   -- 
Cash paid in business combinations, net of cash received  (22,000)  -- 
Cash received in business combinations, net of cash paid  --   106,419 
Net cash (used in) provided by investing activities  (378,292)  92,522 
Disposition of assets and liabilities held for saleDisposition of assets and liabilities held for sale181,261  1,393  
Purchase of Reliance Bancshares, Inc.Purchase of Reliance Bancshares, Inc.—  (37,017) 
Net cash provided by investing activitiesNet cash provided by investing activities706,499  39,617  
FINANCING ACTIVITIES        FINANCING ACTIVITIES
Net change in deposits  201,395   21,428 Net change in deposits561,185  (107,806) 
Repayments of subordinated debentures  --   (594)Repayments of subordinated debentures(5,927) —  
Dividends paid on preferred stock  --   (24)Dividends paid on preferred stock(26) (326) 
Dividends paid on common stock  (23,986)  (21,227)Dividends paid on common stock(37,606) (30,265) 
Net change in other borrowed funds  246,382   48,940 Net change in other borrowed funds96,090  (178,756) 
Net change in federal funds purchased and securities sold under agreements to repurchase  (10,505)  11,658 Net change in federal funds purchased and securities sold under agreements to repurchase236,880  20,532  
Net shares issued under stock compensation plans  2,545   3,247 
Net shares cancelled under stock compensation plansNet shares cancelled under stock compensation plans(3,171) (3,030) 
Shares issued under employee stock purchase plan  618   586 Shares issued under employee stock purchase plan956  1,312  
Redemption of preferred stock  --   (30,852)
Net cash provided by financing activities  416,449   33,162 
INCREASE IN CASH AND CASH EQUIVALENTS  146,631   202,261 
Retirement of preferred stockRetirement of preferred stock—  (42,000) 
Repurchases of common stockRepurchases of common stock(93,307) —  
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities755,074  (340,339) 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTSINCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS1,548,537  (178,202) 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  285,659   252,262 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD996,623  833,458  
CASH AND CASH EQUIVALENTS, END OF PERIOD $432,290  $454,523 CASH AND CASH EQUIVALENTS, END OF PERIOD$2,545,160  $655,256  

See Condensed Notes to Consolidated Financial Statements.


6




Simmons First National Corporation

Consolidated Statements of Stockholders’ Equity

Nine

Three Months Ended SeptemberJune 30, 20172020 and 2016

2019
(In thousands, except share data) Preferred Stock Common
Stock		 Surplus Accumulated
Other
Comprehensive
Income (Loss)		 Undivided
Profits		 Total
             
Balance, December 31, 2015 $30,852  $303  $662,378  $(2,665) $385,987  $1,076,855 
                         
Comprehensive income  --   --   --   4,782   69,843   74,625 
Stock issued for employee stock purchase plan – 15,735 shares  --   --   586   --   --   586 
Stock-based compensation plans, net – 137,706 shares  --   2   5,924   --   --   5,926 
Stock issued for Citizens National acquisition – 835,741 common shares  --   8   41,244   --   --   41,252 
Preferred stock redeemed  (30,852)  --   --   --   --   (30,852)
Dividends on preferred stock  --   --   --   --   (24)  (24)
Dividends on common stock – $0.72 per share  --   --   --   --   (21,227)  (21,227)
                         
Balance, September 30, 2016 (Unaudited)  --   313   710,132   2,117   434,579   1,147,141 
                         
Comprehensive income  --   --   --   (17,329)  26,971   9,642 
Stock-based compensation plans, net – 10,109 shares  --   --   1,844   --   --   1,844 
Cash dividends – $0.24 per share  --   --   --   --   (7,516)  (7,516)
                         
Balance, December 31, 2016  --   313   711,976   (15,212)  454,034   1,151,111 
                         
Comprehensive income  --   --   --   4,561   74,037   78,598 
Stock issued for employee stock purchase plan – 13,001 shares  --   --   618   --   --   618 
Stock-based compensation plans, net – 121,548 shares  --   1   8,219   --   --   8,220 
Stock issued for Hardeman acquisition – 799,970 common shares  --   8   42,630   --   --   42,638 
Dividends on common stock – $0.75 per share  --   --   --   --   (23,986)  (23,986)
                         
Balance, September 30, 2017 (Unaudited) $--  $322  $763,443  $(10,651) $504,085  $1,257,199 


(In thousands, except share data)Preferred StockCommon StockSurplusAccumulated Other Comprehensive Income (Loss)Undivided ProfitsTotal
Three Months Ended June 30, 2020
Balance, March 31, 2020 (Unaudited)$767  $1,090  $2,026,420  $38,230  $778,893  $2,845,400  
Comprehensive income—  —  —  16,080  58,802  74,882  
Stock-based compensation plans, net – 28,058 shares—  —  2,963  —  —  2,963  
Dividends on preferred stock—  —  —  —  (13) (13) 
Dividends on common stock – $0.17 per share—  —  —  —  (18,529) (18,529) 
Balance, June 30, 2020 (Unaudited)$767  $1,090  $2,029,383  $54,310  $819,153  $2,904,703  
Three Months Ended June 30, 2019
Balance, March 31, 2019 (Unaudited)$—  $926  $1,599,566  $(6,000) $707,829  $2,302,321  
Comprehensive income—  —  —  21,316  55,924  77,240  
Stock-based compensation plans, net – 22,672 shares—  —  2,906  —  —  2,906  
Stock issued for Reliance acquisition – 3,999,623 shares42,000  40  102,790  —  —  144,830  
Retirement of preferred stock(42,000) —  —  —  —  (42,000) 
Dividends on preferred stock—  —  —  —  (326) (326) 
Dividends on common stock – $0.16 per share—  —  —  —  (15,458) (15,458) 
Balance, June 30, 2019 (Unaudited)$—  $966  $1,705,262  $15,316  $747,969  $2,469,513  
See Condensed Notes to Consolidated Financial Statements.


7




Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Six Months Ended June 30, 2020 and 2019
(In thousands, except share data)Preferred StockCommon
Stock		SurplusAccumulated
Other
Comprehensive
Income (Loss)		Undivided
Profits		Total
Six Months Ended June 30, 2020
Balance, December 31, 2019$767  $1,136  $2,117,282  $20,891  $848,848  $2,988,924  
Impact of ASU 2016-13 adoption
—  —  —  —  (128,101) (128,101) 
Comprehensive income—  —  —  33,419  136,038  169,457  
Stock issued for employee stock purchase plan – 43,681 shares—  1  955  —  —  956  
Stock-based compensation plans, net – 244,443 shares—  2  4,404  —  —  4,406  
Stock repurchases – 4,922,336 shares—  (49) (93,258) —  —  (93,307) 
Dividends on preferred stock—  —  —  —  (26) (26) 
Dividends on common stock – $0.34 per share—  —  —  —  (37,606) (37,606) 
Balance, June 30, 2020 (Unaudited)$767  $1,090  $2,029,383  $54,310  $819,153  $2,904,703  
Six Months Ended June 30, 2019
Balance, December 31, 2018$—  $923  $1,597,944  $(27,374) $674,941  $2,246,434  
Comprehensive income—  —  —  42,690  103,619  146,309  
Stock issued for employee stock purchase plan – 60,413 shares—  1  1,311  —  —  1,312  
Stock-based compensation plans, net – 182,977 shares—  2  3,217  —  —  3,219  
Stock issued for Reliance acquisition – 3,999,623 shares42,000  40  102,790  —  —  144,830  
Preferred stock retirement(42,000) —  —  —  —  (42,000) 
Dividends on preferred stock—  —  —  —  (326) (326) 
Dividends on common stock – $0.32 per share—  —  —  —  (30,265) (30,265) 
Balance, June 30, 2019 (Unaudited)$—  $966  $1,705,262  $15,316  $747,969  $2,469,513  



See Condensed Notes to Consolidated Financial Statements.
8



SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: BASISPREPARATION OF PRESENTATION

INTERIM FINANCIAL STATEMENTS

Description of Business and Organizational Structure
Simmons First National Corporation (“Company”) is a financial holding company headquartered in Pine Bluff, Arkansas, and the parent company of Simmons Bank, an Arkansas state-chartered bank that has been in operation since 1903. Simmons First Insurance Services, Inc. and Simmons First Insurance Services of TN, LLC are wholly-owned subsidiaries of Simmons Bank and are insurance agencies that offer various lines of personal and corporate insurance coverage to individual and commercial customers. The Company, through its subsidiaries, offers, among other things, consumer, real estate and commercial loans; checking, savings and time deposits; and specialized products and services (such as credit cards, trust and fiduciary services, investments, agricultural finance lending, equipment lending, insurance and Small Business Administration (“SBA”) lending) from approximately 226 financial centers located throughout market areas in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Simmons First National Corporation (the “Company”) and its subsidiaries have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2016,2019, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, which was filed with the SEC on February 28, 2017.

27, 2020.

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

Certain gains and fees wereprior year amounts have been reclassified within non-interest income categories in the 2016 statements of income to conform to the 2017current year financial statement presentation. These changes and reclassifications weredid not material to the consolidated financial statements.

impact previously reported net income or comprehensive income.

Recently Adopted Accounting Standards

Premium Amortization on Purchased Callable Debt Securities


Fair Value Measurement Disclosures – In March 2017,August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08,Receivables – Nonrefundable Fees and Other Costs2018-13, Fair Value Measurement (Topic 310-20)820): Premium Amortization on Purchased Callable Debt SecuritiesDisclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2017-08”2018-13”), that eliminates, amends and adds disclosure requirements for fair value measurements. These amendments are part of FASB’s disclosure review project and they are expected to reduce costs for preparers while providing more decision-useful information for financial statement users. The eliminated disclosure requirements include the amortization period1) the amount of, and reasons for, certain purchased callable debt securitiestransfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy of timing of transfers between levels of the fair value hierarchy; and 3) the valuation processes for Level 3 fair value measurements. Among other modifications, the amended disclosure requirements remove the term “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Under the new disclosure requirements, entities must disclose the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at a premium. Specifically, the amendments shorten the amortization period by requiring that the premium be amortized to the earliest call date. Under previous US GAAP, entities generally amortize the premium as an adjustment of yield over the contractual lifeend of the instrument. The amendments do not require an accounting changereporting period and the range and weighted average used to develop significant unobservable inputs for securities held at a discount; the discount continues to be amortized to maturity. The Level 3 fair value measurements. ASU 2018-13 is
9



effective date is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As permitted, we elected to early adopt the provisions of ASU 2017-08 during the first quarter 2017. The adoption of this standard did not have a material effect on our results of operations, financial position or disclosures.

Employee Share-Based Payments – In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which requires all excess tax benefits and tax deficiencies related to share-based payment awards be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Due to excess tax benefits no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current US GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 became effective for annual and interim periods beginning after December 15, 2016. The prospective adoption of this standard has not had a material effect on our results of operations, financial position or disclosures. The impact of the requirement to report those income tax effects in earnings reduced reported federal and state income tax expense by approximately $22,000 and $1.5 million for the three and nine month periods ended September 30, 2017, respectively.


Recently Issued Accounting Standards

Derivatives and Hedging: Targeted Improvements – In August 2017, the FASB issued ASU No. 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for HedgingActivities (“ASU 2017-12”), that changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in order to better align a company’s risk management activities and financial reporting for hedging relationships. In summary, this amendment 1) expands the types of transactions eligible for hedge accounting; 2) eliminates the separate measurement and presentation of hedge ineffectiveness; 3) simplifies the requirements around the assessment of hedge effectiveness; 4) provides companies more time to finalize hedge documentation; and 5) enhances presentation and disclosure requirements. The effective date is for fiscal years beginning after December 15, 2018,2019, and interim periods within those fiscal years, with early adoption permitted. All transition requirements and elections should be applied to existing hedging relationships on the date of adoption and the effects should be reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the impact this standard will have on our results of operations, financial position or disclosures, but it isASU 2018-13 did not expected to have a material impact.

Stock Compensation: Scope of Modification Accounting – In May 2017, the FASB issued ASU No. 2017-09,Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), that provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. The guidance clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

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

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


Credit Losses on Financial Instruments – In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments –- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires earlier measurement of credit losses, expands the range of information considered in determining expected credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in current US GAAP with a methodology (the current expected credit losses, or “CECL”, methodology) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

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

The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We haveIn preparation for implementation of ASU 2016-13, the Company formed a cross functional team that is assessing ourassessed its data and system needs and evaluatingevaluated the potential impact of adopting the new guidance. We expectThe Company anticipated a significant change in the processes and procedures to recognizecalculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the prior accounting practice that utilized the incurred loss model.

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

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

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

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


10



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

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

Allowance for Credit Losses - Available-for-Sale (“AFS”) Securities - For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. If the assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. 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 uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note 3, Investment Securities, for additional information related to the Company’s allowance for credit losses on AFS securities.

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

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

Collateral Dependent Loans - Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the first reporting period incollateral 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 loss is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset 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 new standardamortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is effective, but cannot yet determineexpected to be from the magnitudesale of any such one-time adjustment or the overall impactcollateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures - The allowance for credit losses on our resultsoff-balance-sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance for credit loss is recognized if the Company has the unconditional right to cancel the obligation. The allowance for credit loss is reported as a component of operations, financial position or disclosures.

accrued interest and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the income statement as a component of other operating expenses.


Leases

11



Recently Issued Accounting Standards

Reference Rate Reform – In February 2016,March 2020, the FASB issued ASU No. 2016-02,Leases2020-04, Reference Rate Reform (Topic 842)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2016-02”2020-04”), which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. After 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be available for a limited time (generally through December 31, 2022). As of June 30, 2020, the Company has not made any modifications to hedges or other instruments that reference an interest rate that is expected to be discontinued.

Income Taxes – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), that establishremoves certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 introduces the principlesfollowing new guidance: i) guidance to report transparentevaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction and economically neutral information aboutii) a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax. Additionally, ASU 2019-12 changes the assetsfollowing current guidance: i) making an intraperiod allocation, if there is a loss in continuing operations and liabilities that arise from leases. The new guidance resultsgains outside of continuing operations, ii) determining when a deferred tax liability is recognized after an investor in a more consistent representationforeign entity transitions to or from the equity method of accounting, iii) accounting for tax law changes and year-to-date losses in interim periods, and iv) determining how to apply the rightsincome tax guidance to franchise taxes that are partially based on income. ASU 2019-12 is effective for fiscal years, and obligations arising from leases by requiring lessees to recognize the lease asset and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The effective date is forinterim periods within those fiscal years, beginning after December 15, 2018, including interim periods within those fiscal years. Based upon leases that were outstanding as2020, with early adoption permitted. The Company is currently evaluating all of September 30, 2017, we dothe amendments in ASU 2019-12 and has not expect the new standard to have a material impact on our results of operations, but anticipate increases in our assets and liabilities. Decisions to repurchase, modify or renew leases prior to the implementation date will impact the level of materiality.

Financial Assets and Financial Liabilities– In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), that makes changes primarily affecting the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The effective date is for fiscal periods beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2016-01 is not expected to have a material impact on the Company’s results of operations or financial position. Additionally, although we do not expect a material impact, we are continuing to evaluateyet determined the impact of this ASU on our fair value disclosures in the notes to the consolidated financial statements.

Revenue Recognition– In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), that outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers. The core principle of this revenue model is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, deferring the effective date to annual and interim periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material effect on our results of operations, financial position or disclosures. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other US GAAP, which comprises a significant portion of our revenue stream. We believe that for most revenue streams within the scope of ASU 2015-14, the amendments will not change the timing of when the revenue is recognized. We will continue to evaluate the impact focusing on noninterest income sources within the scope of the new guidance; however, we do not expect adoption to have a material impact on our results of operations or financial position. Additionally, although we do not expect a material impact, we are continuing to evaluate the impact of the additional disclosures in our notes to the consolidated financial statements required by this guidance.

standard.


There have been no other significant changes to the Company’s accounting policies from the 20162019 Form 10-K. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on the Company’sits present or future financial position or results of operations.

Acquisition Accounting, Loans Acquired

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

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

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



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

Earnings Per Common Share (“EPS”)

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

Following is the computation of EPS for the three and nine months ended September 30, 2017 and 2016:

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands, except per share data) 2017 2016 2017 2016
Net income available to common shareholders $28,852  $23,429  $74,037  $69,819 
                 
Average common shares outstanding  32,214   30,621   31,797   30,434 
Average potential dilutive common shares  210   223   210   223 
Average diluted common shares  32,424   30,844   32,007   30,657 
                 
Basic earnings per share $0.90  $0.77  $2.33  $2.29 
Diluted earnings per share(1) $0.89  $0.76  $2.31  $2.28 

(1)Stock options to purchase 3,305 and 61,395 shares for the three and nine months ended September 30, 2016 were not included in the diluted EPS calculation because the exercise price of those options exceeded the average market price for each period. There were no stock options excluded from the earnings per share calculation due to the related exercise price exceeding the average market price for the three and nine months ended September 30, 2017.

NOTE 2: ACQUISITIONS

Hardeman County Investment


The Landrum Company Inc.


On May 15, 2017,October 31, 2019, the Company completed the acquisition of Hardeman County Investmentits merger with The Landrum Company Inc. (“Hardeman”Landrum”), headquarteredpursuant to the terms of the Agreement and Plan of Merger dated as of July 30, 2019 (“Landrum Agreement”), at which time Landrum was merged with and into the Company, with the Company continuing as the surviving corporation. Pursuant to the terms of the Landrum Agreement, the shares of Landrum Class A Common Voting Stock, par value $0.01 per share, and Landrum Class B Common Nonvoting Stock, par value $0.01 per share, were converted into the right to receive, in Jackson, Tennessee, including its wholly-owned bank subsidiary, First South Bank.the aggregate, approximately 17,350,000 shares of the Company’s common stock, and each share of Landrum’s series E preferred stock was converted into the right to receive 1 share of the Company’s comparable series D preferred stock. The Company issued 799,97017,349,722 shares of its common stock valued at approximately $42.6 million asand 767 shares of May 15, 2017, plus $30.0 million in cashits series D preferred stock, par value $0.01 per share, in exchange for all outstanding shares of Hardeman common stock.

Landrum capital stock to effect the merger.


Prior to the acquisition, HardemanLandrum, headquartered in Columbia, Missouri, conducted banking business through its subsidiary bank, Landmark Bank, from 1039 branches located in western Tennessee.Missouri, Oklahoma and Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $462.9 million$3.4 billion in assets, including approximately $251.6 million$2.0 billion in loans (inclusive of loan discounts), and approximately $389.0 million$3.0 billion in deposits. The Company completed the systems conversion andoccurred on February 14, 2020, at which time Landmark Bank merged Hardeman into Simmons Bank, in September 2017. As part ofwith Simmons Bank as the systems conversion, 5 existing Simmons and First South Bank branches were consolidated or closed.

surviving institution.


Goodwill of $29.4$140.6 million was recorded as a result of the transaction. The merger strengthened the Company’s positionmarket share and brought forth additional opportunities in the western Tennessee market, and the Company will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions, all ofCompany’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.



12



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

(In thousands) Acquired from
Hardeman		 Fair Value
Adjustments		 Fair
Value		(In thousands)Acquired from LandrumFair Value AdjustmentsFair Value
      
Assets Acquired      Assets Acquired
Cash and due from banks $8,001  $--  $8,001 Cash and due from banks$215,285  $—  $215,285  
Interest bearing balances due from banks - time  1,984   --   1,984 
Due from banks - timeDue from banks - time248  —  248  
Investment securities  170,654   (316)  170,338 Investment securities1,021,755  4,228  1,025,983  
Loans acquired  257,641   (5,992)  251,649 Loans acquired2,049,137  (43,651) 2,005,486  
Allowance for loan losses  (2,382)  2,382   -- Allowance for loan losses(22,736) 22,736  —  
Foreclosed assets  1,083   (452)  631 Foreclosed assets373  (183) 190  
Premises and equipment  9,905   1,258   11,163 Premises and equipment63,878  18,867  82,745  
Bank owned life insurance  7,819   --   7,819 Bank owned life insurance19,206  —  19,206  
Goodwill  11,485   (11,485)  -- Goodwill407  (407) —  
Core deposit intangible  --   7,840   7,840 Core deposit intangible—  24,345  24,345  
Other intangibles  --   830   830 Other intangibles412  4,704  5,116  
Other assets  2,639   (1)  2,638 Other assets33,924  (13,290) 20,634  
Total assets acquired $468,829  $(5,936) $462,893 Total assets acquired$3,381,889  $17,349  $3,399,238  
            
Liabilities Assumed            Liabilities Assumed
Deposits:            Deposits:
Non-interest bearing transaction accounts $76,555  $--  $76,555 Non-interest bearing transaction accounts$716,675  $—  $716,675  
Interest bearing transaction accounts and savings deposits  214,872   --   214,872 Interest bearing transaction accounts and savings deposits1,465,429  —  1,465,429  
Time deposits  97,917   (368)  97,549 Time deposits867,197  299  867,496  
Total deposits  389,344   (368)  388,976 Total deposits3,049,301  299  3,049,600  
Securities sold under agreement to repurchase  17,163   --   17,163 
Other borrowings  3,000   --   3,000 Other borrowings10,055  —  10,055  
Subordinated debentures  6,702   --   6,702 Subordinated debentures34,794  (877) 33,917  
Accrued interest and other liabilities  1,891   1,924   3,815 Accrued interest and other liabilities31,057  (586) 30,471  
Total liabilities assumed  418,100   1,556   419,656 Total liabilities assumed3,125,207  (1,164) 3,124,043  
Equity  50,729   (50,729)  -- Equity256,682  (256,682) —  
Total equity assumed  50,729   (50,729)  -- Total equity assumed256,682  (256,682) —  
Total liabilities and equity assumed $468,829  $(49,173) $419,656 Total liabilities and equity assumed$3,381,889  $(257,846) $3,124,043  
Net assets acquired          43,237 Net assets acquired275,195  
Purchase price          72,639 Purchase price415,779  
Goodwill         $29,402 Goodwill$140,584  


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


The Company’s operating results for 2017 include the operating results of the acquired assets and assumed liabilities of HardemanLandrum subsequent to the acquisition date.

Citizens National Bank


13



Reliance Bancshares, Inc.
On September 9, 2016,April 12, 2019, the Company completed the acquisition of Citizens National Bankits merger with Reliance Bancshares, Inc. (“Citizens”Reliance”), headquartered in Athens, Tennessee.the St. Louis, Missouri, metropolitan area, pursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), dated November 13, 2018, as amended February 11, 2019. In the merger, each outstanding share of Reliance common stock, as well as each Reliance common stock equivalent was canceled and converted into the right to receive shares of the Company’s common stock and/or cash in accordance with the terms of the Reliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to receive 1 share of Simmons’ comparable Series A Preferred Stock or Series B Preferred Stock, respectively, and each share of Reliance’s Series C Preferred Stock was converted into the right to receive 1 share of Simmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive alternate consideration in accordance with the Reliance Agreement). The Company issued 835,7413,999,623 shares of its common stock valued at approximately $41.3 million as of September 9, 2016, plus $35.0and paid $62.7 million in cash to effect the merger. The Company also issued $42.0 million of its Series A Preferred Stock and Series B Preferred Stock. On May 13, 2019, the Company redeemed all of the preferred stock issued in exchange forconnection with the merger, and paid all outstandingaccrued and unpaid dividends up to the date of redemption. On October 29, 2019, the Company amended its Amended and Restated Articles of Incorporation to cancel the Series C Preferred Stock, having 140 authorized shares, of Citizens common stock.

which 0 shares were ever issued or outstanding.


Prior to the acquisition, CitizensReliance conducted banking business through its subsidiary bank, Reliance Bank, from 922 branches located in east Tennessee.Missouri and Illinois. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $585.1 million$1.5 billion in assets, including approximately $340.9 million$1.1 billion in loans (inclusive of loan discounts), and approximately $509.9 million$1.2 billion in deposits. The Company completedContemporaneously with the systems conversion andcompletion of the Reliance merger, Reliance Bank was merged Citizens into Simmons Bank, in October 2016.

with Simmons Bank as the surviving institution.


Goodwill of $23.4$78.5 million was recorded as a result of the transaction. The merger strengthened the Company’s positionmarket share and brought forth additional opportunities in the east Tennessee market, and the Company is able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions, all ofCompany’s St. Louis metropolitan area footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.


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

(In thousands) Acquired from
Citizens		 Fair Value
Adjustments		 Fair
Value
       
Assets Acquired      
Cash and due from banks $131,467  $(351) $131,116 
Federal funds sold  10,000   --   10,000 
Investment securities  61,987   1   61,988 
Loans acquired  350,361   (9,511)  340,850 
Allowance for loan losses  (4,313)  4,313   -- 
Foreclosed assets  4,960   (1,518)  3,442 
Premises and equipment  6,746   1,339   8,085 
Bank owned life insurance  6,632   --   6,632 
Core deposit intangible  --   5,075   5,075 
Other intangibles  --   591   591 
Other assets  17,364   6   17,370 
Total assets acquired $585,204  $(55) $585,149 
             
Liabilities Assumed            
Deposits:            
Non-interest bearing transaction accounts $109,281  $--  $109,281 
Interest bearing transaction accounts and savings deposits  204,912   --   204,912 
Time deposits  195,664   --   195,664 
Total deposits  509,857   --   509,857 
Securities sold under agreement to repurchase  13,233   --   13,233 
FHLB borrowings  4,000   47   4,047 
Accrued interest and other liabilities  3,558   1,530   5,088 
Total liabilities assumed  530,648   1,577   532,225 
Equity  54,556   (54,556)  -- 
Total equity assumed  54,556   (54,556)  -- 
Total liabilities and equity assumed $585,204  $(52,979) $532,225 
Net assets acquired          52,924 
Purchase price          76,300 
Goodwill         $23,376 
(In thousands)Acquired from RelianceFair Value AdjustmentsFair Value
Assets Acquired
Cash and due from banks$25,693  $—  $25,693  
Due from banks - time502  —  502  
Investment securities287,983  (1,873) 286,110  
Loans acquired1,138,527  (41,657) 1,096,870  
Allowance for loan losses(10,808) 10,808  —  
Foreclosed assets11,092  (5,180) 5,912  
Premises and equipment32,452  (3,001) 29,451  
Bank owned life insurance39,348  —  39,348  
Core deposit intangible—  18,350  18,350  
Other assets25,165  6,911  32,076  
Total assets acquired$1,549,954  $(15,642) $1,534,312  

14



(In thousands)Acquired from RelianceFair Value AdjustmentsFair Value
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts$108,845  $(33) $108,812  
Interest bearing transaction accounts and savings deposits639,798  —  639,798  
Time deposits478,415  (1,758) 476,657  
Total deposits1,227,058  (1,791) 1,225,267  
Securities sold under agreement to repurchase14,146  —  14,146  
Other borrowings162,900  (5,500) 157,400  
Accrued interest and other liabilities8,185  268  8,453  
Total liabilities assumed1,412,289  (7,023) 1,405,266  
Equity137,665  (137,665) —  
Total equity assumed137,665  (137,665) —  
Total liabilities and equity assumed$1,549,954  $(144,688) $1,405,266  
Net assets acquired129,046  
Purchase price207,539  
Goodwill$78,493  

During 2017,2020, the Company finalized its analysis of the loans acquired along with the other acquired assets and assumed liabilities in this transaction.  

liabilities.


The Company’s operating results for 2017 and 2016 include the operating results of the acquired assets and assumed liabilities of CitizensReliance subsequent to the acquisition date.


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

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


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

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


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

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

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

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

15



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

Other intangibles– These intangible assets represent the value of the relationshipsrelationship that CitizensLandrum had with their trust customers and Hardeman had with their insurancewealth management customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Intangible assets for Landrum also included mortgage servicing rights. Other intangibles established prior to the acquisitions, if applicable, were written off.

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

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

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

FHLB and other

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

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

Accrued interest and other liabilities– The adjustment establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition.

See Note 22 for additional information related The carrying amount of accrued interest and the remainder of other liabilities was deemed to other acquisitions that were completed during the fourth quarterbe a reasonable estimate of 2017.

fair value.


NOTE 3: INVESTMENT SECURITIES


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

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

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

  September 30, 2017 December 31, 2016
(In thousands) Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
(Losses)		 Estimated
Fair
Value		 Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
(Losses)		 Estimated
Fair
Value
Held-to-Maturity                
U.S. Government agencies $66,928  $40  $(140) $66,828  $76,875  $107  $(182) $76,800 
Mortgage-backed securities  16,972   56   (191)  16,837   19,773   63   (249)  19,587 
State and political subdivisions  320,116   6,397   (55)  326,458   362,532   4,967   (842)  366,657 
Other securities  2,017   --   --   2,017   2,916   --   --   2,916 
Total HTM $406,033  $6,493  $(386) $412,140  $462,096  $5,137  $(1,273) $465,960 
                                 
Available-for-Sale                                
U.S. Treasury $--  $--  $--  $--  $300  $--  $--  $300 
U.S. Government agencies  210,004   273   (2,057)  208,220   140,005   67   (2,301)  137,771 
Mortgage-backed securities  973,111   120   (13,533)  959,698   885,783   178   (17,637)  868,324 
State and political subdivisions  87,405   161   (2,744)  84,822   108,374   38   (5,469)  102,943 
Other securities  63,295   1,385   --   64,680   47,022   996   (2)  48,016 
Total AFS $1,333,815  $1,939  $(18,334) $1,317,420  $1,181,484  $1,279  $(25,409) $1,157,354 

Securities with limited marketability, such

(In thousands)Amortized CostAllowance
for Credit Losses		Net Carrying AmountGross Unrealized
Gains		Gross Unrealized
(Losses)		Estimated Fair
Value
Held-to-Maturity   
June 30, 2020
Mortgage-backed securities$25,980  $—  $25,980  $798  $(1) $26,777  
State and political subdivisions24,872  (95) 24,777  1,125  (2) 25,900  
Other securities1,175  (212) 963  111  —  1,074  
Total HTM$52,027  $(307) $51,720  $2,034  $(3) $53,751  
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(In thousands)Amortized CostAllowance
for Credit Losses		Net Carrying AmountGross Unrealized
Gains		Gross Unrealized
(Losses)		Estimated Fair
Value
December 31, 2019
Mortgage-backed securities$10,796  $—  $10,796  $71  $(59) $10,808  
State and political subdivisions27,082  —  27,082  849  —  27,931  
Other securities3,049  —  3,049  67  —  3,116  
Total HTM$40,927  $—  $40,927  $987  $(59) $41,855  

The amortized cost, fair value and allowance for credit losses of investment securities that are classified as stock in the Federal Reserve BankAFS are as follows:

(In thousands)Amortized
Cost		Allowance for Credit LossesGross Unrealized
Gains		Gross Unrealized
(Losses)		Estimated Fair
Value
Available-for-sale
June 30, 2020
U.S. Government agencies$210,496  $—  $1,416  $(991) $210,921  
Mortgage-backed securities1,125,484  —  28,804  (202) 1,154,086  
State and political subdivisions1,015,625  (371) 39,510  (696) 1,054,068  
Other securities76,943  (238) 1,354  (238) 77,821  
Total AFS$2,428,548  $(609) $71,084  $(2,127) $2,496,896  
December 31, 2019
U.S. Treasury$449,729  $—  $112  $(112) $449,729  
U.S. Government agencies194,207  —  1,313  (1,271) 194,249  
Mortgage-backed securities1,738,584  —  8,510  (4,149) 1,742,945  
State and political subdivisions860,539  —  20,983  (998) 880,524  
Other securities20,092  —  822  (18) 20,896  
Total AFS$3,263,151  $—  $31,740  $(6,548) $3,288,343  

Accrued interest receivable on HTM and the Federal Home Loan Bank, are carried at cost and are reported as other AFS securities at June 30, 2020 was $247,000 and $12.7 million, respectively, and is included in interest receivable on the table above.

Certain investmentconsolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities are valued at less than their historical cost.  Total fair valuefrom the estimate of these investments at September 30, 2017, was $1.2 billion, which is approximately 69.7% of the Company’s combined AFS and HTM investment portfolios.

credit losses.


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

 Less Than 12 Months12 Months or MoreTotal
(In thousands)Estimated
Fair
Value		Gross
Unrealized
Losses		Estimated
Fair
Value		Gross
Unrealized
Losses		Estimated
Fair
Value		Gross
Unrealized
Losses
Available-for-sale
U.S. Government agencies$3,209  $(3) $56,007  $(988) $59,216  $(991) 
Mortgage-backed securities47,380  (161) 4,266  (41) 51,646  (202) 
State and political subdivisions30,468  (324) 388  (1) 30,856  (325) 
Total AFS$81,057  $(488) $60,661  $(1,030) $141,718  $(1,518) 
17



As of June 30, 2020, the Company’s investment portfolio included $2.5 billion of AFS securities, of which $141.7 million, or 5.7%, were in an unrealized loss position at September 30, 2017:

  Less Than 12 Months 12 Months or More Total
(In thousands) Estimated
Fair
Value		 Gross
Unrealized
Losses		 Estimated
Fair
Value		 Gross
Unrealized
Losses		 Estimated
Fair
Value		 Gross
Unrealized
Losses
Held-to-Maturity            
U.S. Government agencies $12,947  $(53) $39,913  $(87) $52,860  $(140)
Mortgage-backed securities  4,094   (42)  6,687   (149)  10,781   (191)
State and political subdivisions  11,300   (41)  2,634   (14)  13,934   (55)
Total HTM $28,341  $(136) $49,234  $(250) $77,575  $(386)
                         
Available-for-Sale                        
U.S. Government agencies $66,254  $(750) $82,211  $(1,307) $148,465  $(2,057)
Mortgage-backed securities  626,560   (7,458)  273,883   (6,075)  900,443   (13,533)
State and political subdivisions  1,813   (32)  76,781   (2,712)  78,594   (2,744)
Other securities  --   --   100   --   100   -- 
Total AFS $694,627  $(8,240) $432,975  $(10,094) $1,127,602  $(18,334)


These declines primarily resulted fromthat are not deemed to have credit losses. A portion of the unrealized losses were related to the Company’s mortgage-backed securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies, and the Company’s state and political securities, specifically investments in insured fixed rate municipal bonds meaning issuers continue to make timely principal and interest payments under the contractual terms of the securities.


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

Allowance for Credit Losses

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

Declines Accordingly, no allowance for credit losses has been recorded for these securities.


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

The following table details activity in the fair value ofallowance for credit losses by investment security type for the three and six months ended June 30, 2020 on the Company’s HTM and AFS securities below their cost that are deemedheld.
(In thousands)State and Political SubdivisionsOther SecuritiesTotal
Three Months Ended June 30, 2020
Held-to-Maturity
Beginning balance, April 1, 2020$97  $312  $409  
Provision for credit loss expense(2) (100) (102) 
Ending balance, June 30, 2020$95  $212  $307  
Available-for-sale
Beginning balance, April 1, 2020$95  $174  $269  
Credit losses on securities not previously recorded370  160  530  
Net increase (decrease) in allowance on previously impaired securities(94) (96) (190) 
Ending balance, June 30, 2020$371  $238  $609  
Six Months Ended June 30, 2020
Held-to-Maturity
Beginning balance, January 1, 2020$—  $—  $—  
Impact of ASU 2016-13 adoption
58  311  369  
Provision for credit loss expense37  (99) (62) 
Ending balance, June 30, 2020$95  $212  $307  
Available-for-sale
Beginning balance, January 1, 2020$—  $—  $—  
Impact of ASU 2016-13 adoption
373  —  373  
Credit losses on securities not previously recorded77  192  269  
Reduction due to sales(142) —  (142) 
Net increase (decrease) in allowance on previously impaired securities63  46  109  
Ending balance, June 30, 2020$371  $238  $609  

18



During the three and six months ended June 30, 2020, the provision for credit losses was $340,000 and $236,000, respectively, related to beAFS securities.

The following table summarizes bond ratings for the Company’s HTM portfolio issued by state and political subdivisions and other than temporary are reflectedsecurities as of June 30, 2020:

State and Political Subdivisions
(In thousands)Not Guaranteed or Pre-RefundedOther Credit Enhancement or InsurancePre-RefundedTotalOther Securities
Aaa/AAA$2,112  $—  $—  $2,112  $—  
Aa/AA11,512  5,922  —  17,434  —  
A961  1,147  —  2,108  —  
Not Rated2,849  369  —  3,218  1,175  
Total$17,434  $7,438  $—  $24,872  $1,175  

Historical loss rates associated with securities having similar grades as those in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value hasCompany’s portfolio have generally not been less than cost, (ii) the financial condition and near-term prospects ofsignificant. Pre-refunded securities, if any, have been defeased by the issuer and (iii) the intent and ability of the Companyare fully secured by cash and/or U.S. Treasury securities held in escrow for payment to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. 

Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities.  Furthermore, as of September 30, 2017, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost.  The unrealized losses are largely due to increases in market interest rates over the yields available at the timeholders when the underlying securities were purchased.  The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.  Management does not believe anycall dates of the securities are impaired duereached. Securities with other credit enhancement or insurance continue to reasonsmake timely principal and interest payments under the contractual terms of the securities. Accordingly, no allowance for credit losses has been recorded for these securities as there is no current expectation of credit quality.  Accordingly, as of September 30, 2017, management believes the impairments detailed in the table above are temporary.  Should the impairment of any oflosses related to these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

securities.


Income earned on securities for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, is as follows:

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
Taxable:        
Held-to-maturity $625  $771  $1,922  $3,094 
Available-for-sale  5,949   4,005   18,003   12,931 
Non-taxable:               ��
Held-to-maturity  2,135   2,617   6,635   8,162 
Available-for-sale  509   381   2,099   592 
Total $9,218  $7,774  $28,659  $24,779 

Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Taxable:  
Held-to-maturity$288  $289  $459  $727  
Available-for-sale7,086  10,777  19,667  22,297  
Non-taxable:
Held-to-maturity68  89  140  1,251  
Available-for-sale6,031  4,511  12,150  7,672  
Total$13,473  $15,666  $32,416  $31,947  

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

  Held-to-Maturity Available-for-Sale
(In thousands) Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
         
One year or less $50,829  $50,838  $21,211  $21,145 
After one through five years  105,323   105,823   81,147   80,388 
After five through ten years  99,399   100,902   14,532   14,427 
After ten years  133,510   137,740   181,619   178,182 
Securities not due on a single maturity date  16,972   16,837   973,111   959,698 
Other securities (no maturity)  --   --   62,195   63,580 
Total $406,033  $412,140  $1,333,815  $1,317,420 

 Held-to-MaturityAvailable-for-Sale
(In thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
One year or less$4,928  $4,962  $15,006  $15,077  
After one through five years15,201  15,793  35,995  36,348  
After five through ten years5,918  6,219  203,777  205,627  
After ten years—  —  1,047,772  1,084,495  
Securities not due on a single maturity date25,980  26,777  1,125,484  1,154,086  
Other securities (no maturity)—  —  514  1,263  
Total$52,027  $53,751  $2,428,548  $2,496,896  
19



The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $985.8 million$1.38 billion at SeptemberJune 30, 20172020 and $915.2 million$1.73 billion at December 31, 2016.

2019.

There were $3,000approximately $391,000 of gross realized gains and no$1,000 of gross realized losses from the sale of securities during the three months ended SeptemberJune 30, 20172020, and $2.3approximately $32.5 million of gross realized gains and $5,000$2,600 of gross realized losses from the sale of securities during the ninesix months ended SeptemberJune 30, 2017.2020. During the first half of 2020, the Company sold approximately $1.2 billion of investment securities to create additional liquidity. There were $315,000approximately $2.8 million of gross realized gains and no0 gross realized losses from the sale of securities during the three months ended SeptemberJune 30, 20162019, and $4.4approximately $5.6 million of gross realized gains and no0 gross realized losses from the sale of securities during the ninesix months ended SeptemberJune 30, 2016.


2019. The stateincome tax expense/benefit related to security gain/losses was 26.135% of the gross amounts in 2020 and political subdivision debt obligations are predominately non-rated bonds representing small issuances, primarily in Arkansas, Missouri, Tennessee and Texas issues, which are evaluated on an ongoing basis.

2019.


NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE


Colorado Branch Sale

On August 28, 2017,February 10, 2020, the Company, through itsCompany’s subsidiary bank, subsidiary, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “First Western Agreement”) with First Western Trust Bank (“First Western”), a wholly-owned subsidiary of First Western Financial, Inc.

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

On December 20, 2019, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “Spirit Agreement”) with Spirit of HeartlandTexas Bank, atSSB (“Spirit”), a public auction to satisfy certain indebtednesswholly-owned subsidiary of its holding company, RockSpirit of Texas Bancshares, Inc.

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

The Company recorded $182.4recognized a combined gain on sale of $8.1 million of other assets held for salerelated to the Texas Branches and $177.0 of other liabilities held for sale, at fair value as of the date of the transaction.

The Company is actively marketing and exploring a plan to sell the acquired assets and liabilities of Heartland Bank and expects to complete a sale within one year of acquisition. Heartland Bank remains a separate operating entity, and any sale will be conducted on terms that are mutually agreeable to both parties.

The following is a description of the methods used to determine the purchase price allocation for fair values of significant assets and liabilities presentedColorado Branches in the Heartland Bank transaction.

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

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

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

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

Core deposit intangible – This intangible asset represents the value of the relationships that Heartland Bank had with its deposit customers.  The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date.  The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and determined the difference was not material.

six month period ended June 30, 2020.




20



NOTE 5: LOANS AND ALLOWANCE FOR LOANCREDIT LOSSES

At SeptemberJune 30, 2017,2020, the Company’s loan portfolio was $6.303$14.61 billion, compared to $5.633$14.43 billion at December 31, 2016.2019. The various categories of loans are summarized as follows:

(In thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Credit cards $176,316  $184,591 
Other consumer  317,946   303,972 
Total consumer  494,262   488,563 
Real Estate:        
Construction  515,274   336,759 
Single family residential  1,048,403   904,245 
Other commercial  2,231,223   1,787,075 
Total real estate  3,794,900   3,028,079 
Commercial:        
Commercial  688,960   639,525 
Agricultural  207,849   150,378 
Total commercial  896,809   789,903 
Other  25,341   20,662 
Loans  5,211,312   4,327,207 
Loans acquired, net of discount and allowance(1)  1,092,039   1,305,683 
Total loans $6,303,351  $5,632,890 

______________________

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

June 30,December 31,
(In thousands)20202019
Consumer:  
Credit cards$184,348  $204,802  
Other consumer214,024  249,195  
Total consumer398,372  453,997  
Real Estate:
Construction and development2,010,256  2,248,673  
Single family residential2,207,087  2,414,753  
Other commercial6,316,444  6,358,514  
Total real estate10,533,787  11,021,940  
Commercial:
Commercial3,038,216  2,451,119  
Agricultural217,715  191,525  
Total commercial3,255,931  2,642,644  
Other418,810  307,123  
Total loans$14,606,900  $14,425,704  

The above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as net deferred origination fees totaling $82.2 million and $91.6 million at June 30, 2020 and December 31, 2019, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $66.9 million and $48.9 million at June 30, 2020 and December 31, 2019, respectively, and is included in interest receivable on the consolidated balance sheets.

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

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

Real estate – The real estate loan portfolio consists of construction and development loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real
21



estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors these loans closely.



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


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

Nonaccrual


The amortized cost basis of nonaccrual loans excluding loans acquired, segregated by class of loans are as follows:

(In thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Credit cards $273  $373 
Other consumer  3,880   1,793 
Total consumer  4,153   2,166 
Real estate:        
Construction  2,403   3,411 
Single family residential  13,034   12,139 
Other commercial  18,811   12,385 
Total real estate  34,248   27,935 
Commercial:        
Commercial  13,827   7,765 
Agricultural  2,210   1,238 
Total commercial  16,037   9,003 
Total $54,438  $39,104 


June 30,December 31,
(In thousands)20202019
Consumer:  
Credit cards$223  $382  
Other consumer1,912  1,705  
Total consumer2,135  2,087  
Real estate:
Construction and development6,501  5,289  
Single family residential32,244  27,695  
Other commercial36,255  16,582  
Total real estate75,000  49,566  
Commercial:
Commercial53,538  40,924  
Agricultural710  753  
Total commercial54,248  41,677  
Total$131,383  $93,330  



Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 2020 had an amortized cost of $18.0 million. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method.

22



An age analysis of the amortized cost basis of past due loans, excludingincluding nonaccrual loans, acquired, segregated by class of loans is as follows:

(In thousands) Gross
30-89 Days
Past Due		 90 Days
or More
Past Due		 Total
Past Due		 Current Total
Loans		 90 Days
Past Due &
Accruing
             
September 30, 2017                        
Consumer:                        
Credit cards $655  $492  $1,147  $175,169  $176,316  $218 
Other consumer  4,870   2,570   7,440   310,506   317,946   4 
Total consumer  5,525   3,062   8,587   485,675   494,262   222 
Real estate:                        
Construction  440   1,478   1,918   513,356   515,274   -- 
Single family residential  5,516   4,785   10,301   1,038,102   1,048,403   -- 
Other commercial  3,032   8,945   11,977   2,219,246   2,231,223   -- 
Total real estate  8,988   15,208   24,196   3,770,704   3,794,900   -- 
Commercial:                        
Commercial  991   10,745   11,736   677,224   688,960   10 
Agricultural  469   1,793   2,262   205,587   207,849   -- 
Total commercial  1,460   12,538   13,998   882,811   896,809   10 
Other  --   --   --   25,341   25,341   -- 
Total $15,973  $30,808  $46,781  $5,164,531  $5,211,312  $232 
                         
December 31, 2016                        
Consumer:                        
Credit cards $716  $275  $991  $183,600  $184,591  $275 
Other consumer  3,786   1,027   4,813   299,159   303,972   11 
Total consumer  4,502   1,302   5,804   482,759   488,563   286 
Real estate:                        
Construction  1,420   1,246   2,666   334,093   336,759   -- 
Single family residential  6,310   5,927   12,237   892,008   904,245   14 
Other commercial  4,212   6,722   10,934   1,776,141   1,787,075   -- 
Total real estate  11,942   13,895   25,837   3,002,242   3,028,079   14 
Commercial:                        
Commercial  2,040   5,296   7,336   632,189   639,525   -- 
Agricultural  121   1,215   1,336   149,042   150,378   -- 
Total commercial  2,161   6,511   8,672   781,231   789,903   -- 
Other  --   --   --   20,662   20,662   -- 
Total $18,605  $21,708  $40,313  $4,286,894  $4,327,207  $300 

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

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


(In thousands)Gross
30-89 Days
Past Due		90 Days
or More
Past Due		Total
Past Due		CurrentTotal
Loans		90 Days
Past Due &
Accruing
June 30, 2020      
Consumer:      
Credit cards$672  $262  $934  $183,414  $184,348  $262  
Other consumer2,626  724  3,350  210,674  214,024  1  
Total consumer3,298  986  4,284  394,088  398,372  263  
Real estate:
Construction and development3,574  4,698  8,272  2,001,984  2,010,256  —  
Single family residential13,805  15,389  29,194  2,177,893  2,207,087  —  
Other commercial4,665  19,480  24,145  6,292,299  6,316,444  50  
Total real estate22,044  39,567  61,611  10,472,176  10,533,787  50  
Commercial:
Commercial6,413  14,891  21,304  3,016,912  3,038,216  180  
Agricultural411  401  812  216,903  217,715  1  
Total commercial6,824  15,292  22,116  3,233,815  3,255,931  181  
Other—  —  —  418,810  418,810  —  
Total$32,166  $55,845  $88,011  $14,518,889  $14,606,900  $494  
December 31, 2019
Consumer:
Credit cards$848  $641  $1,489  $203,313  $204,802  $259  
Other consumer4,884  735  5,619  243,576  249,195  —  
Total consumer5,732  1,376  7,108  446,889  453,997  259  
Real estate:
Construction and development5,792  1,078  6,870  2,241,803  2,248,673  —  
Single family residential26,318  13,789  40,107  2,374,646  2,414,753  597  
Other commercial7,645  6,450  14,095  6,344,419  6,358,514  —  
Total real estate39,755  21,317  61,072  10,960,868  11,021,940  597  
Commercial:
Commercial10,579  13,551  24,130  2,426,989  2,451,119  —  
Agricultural1,223  456  1,679  189,846  191,525  —  
Total commercial11,802  14,007  25,809  2,616,835  2,642,644  —  
Other—  —  —  307,123  307,123  —  
Total$57,289  $36,700  $93,989  $14,331,715  $14,425,704  $856  

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

(In thousands) Unpaid
Contractual
Principal
Balance		 Recorded Investment
With No
Allowance		 Recorded
Investment
With Allowance		 Total
Recorded
Investment		 Related
Allowance		 Average
Investment in Impaired
Loans		 Interest
Income
Recognized		 Average Investment in
Impaired
Loans		 Interest
Income Recognized
September 30, 2017           Three Months Ended
September 30, 2017		 Nine Months Ended
September 30, 2017
Consumer:                  
Credit cards $273  $273  $--  $273  $--  $283  $12  $292  $23 
Other consumer  4,022   3,880   --   3,880   --   3,314   23   2,711   53 
Total consumer  4,295   4,153   --   4,153   --   3,597   35   3,003   76 
Real estate:                                    
Construction  2,652   1,496   907   2,403   220   2,582   17   2,828   56 
Single family residential  13,782   12,450   584   13,034   53   12,878   85   12,772   251 
Other commercial  19,065   7,260   10,983   18,243   2,052   19,306   121   19,313   380 
Total real estate  35,499   21,206   12,474   33,680   2,325   34,766   223   34,913   687 
Commercial:                                    
Commercial  13,774   4,805   8,112   12,917   3,996   14,543   84   12,943   255 
Agricultural  2,184   1,059   --   1,059   --   1,562   8   1,645   32 
Total commercial  15,958   5,864   8,112   13,976   3,996   16,105   92   14,588   287 
Total $55,752  $31,223  $20,586  $51,809  $6,321  $54,468  $350  $52,504  $1,050 

December 31, 2016           Three Months Ended
September 30, 2016		 Nine Months Ended
September 30, 2016
Consumer:                  
Credit cards $373  $373  $--  $373  $--  $439  $--  $340  $10 
Other consumer  1,836   1,797   3   1,800   1   1,324   14   882   32 
Total consumer  2,209   2,170   3   2,173   1   1,763   14   1,222   42 
Real estate:                                    
Construction  4,275   1,038   2,374   3,412   156   4,474   44   4,692   170 
Single family residential  12,970   10,630   1,753   12,383   162   10,897   119   8,762   317 
Other commercial  20,993   6,891   7,315   14,206   99   18,981   178   15,113   547 
Total real estate  38,238   18,559   11,442   30,001   417   34,352   341   28,567   1,034 
Commercial:                                    
Commercial  11,848   2,734   7,573   10,307   262   4,402   59   3,256   118 
Agricultural  2,226   1,215   --   1,215   --   1,604   16   1,003   36 
Total commercial  14,074   3,949   7,573   11,522   262   6,006   75   4,259   154 
Total $54,521  $24,678  $19,018  $43,696  $680  $42,121  $430  $34,048  $1,230 
23

At September 30, 2017, and December 31, 2016, impaired loans, net of government guarantees and excluding loans acquired, totaled $51.8 million and $43.7 million, respectively.  Allocations of the allowance for loan losses relative




The following table presents information pertaining to impaired loans were $6.3 million and $680,000 at September 30, 2017 andas of December 31, 2016, respectively. Approximately $350,000 and $1.1 million2019, in accordance with previous US GAAP prior to the adoption of interest income was recognized on average impaired loans of $54.5 million and $52.5 million for the three and nine months ended September 30, 2017.  Interest income recognized on impaired loans on a cash basis during the three and nine months ended September 30, 2017 and 2016 was not material.

Included in certain impaired loan categories are troubled debt restructurings (“TDRs”).  ASU 2016-13.


(In thousands)Unpaid
Contractual
Principal
Balance		Recorded Investment
With No
Allowance		Recorded
Investment
With Allowance		Total
Recorded
Investment		Related
Allowance		Average Investment in Impaired LoansInterest Income RecognizedAverage Investment in Impaired LoansInterest
Income
Recognized
December 31, 2019    Three Months Ended
June 30, 2019		Six Months Ended
June 30, 2019
Consumer:     
Credit cards$382  $382  $—  $382  $—  $332  $40  $320  $70  
Other consumer1,537  1,378  —  1,378  —  1,563  12  1,762  25  
Total consumer1,919  1,760  —  1,760  —  1,895  52  2,082  95  
Real estate:
Construction and development4,648  4,466  72  4,538  4  2,355  14  1,993  28  
Single family residential19,466  15,139  2,963  18,102  42  15,486  105  14,351  203  
Other commercial10,645  4,713  3,740  8,453  694  7,676  59  8,751  123  
Total real estate34,759  24,318  6,775  31,093  740  25,517  178  25,095  354  
Commercial:
Commercial53,436  6,582  28,998  35,580  5,007  29,776  187  23,811  335  
Agricultural525  383  116  499  —  1,148  8  1,159  16  
Total commercial53,961  6,965  29,114  36,079  5,007  30,924  195  24,970  351  
Total$90,639  $33,043  $35,889  $68,932  $5,747  $58,336  $425  $52,147  $800  


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



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

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


The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. See discussion of the loans modified under the CARES Act in Note 24, Recent Events.

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

24



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

 Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans Accruing TDR LoansNonaccrual TDR LoansTotal TDR Loans
(Dollars in thousands) Number Balance Number Balance Number Balance(Dollars in thousands)NumberBalanceNumberBalanceNumberBalance
            
September 30, 2017            
June 30, 2020June 30, 2020      
Real estate:            Real estate:
Construction  --  $--   1  $432   1  $432 
Single-family residential  4   144   14   838   18   982 Single-family residential12  $1,221  7  $680  19  $1,901  
Other commercial  5   6,877   3   6,152   8   13,029 Other commercial—  —  2  70  2  70  
Total real estate  9   7,021   18   7,422   27   14,443 Total real estate12  1,221  9  750  21  1,971  
Commercial:                        Commercial:
Commercial  7   2,191   6   749   13   2,940 Commercial4  2,739  3  68  7  2,807  
Total commercial  7   2,191   6   749   13   2,940 Total commercial4  2,739  3  68  7  2,807  
Total  16  $9,212   24  $8,171   40  $17,383 Total16  $3,960  12  $818  28  $4,778  
                        
December 31, 2016                        
Consumer:                        
Other consumer  --  $--   1  $3   1  $3 
Total consumer  --   --   1   3   1   3 
December 31, 2019December 31, 2019
Real estate:                        Real estate:
Construction  --   --   1   18   1   18 
Construction and developmentConstruction and development—  $—  1  $72  1  $72  
Single-family residential  3   167   29   2,078   32   2,245 Single-family residential7  1,151  12  671  19  1,822  
Other commercial  23   9,048   2   780   25   9,828 Other commercial1  476  2  80  3  556  
Total real estate  26   9,215   32   2,876   58   12,091 Total real estate8  1,627  15  823  23  2,450  
Commercial:                        Commercial:
Commercial  15   1,783   5   297   20   2,080 Commercial4  2,784  3  79  7  2,863  
Total commercial  15   1,783   5   297   20   2,080 Total commercial4  2,784  3  79  7  2,863  
Total  41  $10,998   38  $3,176   79  $14,174 Total12  $4,411  18  $902  30  $5,313  



The following table presents loans that were restructured as TDRs during the three and ninesix months ended SeptemberJune 30, 20172020. There were 0 loans restructured as TDRs during the three and 2016, excluding loans acquired, segregated by class of loans.

six month periods ended June 30, 2019.
        Modification Type  
(Dollars in thousands) Number of
Loans		 Balance Prior
to TDR		 Balance at
September 30		 Change in
Maturity
Date		 Change in
Rate		 Financial Impact
on Date of
Restructure
             
Three Months Ended September 30, 2017            
Commercial:            
Commercial  1  $608  $607  $607  $--  $-- 
Total commercial  1   608   607   607   --   -- 
Total  1  $608  $607  $607  $--  $-- 
                         
Three Months Ended September 30, 2016                        
Consumer:                        
Other consumer  1  $47  $8  $8  $--  $-- 
Total consumer  1   47   8   8   --   -- 
Real Estate:                        
Single-family residential  13   742   694   694   --   -- 
Other commercial  2   835   834   66   768   -- 
Total real estate  15   1,577   1,528   760   768   -- 
Commercial:                        
Commercial  5   1,387   1,387   1,387   --   -- 
Total commercial  5   1,387   1,387   1,387   --   -- 
Total  21  $3,011  $2,923  $2,155  $768  $-- 
                         
Nine Months Ended September 30, 2017                        
Real estate:                        
Construction  1  $456  $456  $456  $--  $-- 
Other commercial  2   7,362   7,362   7,362   --   33 
Total real estate  3   7,818   7,818   7,818   --   33 
Commercial:                        
Commercial  10   1,419   1,407   1,368   39   -- 
Total commercial  10   1,419   1,407   1,368   39   -- 
Total  13  $9,237  $9,225  $9,186  $39  $33 
                         
Nine Months Ended September 30, 2016                        
Consumer:                        
Other consumer  2  $50  $11  $11  $--  $-- 
Total consumer  2   50   11   11   --   -- 
Real estate:                        
Single-family residential  22   1,538   1,487   933   554   -- 
Other commercial  27   9,797   9,765   8,633   1,132   -- 
Total real estate  49   11,335   11,252   9,566   1,686   -- 
Commercial:                        
Commercial  16   1,987   1,959   1,959   --   -- 
Total commercial  16   1,987   1,959   1,959   --   -- 
Total  67  $13,372  $13,222  $11,536  $1,686  $-- 

 
(Dollars in thousands)Number of loansBalance Prior to TDRBalance at June 30,Change in Maturity DateChange in RateFinancial Impact on Date of Restructure
Three and Six Months Ended June 30, 2020     
Real estate:
Single-family residential1  $147  $147  $147  $—  $—  
Total real estate1  $147  $147  $147  $—  $—  
During the three and six months ended SeptemberJune 30, 2017,2020, the Company modified one1 loan with a recorded investment of $608,000 prior to modification that was deemed troubled debt restructuring.  The restructured loan was modified by changing the maturity date.  Based on the fair value of the collateral, no specific reserve was determined necessary for this loan.  Also, there was no immediate financial impact from the restructuring of the loan, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the nine months ended September 30, 2017, the Company modified 13 loans with a recorded investment of $9.2 million$147,000 prior to modification which was deemed troubled debt restructuring. The restructured loans wereloan was modified by deferring amortized principal  payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. Based on the fair value of the collateral, aA specific reserve of $33,000$7,200 was determined necessary for these loans. Also, there was no immediate financial impact from the restructuring of thesethis loan.


There were 0 loans as it was not considered necessary to charge-off interest or principal on the date of restructure.


During the three months ended September 30, 2016, the Company modified 21 loans with a recorded investment of $3.0 million and during the nine months ended September 30, 2016, the Company modified 67 loans with a total recorded investment of $13.4 million prior to modification which were deemed troubled debt restructuring.  The restructured loans were modified by changing various terms, including changing the maturity date, deferring amortized principal payments and requiring interest only payments for a period of 12 months.  Based on the fair value of the collateral, a specific reserve of $402,000 was determined necessary for these loans.  Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

There was one commercial real estate loanTDRs for which a payment default occurred during the ninesix months ended SeptemberJune 30, 2017, and that had been modified as a TDR within 12 months or less of the payment default, excluding loans acquired. A charge off of approximately $440,000 was recorded for this loan during the third quarter 2017.2020. There was one consumer1 commercial loan considered a TDR for which a payment default occurred during the ninesix months ended SeptemberJune 30, 2016, that had been modified as a TDR within 12 months or less2019. A charge-off of the payment default, excluding loans acquired.  A charge off of $39,000approximately $138,000 was recorded for this loan. We defineThe Company defines a payment default as a payment received more than 90 days after its due date.

In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had

There were 0 TDRs with pre-modification loan balances of $117,000 and $166,500 at September 30, 2017 and 2016, respectively, for which other real estate owned (“OREO”)OREO was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate and residential real estate.loans during the three or six month periods ended June 30, 2020 or 2019. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the Company had $1,180,000$4,395,000 and $1,714,000,$5,789,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the Company had $5,275,000$2,321,000 and $5,094,000,$4,458,000, respectively, of OREO secured by residential real estate properties.

25



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

Company’s local markets.


The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the 8 risk ratings is as follows:

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

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

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

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

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


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

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

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

Loans acquired are evaluated using this internal grading system. Loans acquired are evaluated individually and include purchased credit impaired loans of $7.9 million and $17.8 million that are accounted for under ASC Topic 310-30 and are classified as substandard (Risk Rating 6) as of September 30, 2017 and December 31, 2016, respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $22.6 million and $47.8 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at September 30, 2017 and December 31, 2016, respectively.

Purchased credit impaired loans are loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their fair value was initially based onsustain some loss if the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flowsdeficiencies are not estimable, discounted at prevailing market ratescorrected. This does not imply ultimate loss of interest. The difference between the undiscounted cash flows expected at acquisitionprincipal, but may involve burdensome administrative expenses and the fairaccompanying cost to carry the loan.

•Risk Rate 7 – Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.
•Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value at acquisitionthat their continuance as bankable assets is recognizednot warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as interest income on a level-yield method overLoss and charged-off in the lifeperiod in which they become uncollectible.


26



The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the loan. Contractually requireddelinquency credit quality indicators is as follows:

•Current - Loans in this category are either current in payments for interest and principal that exceed the undiscounted cash flows expected at acquisitionor are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment.

Classifiedunder 30 days past due. These loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested for impairment and therefore are not included in impaired loans.  (2) Of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impairedhave a normal level of risk.

•30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are not includedsubject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk.
•90+ Days Past Due - Loans in impaired loans. Total classifiedthis category are over 90 days past due and are placed on nonaccrual status. These loans excludinghave been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced.
The following table presents a summary of loans accounted for under ASC Topic 310-30, were $130.6 million and $166.0 million,by credit quality indicator, other than pass or current, as of SeptemberJune 30, 2017 and December 31, 2016, respectively.

2020 segregated by class of loans.

Term Loans Amortized Cost Basis by Origination Year
(In thousands)2020 (YTD)20192018201720162015 and PriorLines of Credit (“LOC”) Amortized Cost BasisLOC Converted to Term Loans Amortized Cost BasisTotal
Consumer - credit cards    
Delinquency:
30-89 days past due$—  $—  $—  $—  $—  $—  $672  $—  $672  
90+ days past due—  —  —  —  —  —  262  —  262  
Total consumer - credit cards—  —  —  —  —  —  934  —  934  
Consumer - other
Delinquency:
30-89 days past due89  446  387  576  633  71  424  —  2,626  
90+ days past due31  110  107  291  135  29  21  —  724  
Total consumer - other120  556  494  867  768  100  445  —  3,350  
Real estate - C&D
Risk rating:
5 internal grade—  43  17  1,947  20  —  —  —  2,027  
6 internal grade241  2,988  425  197  422  1,082  850  799  7,004  
7 internal grade—  —  —  —  —  —  —  —  —  
Total real estate - C&D241  3,031  442  2,144  442  1,082  850  799  9,031  
Real estate - SF residential
Delinquency:
30-89 days past due321  2,074  1,980  1,415  1,796  4,553  1,666  —  13,805  
90+ days past due—  2,402  2,916  2,378  1,518  3,822  2,353  —  15,389  
Total real estate - SF residential321  4,476  4,896  3,793  3,314  8,375  4,019  —  29,194  
Real estate - other commercial
Risk rating:
5 internal grade18,591  2,425  11,530  1,049  1,349  2,591  18,027  24,917  80,479  
6 internal grade35,258  6,008  8,995  4,411  4,110  13,502  39,073  10,077  121,434  
7 internal grade—  —  —  —  —  —  —  —  —  
Total real estate - other commercial53,849  8,433  20,525  5,460  5,459  16,093  57,100  34,994  201,913  
Commercial
Risk rating:
5 internal grade3,377  325  478  136  233  58  46,465  —  51,072  
6 internal grade9,588  5,098  4,885  2,024  1,168  697  55,123  860  79,443  
7 internal grade—  —  —  —  —  —  —  —  —  
Total commercial12,965  5,423  5,363  2,160  1,401  755  101,588  860  130,515  
Commercial - agriculture
Risk rating:
5 internal grade—  86  15  379  —  —  37  —  517  
6 internal grade21  112  193  95  149  11  63  —  644  
7 internal grade—  —  —  —  —  —  —  —  —  
Total commercial - agriculture21  198  208  474  149  11  100  —  1,161  
Total$67,517  $22,117  $31,928  $14,898  $11,533  $26,416  $165,036  $36,653  $376,098  

27



The following table presents a summary of loans by credit risk rating as of September 30, 2017 and December 31, 2016,2019 segregated by class of loans. Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.

(In thousands) Risk Rate
1-4		 Risk Rate
5		 Risk Rate
6		 Risk Rate
7		 Risk Rate
8		 Total
             
September 30, 2017            
Consumer:            
Credit cards $176,316  $--  $--  $--  $--  $176,316 
Other consumer  313,725   --   4,221   --   --   317,946 
Total consumer  490,041   --   4,221   --   --   494,262 
Real estate:                        
Construction  507,128   2,085   6,045   16   --   515,274 
Single family residential  1,022,886   2,553   22,675   289   --   1,048,403 
Other commercial  2,175,968   11,729   43,526   --   --   2,231,223 
Total real estate  3,705,982   16,367   72,246   305   --   3,794,900 
Commercial:                        
Commercial  661,635   6,267   21,057   1   --   688,960 
Agricultural  205,524   26   2,276   23   --   207,849 
Total commercial  867,159   6,293   23,333   24   --   896,809 
Other  25,341   --   --   --   --   25,341 
Loans acquired  1,051,889   9,673   29,862   615   --   1,092,039 
Total $6,140,412  $32,333  $129,662  $944  $--  $6,303,351 

(In thousands) Risk Rate
1-4		 Risk Rate
5		 Risk Rate
6		 Risk Rate
7		 Risk Rate
8		 Total
             
December 31, 2016            
Consumer:            
Credit cards $183,943  $--  $648  $--  $--  $184,591 
Other consumer  301,632   26   2,314   --   --   303,972 
Total consumer  485,575   26   2,962   --   --   488,563 
Real estate:                        
Construction  330,080   98   6,565   16   --   336,759 
Single family residential  875,603   4,024   24,460   158   --   904,245 
Other commercial  1,738,207   6,874   41,994   --   --   1,787,075 
Total real estate  2,943,890   10,996   73,019   174   --   3,028,079 
Commercial:                        
Commercial  616,805   558   22,162   --   --   639,525 
Agricultural  148,218   104   2,033   --   23   150,378 
Total commercial  765,023   662   24,195   --   23   789,903 
Other  20,662   --   --   --   --   20,662 
Loans acquired  1,217,886   22,181   64,075   1,541   --   1,305,683 
Total $5,433,036  $33,865  $164,251  $1,715  $23  $5,632,890 

26 

 

(In thousands)Risk Rate
1-4		Risk Rate
5		Risk Rate
6		Risk Rate
7		Risk Rate
8		Total
December 31, 2019      
Consumer:      
Credit cards$204,161  $—  $641  $—  $—  $204,802  
Other consumer247,668  —  2,026  —  —  249,694  
Total consumer451,829  —  2,667  —  —  454,496  
Real estate:
Construction and development2,229,019  70  7,735  —  37  2,236,861  
Single family residential2,394,284  6,049  41,601  130  —  2,442,064  
Other commercial6,068,425  69,745  67,429  —  —  6,205,599  
Total real estate10,691,728  75,864  116,765  130  37  10,884,524  
Commercial:
Commercial2,384,263  26,713  84,317  43  180  2,495,516  
Agricultural309,741  41  5,672  —  —  315,454  
Total commercial2,694,004  26,754  89,989  43  180  2,810,970  
Other275,714  —  —  —  —  275,714  
Total$14,113,275  $102,618  $209,421  $173  $217  $14,425,704  
Allowance for LoanCredit Losses


Allowance for LoanCredit Losses – The allowance for loancredit losses is a reserve established through a provision for loancredit losses charged to expense, which represents management’s best estimate of probablelifetime expected losses that have been incurred within the existing portfolio of loans.based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for estimatedexpected loan losses and risks inherent in the loan portfolio. The Company’s allowance for loancredit loss methodology includes allowance allocationsreserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 310-10,Receivables, and allowance allocations calculated in accordance with ASC Topic 450-20,Loss Contingencies326-20, Financial Instruments - Credit Losses. Accordingly, the methodology is based on the Company’s reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments.

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

The Company also includes qualitative and quantitative factors.

As mentioned above, allocationsadjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:


•Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for loan losses are categorized as either specific allocations or general allocations.

A loan is considered impaired when it is probable thatin the Company will not receive all amounts due according toreserve factor.

•Changes in the contractual termsnature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors.
•Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics.
•Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.
•Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors.
28



•Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors.
•Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within the Company’s reasonable and supportable forecast.
•Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio.

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or are classified as a troubled debt restructuring. The allowance for credit loss is determined based on several methods including scheduled principal and interest payments. estimating the fair value of the underlying collateral or the present value of expected cash flows.

For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis.analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for loancredit losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.


Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $55.0 million as further detailed in the table below. The general allocation is calculated monthly based on management’s assessmentcollateral securing these loans consist of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. The Company establishes general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residentialcommercial real estate loansproperties, residential properties, other business assets, and other consumer loans.

secured energy production assets.

(In thousands)Real Estate CollateralEnergyOther CollateralTotal
Construction and development$2,465  $—  $—  $2,465  
Single family residential5,479  —  —  5,479  
Other commercial real estate18,654  —  —  18,654  
Commercial—  21,755  6,696  28,451  
Total$26,598  $21,755  $6,696  $55,049  


The following table details activity in the allowance for loancredit losses by portfolio segment for loans for the three and ninesix months ended SeptemberJune 30, 2017.2020. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(In thousands) Commercial Real
Estate		 Credit
Card		 Other
Consumer
and Other		 Total
           
Three Months Ended September 30, 2017                    
Balance, beginning of period(2) $8,105  $25,731  $3,754  $3,789  $41,379 
Provision for loan losses(1)  2,310   2,150   761   241   5,462 
Charge-offs  (2,442)  (896)  (1,017)  (819)  (5,174)
Recoveries  21   309   275   445   1,050 
Net charge-offs  (2,421)  (587)  (742)  (374)  (4,124)
Balance, September 30, 2017(2) $7,994  $27,294  $3,773  $3,656  $42,717 
                     
Nine Months Ended September 30, 2017                    
Balance, beginning of period(2) $7,739  $21,817  $3,779  $2,951  $36,286 
Provision for loan losses(1)  3,255   7,984   2,168   1,920   15,327 
Charge-offs  (3,083)  (3,264)  (2,962)  (2,986)  (12,295)
Recoveries  83   757   788   1,771   3,399 
Net charge-offs  (3,000)  (2,507)  (2,174)  (1,215)  (8,896)
Balance, September 30, 2017(2) $7,994  $27,294  $3,773  $3,656  $42,717 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $3,996  $2,325  $--  $--  $6,321 
Loans collectively evaluated for impairment  3,998   24,969   3,773   3,656   36,396 
Balance, September 30, 2017(2) $7,994  $27,294  $3,773  $3,656  $42,717 

______________________

(1)Provision for loan losses of $1,464,000 attributable to loans acquired was excluded from this table for the nine months ended September 30, 2017 (total provision for loan losses for the three and nine months ended September 30, 2017 was $5,462,000 and $16,792,000). There was $2.0 million in charge-offs for loans acquired during the nine months ended September 30, 2017 resulting in an ending balance in the allowance related to loans acquired of $391,000.

(2)Allowance for loan losses at September 30, 2017 includes $391,000 allowance for loans acquired (not shown in the table above). Allowance for loan losses at December 31, 2016 includes $954,000 allowance for loans acquired. The total allowance for loan losses at September 30, 2017 and June 30, 2017 was $43,108,000 and $41,770,000, respectively.


(In thousands)CommercialReal
Estate		Credit
Card		Other
Consumer
and Other		Total
Allowance for credit losses:
Three Months Ended June 30, 2020
Beginning balance, April 1, 2020$76,327  $141,022  $7,817  $18,029  $243,195  
Provision for credit loss expense18,400  10,020  3,943  (5,685) 26,678  
Charge-offs(35,687) (1,824) (1,053) (592) (39,156) 
Recoveries98  253  272  303  926  
Net charge-offs(35,589) (1,571) (781) (289) (38,230) 
Ending balance, June 30, 2020$59,138  $149,471  $10,979  $12,055  $231,643  

29



(In thousands)CommercialReal
Estate		Credit
Card		Other
Consumer
and Other		Total
Six Months Ended June 30, 2020
Beginning balance, January 1, 2020 - prior to adoption of CECL$22,863  $39,161  $4,051  $2,169  $68,244  
Impact of CECL adoption22,733  114,314  2,232  12,098  151,377  
Provision for credit loss expense49,307  (2,138) 6,693  (987) 52,875  
Charge-offs(36,210) (2,220) (2,494) (1,971) (42,895) 
Recoveries445  354  497  746  2,042  
Net charge-offs(35,765) (1,866) (1,997) (1,225) (40,853) 
Ending balance, June 30, 2020$59,138  $149,471  $10,979  $12,055  $231,643  

Activity in the allowance for loancredit losses for the three and ninesix months ended SeptemberJune 30, 20162019 was as follows:

(In thousands) Commercial Real
Estate		 Credit
Card		 Other
Consumer
and Other		 Total
           
Three Months Ended September 30, 2016                    
Balance, beginning of period(4) $7,832  $19,635  $3,748  $2,308  $33,523 
Provision for loan losses(3)  680   6,066   501   832   8,079 
Charge-offs  (284)  (6,297)  (699)  (600)  (7,880)
Recoveries  12   55   199   106   372 
Net charge-offs  (272)  (6,242)  (500)  (494)  (7,508)
Balance, September 30, 2016(4) $8,240  $19,459  $3,749  $2,646  $34,094 
                     
Nine Months Ended September 30, 2016                    
Balance, beginning of period(4) $5,985  $19,522  $3,893  $1,951  $31,351 
Provision for loan losses(3)  4,961   7,009   1,422   1,819   15,211 
Charge-offs  (3,043)  (7,350)  (2,260)  (1,482)  (14,135)
Recoveries  337   278   694   358   1,667 
Net charge-offs  (2,706)  (7,072)  (1,566)  (1,124)  (12,468)
Balance, September 30, 2016(4) $8,240  $19,459  $3,749  $2,646  $34,094 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $64  $515  $--  $1  $580 
Loans collectively evaluated for impairment  8,176   18,944   3,749   2,645   33,514 
Balance, September 30, 2016(4) $8,240  $19,459  $3,749  $2,646  $34,094 
                     
Period-end amount allocated to:                    
Loans individually evaluated for impairment $262  $417  $--  $1  $680 
Loans collectively evaluated for impairment  7,477   21,400   3,779   2,950   35,606 
Balance, December 31, 2016(5) $7,739  $21,817  $3,779  $2,951  $36,286 

______________________

(3)Provision for loan losses of $215,000 and $522,000 attributable to loans acquired was excluded from this table for the three and nine months ended September 30, 2016 (total provision for loan losses for the three and nine months ended September 30, 2016 was $8,294,000 and $15,733,000). The $215,000 and $522,000 was subsequently charged-off, resulting in no change in the ending balance in the allowance related to loans acquired.
(4)Allowance for loan losses at September 30, 2016, June 30, 2016 and December 31, 2015 includes $954,000 allowance for loans acquired. The total allowance for loan losses at September 30, 2016, June 30, 2016 and December 31, 2015 was $35,048,000, $34,477,000 and $32,305,000, respectively.
(5)Allowance for loan losses at December 31, 2016 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses December 31, 2016 was $37,240,000.


(In thousands)CommercialReal
Estate		Credit
Card		Other
Consumer
and Other		Total
Allowance for credit losses:
Three Months Ended June 30, 2019
Beginning balance, April 1, 2019$19,394  $34,870  $3,919  $2,372  $60,555  
Provision for credit losses2,956  2,681  800  642  7,079  
Charge-offs(1,963) (1,216) (1,039) (964) (5,182) 
Recoveries967  158  271  331  1,727  
Net charge-offs(996) (1,058) (768) (633) (3,455) 
Ending balance, June 30, 2019$21,354  $36,493  $3,951  $2,381  $64,179  
Six Months Ended June 30, 2019
Beginning balance, January 1, 2019$20,514  $29,838  $3,923  $2,419  $56,694  
Provision for credit losses4,830  7,988  1,698  1,848  16,364  
Charge-offs(5,115) (1,633) (2,181) (2,517) (11,446) 
Recoveries1,125  300  511  631  2,567  
Net charge-offs(3,990) (1,333) (1,670) (1,886) (8,879) 
Ending balance, June 30, 2019$21,354  $36,493  $3,951  $2,381  $64,179  

The Company’s recorded investment in loans, excluding loans acquired, related to each balance in


Four energy credits within the allowance for loan losses by portfolioCommercial segment on the basis of the Company’s impairment methodology was as follows:

(In thousands) Commercial Real
Estate		 Credit
Card		 Other
Consumer
and Other		 Total
           
September 30, 2017                    
Loans individually evaluated for impairment $13,976  $33,680  $273  $3,880  $51,809 
Loans collectively evaluated for impairment  882,833   3,761,220   176,043   339,407   5,159,503 
Balance, end of period $896,809  $3,794,900  $176,316  $343,287  $5,211,312 
                     
December 31, 2016                    
Loans individually evaluated for impairment $11,522  $30,001  $373  $1,800  $43,696 
Loans collectively evaluated for impairment  778,381   2,998,078   184,218   322,834   4,283,511 
Balance, end of period $789,903  $3,028,079  $184,591  $324,634  $4,327,207 

NOTE 6: LOANS ACQUIRED

Duringwere charged off during the second quarter of 2017,2020 for a total of $32.6 million, of which $27.1 million was specifically reserved for at March 31, 2020. The primary driver for the change in the provision for credit losses was related to updated credit loss forecasts using multiple Moody’s economic scenarios. The baseline economic forecast was weighted 68% by the Company, evaluated $249.3while the downside scenarios of S-2 and S-3 were weighted 22% and 10%, respectively, to capture the possibility of a longer, more prolonged recovery to the economies that affect the loan portfolio.


Reserve for Unfunded Commitments
In addition to the allowance for credit losses, the Company has established a reserve for unfunded commitments, classified in other liabilities. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The reserve for unfunded commitments as of June 30, 2020 and December 31, 2019 was $24.4 million and $8.4 million, respectively. The increase from year end was due to the adoption of CECL. The adequacy of the reserve for unfunded commitments is determined monthly based on methodology similar to the methodology for determining the allowance for credit losses. For the six months ended June 30, 2020 and 2019, net loans ($254.3adjustments to the reserve for unfunded commitments were a benefit of $8.0 million gross loans less $5.0 million discount) purchasedand an expense of $950,000, respectively, and were included in conjunction withother non-interest expense.


30



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

As of the acquisition of Hardeman, described in Note 2, Acquisitions,first quarter 2019, the Company accounts for its leases in accordance with the provisions of ASC Topic 310-20,Nonrefundable Fees842, Leases, which requires recognition of most leases, including operating leases, with a term greater than 12 months on the balance sheet. At lease commencement, the lease contract is reviewed to determine whether the contract is a finance lease or an operating lease; a lease liability is recognized on a discounted basis, related to the Company’s obligation to make lease payments; and Other Costs.a right-of-use asset is also recognized related to the Company’s right to use, or control the use of, a specified asset for the lease term. The fair value discount is being accreted into interest incomeCompany accounts for lease and non-lease components (such as taxes, insurance and common area maintenance costs) separately as such amounts are generally readily determinable under the lease contracts. Lease payments over the weighted average lifeexpected term are discounted using the Company’s FHLB advance rates for borrowings of similar term. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the loans using a constant yield method. These loansexpected lease term. Leases with an initial term of 12 months or less are not considered to be impaired loans. The Company evaluatedrecorded on the remaining $2.3 million of net loans ($3.3 million gross loans less $956,000 discount) purchased in conjunction with the acquisition of Hardeman for impairment in accordance with the provisions of ASC Topic 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

During the third quarter of 2016,balance sheet; the Company evaluated $340.1 million of net loans ($348.8 million gross loans less $8.7 million discount) purchased in conjunction with the acquisition of Citizens, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20,Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest incomerecognizes lease expense for these leases on a straight-line basis over the weighted average life of the loans usinglease term.


The Company’s leases are classified as operating leases with a constant yield method. These loansterm, including expected renewal or termination options, greater than one year, and are not consideredrelated to be impaired loans. The Company evaluated the remaining $757,000 of net loans ($1.6certain office facilities and office equipment. Right-of-use lease assets included in premises and equipment were $34.7 million gross loans less $848,000 discount) purchased in conjunction with the acquisition of Citizens for impairment in accordance with the provisions of ASC Topic 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality.

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


The following table reflects the carrying value of all loans acquired as of September$40.7 million at June 30, 20172020 and December 31, 2016:

  Loans Acquired
(in thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Other consumer $29,662  $49,677 
Total consumer  29,662   49,677 
Real estate:        
Construction  48,520   57,587 
Single family residential  363,796   423,176 
Other commercial  565,993   690,108 
Total real estate  978,309   1,170,871 
Commercial:        
Commercial  70,620   81,837 
Agricultural  13,448   3,298 
Total commercial  84,068   85,135 
         
Total loans acquired(1) $1,092,039  $1,305,683 

______________________

(1)Loans acquired are reported net of a $391,000 and $954,000 allowance at September 30, 2017 and December 31, 2016, respectively.

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

(In thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Other consumer $315  $456 
Total consumer  315   456 
Real estate:        
Construction  1,905   7,961 
Single family residential  11,840   13,366 
Other commercial  7,261   22,045 
Total real estate  21,006   43,372 
Commercial:        
Commercial  2,163   2,806 
Agricultural  216   198 
Total commercial  2,379   3,004 
Total $23,700  $46,832 


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

(In thousands) Gross
30-89 Days
Past Due		 90 Days
or More
Past Due		 Total
Past Due		 Current Total
Loans		 90 Days
Past Due &
Accruing
             
September 30, 2017                        
Consumer:                        
Other consumer $401  $161  $562  $29,100  $29,662  $7 
Total consumer  401   161   562   29,100   29,662   7 
Real estate:                        
Construction  19   1,420   1,439   47,081   48,520   -- 
Single family residential  4,785   3,127   7,912   355,884   363,796   -- 
Other commercial  806   2,670   3,476   562,517   565,993   -- 
Total real estate  5,610   7,217   12,827   965,482   978,309   -- 
Commercial:                        
Commercial  156   1,788   1,944   68,676   70,620   -- 
Agricultural  16   42   58   13,390   13,448   -- 
Total commercial  172   1,830   2,002��  82,066   84,068   -- 
                         
Total $6,183  $9,208  $15,391  $1,076,648  $1,092,039  $7 
                         
December 31, 2016                        
Consumer:                        
Other consumer $571  $189  $760  $48,917  $49,677  $-- 
Total consumer  571   189   760   48,917   49,677   -- 
Real estate:                        
Construction  132   7,332   7,464   50,123   57,587   -- 
Single family residential  8,358   4,857   13,215   409,961   423,176   11 
Other commercial  2,836   10,741   13,577   676,531   690,108   -- 
Total real estate  11,326   22,930   34,256   1,136,615   1,170,871   11 
Commercial:                        
Commercial  723   2,153   2,876   78,961   81,837   -- 
Agricultural  48   --   48   3,250   3,298   -- 
Total commercial  771   2,153   2,924   82,211   85,135   -- 
                         
Total $12,668  $25,272  $37,940  $1,267,743  $1,305,683  $11 


The following table presents a summary of loans acquired by credit risk rating, segregated by class of loans (see Note 5, Loans and Allowance for Loan Losses, for discussion of loan risk rating). Loans accounted for under ASC Topic 310-30 are all2019, respectively. Lease liabilities included in Risk Rate 1-4 in this table.

(In thousands) Risk Rate
1-4		 Risk Rate
5		 Risk Rate
6		 Risk Rate
7		 Risk Rate
8		 Total
             
September 30, 2017                        
Consumer:                        
Other consumer $28,982  $--  $680  $--  $--  $29,662 
Total consumer  28,982   --   680   --   --   29,662 
Real estate:                        
Construction  45,718   1,314   1,488   --   --   48,520 
Single family residential  347,821   1,534   13,825   615   --   363,795 
Other commercial  549,853   6,200   9,941   --   --   565,994 
Total real estate  943,392   9,048   25,254   615   --   978,309 
Commercial:                        
Commercial  66,367   325   3,928   --   --   70,620 
Agricultural  13,148   300   --   --   --   13,448 
Total commercial  79,515   625   3,928   --   --   84,068 
                         
Total $1,051,889  $9,673  $29,862  $615  $--  $1,092,039 
                         
December 31, 2016                        
Consumer:                        
Other consumer $48,992  $14  $671  $--  $--  $49,677 
Total consumer  48,992   14   671   --   --   49,677 
Real estate:                        
Construction  50,704   88   6,795   --   --   57,587 
Single family residential  400,553   2,696   18,392   1,535   --   423,176 
Other commercial  641,018   17,384   31,706   --   --   690,108 
Total real estate  1,092,275   20,168   56,893   1,535   --   1,170,871 
Commercial:                        
Commercial  73,609   1,965   6,257   6   --   81,837 
Agricultural  3,010   34   254   --   --   3,298 
Total commercial  76,619   1,999   6,511   6   --   85,135 
                         
Total $1,217,886  $22,181  $64,075  $1,541  $--  $1,305,683 

Loans acquiredother liabilities were individually evaluated$34.8 million and recorded$40.9 million at estimated fair value, including estimated credit losses, at the time of acquisition. These loans are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similarJune 30, 2020 and December 31, 2019, respectively.


Other information related to the Company’s legacy loan portfolio, with most focus being placed on those loans which include the larger loan relationships and those loans which exhibit higher risk characteristics.

The amount of the estimated cash flows expected to be received from the purchased credit impaired loans in excess of the fair values recorded for the purchased credit impaired loansoperating leases is referred to as the accretable yield.  The accretable yield is recognized as interest income over the estimated lives of the loans.  Each quarter, the Company estimates the cash flows expected to be collected from the acquired purchased credit impaired loans, and adjustments may or may not be required.


The impact of the adjustments on the Company’s financial results for the three and nine months ended September 30, 2017 and 2016 is shown below:

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
         
Impact on net interest income and pre-tax income $23  $65  $2,596  $1,240 
                 
Net impact, net of taxes $14  $40  $1,578  $754 

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

Changespresented in the carrying amount of the accretable yield for all purchased impaired loanstable below:


Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Operating lease cost$3,443,100  $2,613,600  $6,643,600  $6,048,500  
Weighted average remaining lease term8.53 years8.92 years
Weighted average discount rate3.25 %3.47 %

NOTE 7: PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation and amortization. Total premises and equipment, net at June 30, 2020 and December 31, 2019 were as follows for the three and nine months ended September 30, 2017 and 2016.

follows:
  Three Months Ended
September 30, 2017		 Nine Months Ended
September 30, 2017
(In thousands) Accretable
Yield		 Carrying
Amount of
Loans		 Accretable
Yield		 Carrying
Amount of
Loans
         
Beginning balance $766  $8,448  $1,655  $17,802 
Additions  --   --   --   2,388 
Accretable yield adjustments  52   --   2,698   -- 
Accretion  (408)  408   (3,943)  3,943 
Payments and other reductions, net  --   (980)  --   (16,257)
Balance, ending $410  $7,876  $410  $7,876 
June 30,December 31,
(In thousands)20202019
Right-of-use lease assets$34,680  $40,675  
Premises and equipment:
Land96,607  99,931  
Buildings and improvements306,951  309,290  
Furniture, fixtures and equipment98,383  99,343  
Software63,995  56,012  
Construction in progress6,635  6,998  
Accumulated depreciation and amortization(128,355) (119,865) 
Total premises and equipment, net$478,896  $492,384  

  Three Months Ended
September 30, 2016		 Nine Months Ended
September 30, 2016
(In thousands) Accretable
Yield		 Carrying
Amount of
Loans		 Accretable
Yield		 Carrying
Amount of
Loans
         
Beginning balance $2,365  $20,663  $954  $23,469 
Additions  --   1,614   --   1,614 
Accretable yield adjustments  171   --   3,245   -- 
Accretion  (555)  555   (2,218)  2,218 
Payments and other reductions, net  --   (1,412)  --   (5,881)
Balance, ending $1,981  $21,420  $1,981  $21,420 

Purchased impaired loans are evaluated on an individual borrower basis. Because some loans evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows, the Company recorded a provision and established an allowance for loan losses for loans acquired resulting in a total allowance on loans acquired of $391,000 at September 30, 2017 and $954,000 at December


31 2016. There was no provision on loans acquired for the three months ended September 30, 2017. The provision on loans acquired for the nine months ended September 30, 2017 was $1.5 million. The provision on loans acquired during the three and nine months ended September 30, 2016 was $215,000 and $522,000.





NOTE 7:8: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is tested annually, or more often than annually, if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $375.7 million$1.065 billion at SeptemberJune 30, 20172020 and $348.5 million$1.056 billion at December 31, 2016.  

The change in2019.


During 2019, the Company recorded $131.3 million and $78.5 million of goodwill during 2017 primarily includes $29.4 million recorded as a result of its acquisitions of Landrum and Reliance, respectively. During the Company’s 2017 Hardeman acquisition, which is not deductible for tax purposes, partially offset by $4.1first half of 2020, goodwill increased $9.2 million duerelated to the salecontinued assessment of the Company’s propertyfair value and casualty insurance linesassumed tax position of business. the Landrum acquisition.

Goodwill impairment was neither indicated nor recorded during the ninesix months ended SeptemberJune 30, 20172020 or the year ended December 31, 2016.

2019. During the first quarter of 2020, the Company’s share price began to decline as the markets in the United States responded to the global COVID-19 pandemic. As a result of that economic decline, the effect on share price and other factors, the Company performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed. During the second quarter of 2020, the Company performed the annual goodwill impairment analysis and concluded that it is more likely-than-not that the fair value of goodwill continues to exceed its carrying value and therefore, goodwill is not impaired.

Core deposit premiums represent the value of the relationships that acquired banks had with their deposit customers and are amortized over periods ranging from 10 years to 15 years and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiumsOther intangible assets represent the value of $7.8 million were recorded during the second quarter of 2017 as part of the Hardeman acquisition. Core deposit premiums of $5.1 million were recorded in the fourth quarter of 2016 as part of the Citizens acquisition.

Intangible assetsother acquired relationships, including relationships with trust and wealth management customers, and are being amortized over various periods ranging from 10 years to 15 years.

Changes in the carrying amount and accumulated amortization of the Company’s core deposit premiums and other intangible assets at June 30, 2020 and December 31, 2019 were as follows: 
June 30,December 31,
(In thousands)20202019
Core deposit premiums:
Balance, beginning of year$111,808  $79,807  
Acquisitions(1)
—  42,695  
Disposition of intangible asset(2)
(2,324) —  
Amortization(6,094) (10,694) 
Balance, end of period103,390  111,808  
Books of business and other intangibles:
Balance, beginning of year15,532  11,527  
Acquisitions(3)
—  5,116  
Disposition of intangible asset(413) —  
Amortization(686) (1,111) 
Balance, end of period14,433  15,532  
Total other intangible assets, net$117,823  $127,340  
_________________________
(1) Core deposit premiums of $24.3 million and $18.4 million were recorded during 2019 as part of the Landrum and Reliance acquisitions, respectively. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019.
(2) Adjustments recorded for the premiums on certain deposit liabilities associated with the sale of the Texas Branches and Colorado Branches.
(3) The Company recorded $830,000 of intangible assets$5.1 million during the second quarter of 20172019 primarily related to the insurancewealth management operations acquired from Landrum. See Note 2, Acquisitions, for additional information on acquisitions completed in the Hardeman acquisition. 2019.


32



The Company recorded $591,000 of intangible assets during the fourth quarter of 2016 related to the trust operations acquired in the Citizens acquisition. Intangible assets decreased by $1.3 million due to the sale of insurance lines of business during the third quarter of 2017.

The Company’s goodwill and other intangibles (carryingcarrying basis and accumulated amortization)amortization of the Company’s other intangible assets at SeptemberJune 30, 20172020 and December 31, 2016,2019 were as follows:  

(In thousands) September 30,
2017		 December 31,
2016
     
Goodwill $375,731  $348,505 
Core deposit premiums:        
Gross carrying amount  56,532   48,692 
Accumulated amortization  (14,297)  (10,625)
Core deposit premiums, net  42,235   38,067 
Purchased credit card relationships:        
Gross carrying amount  2,068   2,068 
Accumulated amortization  (1,654)  (1,344)
Purchased credit card relationships, net  414   724 
Books of business intangible:        
Gross carrying amount  15,414   15,884 
Accumulated amortization  (2,562)  (1,716)
Books of business intangible, net  12,852   14,168 
Other intangible assets, net  55,501   52,959 
Total goodwill and other intangible assets $431,232  $401,464 


June 30,December 31,
(In thousands)20202019
Core deposit premiums:
Gross carrying amount$146,355  $148,679  
Accumulated amortization(42,965) (36,871) 
Core deposit premiums, net103,390  111,808  
Books of business and other intangibles:
Gross carrying amount19,938  20,350  
Accumulated amortization(5,505) (4,818) 
Books of business and other intangibles, net14,433  15,532  
Total other intangible assets, net$117,823  $127,340  


The Company’s estimated remaining amortization expense on intangiblesother intangible assets as of SeptemberJune 30, 20172020 is as follows:

Year (In thousands)
Remainder of 2017 $1,665 
2018  6,557 
2019  6,247 
2020  6,234 
2021  6,172 
Thereafter  28,626 
Total $55,501 

(In thousands)YearAmortization
Expense
 Remainder of 2020$6,714  
 202113,379  
 202213,327  
 202313,044  
 202412,141  
 Thereafter59,218  
 Total$117,823  


NOTE 8:9: TIME DEPOSITS

Time deposits includeincluded approximately $635,765,000$2.09 billion and $600,280,000$2.15 billion of certificates of deposit of $100,000 or more, at SeptemberJune 30, 2017,2020, and December 31, 2016,2019, respectively. Of this total approximately $255,168,000$1.1 billion and $193,596,000$837.3 million of certificates of deposit were over $250,000 at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.

NOTE 9:10: INCOME TAXES

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

components for the periods indicated below:
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
Income taxes currently payable $11,946  $10,327  $30,467  $33,139 
Deferred income taxes  2,732   455   4,962   1,070 
Provision for income taxes $14,678  $10,782  $35,429  $34,209 

Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Income taxes currently payable$9,391  $12,757  $31,671  $23,074  
Deferred income taxes6,202  2,859  4,616  4,940  
Provision for income taxes$15,593  $15,616  $36,287  $28,014  

33



The tax effects of temporary differences relatedbetween the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred taxes shown on the balance sheets were:

income tax assets and liabilities, and their approximate tax effects, are as follows: 
(In thousands) September 30,
2017		 December 31,
2016
     
Deferred tax assets:        
Loans acquired $5,900  $7,986 
Allowance for loan losses  16,841   14,754 
Valuation of foreclosed assets  4,020   3,958 
Tax NOLs from acquisition  12,642   13,077 
Deferred compensation payable  2,983   2,785 
Vacation compensation  1,828   1,740 
Accrued equity and other compensation  5,138   6,367 
Acquired securities  1,201   1,098 
Other accrued liabilities  2,301   1,834 
Unrealized loss on available-for-sale securities  6,708   9,559 
Other  4,610   5,267 
Gross deferred tax assets  64,172   68,425 
Deferred tax liabilities:        
Goodwill and other intangible amortization  (32,189)  (29,601)
Accumulated depreciation  (6,403)  (5,370)
Other  (7,369)  (5,877)
Gross deferred tax liabilities  (45,961)  (40,848)
         
Net deferred tax asset, included in other assets $18,211  $27,577 



June 30,December 31,
(In thousands)20202019
Deferred tax assets:  
Loans acquired$13,756  $20,783  
Allowance for credit losses57,244  16,732  
Valuation of foreclosed assets2,636  2,626  
Tax NOLs from acquisition16,816  18,118  
Deferred compensation payable2,890  2,750  
Accrued equity and other compensation6,845  6,677  
Acquired securities—  3,393  
Right-of-use lease liability8,738  10,221  
Allowance for unfunded commitments6,122  —  
Other5,655  7,886  
Gross deferred tax assets120,702  89,186  
Deferred tax liabilities:
Goodwill and other intangible amortization(39,876) (41,221) 
Accumulated depreciation(36,731) (36,554) 
Right-of-use lease asset(8,701) (10,176) 
Unrealized gain on available-for-sale securities(16,183) (3,720) 
Deferred loan fees and costs(2,884) (3,018) 
Acquired securities(820) —  
Other(5,113) (4,633) 
Gross deferred tax liabilities(110,308) (99,322) 
Net deferred tax asset (liability)$10,394  $(10,136) 

A reconciliation of income tax expense at the statutory rate to the Company'sCompany’s actual income tax expense is shown for the three and nine months ended September 30 is shownperiods indicated below:

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
         
Computed at the statutory rate (35%) $15,235  $11,974  $38,313  $36,418 
Increase (decrease) in taxes resulting from:                
State income taxes, net of federal tax benefit  342   21   1,117   1,390 
Discrete items related to ASU 2016-09  5   --   (1,372)  -- 
Tax exempt interest income  (955)  (1,072)  (3,160)  (3,120)
Tax exempt earnings on BOLI  (178)  (146)  (616)  (665)
Merger related expenses  187   131   559   131 
Federal tax credits  (397)  (890)  (1,190)  (943)
Other differences, net  439   764   1,778   998 
Actual tax provision $14,678  $10,782  $35,429  $34,209 

Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Computed at the statutory rate (21%)
$15,620  $14,955  $36,180  $27,575  
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit2,296  1,420  4,359  2,765  
Discrete items related to ASU 2016-0943  (81) 69  (107) 
Tax exempt interest income(1,421) (1,024) (2,842) (1,985) 
Tax exempt earnings on BOLI(212) (215) (531) (394) 
Federal tax credits(1,034) (729) (2,068) (1,458) 
Other differences, net301  1,290  1,120  1,618  
Actual tax provision$15,593  $15,616  $36,287  $28,014  


34



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

The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in future years. The Company expects to fully realize its deferred tax assets in the future.


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


Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company closed a stock acquisitionhas engaged in a prior year that invoked thetwo tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382 annual limitation. Approximately $36.5382. In total, approximately $77.8 million of federal net operating losses subject to the IRC SecSection 382 annual limitation are expected to be utilized by the Company. TheCompany, of which $46.8 million is related to the Reliance acquisition that closed during second quarter 2019. All of the acquired Reliance net operating losses are expected to be fully utilized by 2027, with the remaining acquired net operating loss carryforwards expire between 2028 and 2035.

expected to be fully utilized by 2036.


The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 20142016 tax year and forward. The Company’s various state income tax returns are generally open from the 20142016 and later tax return years based on individual state statute of limitations.



NOTE 10:11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

We utilize

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

The gross amount of recognized liabilities for repurchase agreements was $121.4$335.2 million and $102.4$133.2 million at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of SeptemberJune 30, 20172020 and December 31, 20162019 is presented in the following tables:

tables.
  Remaining Contractual Maturity of the Agreements
(In thousands) Overnight and
Continuous		 Up to 30
Days		 30-90 Days Greater than
90 Days		 Total
September 30, 2017          
Repurchase agreements:                    
U.S. Government agencies $121,352  $--  $--  $--  $121,352 
                     
December 31, 2016                    
Repurchase agreements:                    
U.S. Government agencies $101,647  $--  $--  $757  $102,404 

 Remaining Contractual Maturity of the Agreements
(In thousands)Overnight and
Continuous		Up to 30 Days30-90 DaysGreater than
90 Days		Total
June 30, 2020     
Repurchase agreements:
U.S. Government agencies$335,230  $—  $—  $—  $335,230  
December 31, 2019
Repurchase agreements:
U.S. Government agencies$133,220  $—  $—  $—  $133,220  



35



NOTE 11:12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Debt at SeptemberJune 30, 20172020 and December 31, 20162019 consisted of the following components:

(In thousands) September 30,
2017		 December 31,
2016
     
Other Borrowings        
FHLB advances, net of discount, due 2017 to 2033, 1.15% to 7.37% secured by residential real estate loans $477,982  $225,230 
Notes payable, due 10/15/2020, 3.85%, fixed rate, unsecured  44,559   47,929 
Total other borrowings  522,541   273,159 
         
Subordinated Debentures        
Trust preferred securities, due 12/30/2033, floating rate of 2.80% above the three month LIBOR rate, reset quarterly, callable without penalty  20,620   20,620 
Trust preferred securities, net of discount, due 6/30/2035, floating rate of 1.75% above the three month LIBOR rate, reset quarterly, callable without penalty  9,301   9,225 
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly  10,246   10,130 
Trust preferred securities, net of discount, due 12/3/2033, floating rate of 2.88% above the three month LIBOR rate, reset quarterly, callable without penalty  5,157   5,161 
Trust preferred securities, net of discount, due 12/13/2034, floating rate of 2.00% above the three month LIBOR rate, reset quarterly, callable without penalty  5,137   5,105 
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty  10,255   10,156 
Trust preferred securities, net of discount, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty  6,702   -- 
Total subordinated debentures  67,418   60,397 
Total other borrowings and subordinated debentures $589,959  $333,556 


June 30,December 31,
(In thousands)20202019
Other Borrowings  
FHLB advances, net of discount, due 2020 to 2034, 0.23% to 7.37% secured by real estate loans$1,359,532  $1,262,691  
Other long-term debt34,157  34,908  
Total other borrowings1,393,689  1,297,599  
Subordinated Notes and Debentures
Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00% through 3/31/2023, floating rate of 2.15% above the three month LIBOR rate, reset quarterly)330,000  330,000  
Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly10,310  10,310  
Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penalty10,310  10,310  
Trust preferred securities, due 12/15/2035, floating rate of 1.45% above the three month LIBOR rate, reset quarterly, callable without penalty6,702  6,702  
Trust preferred securities, net of discount, due 6/15/2037, floating rate of 1.85% above the three month LIBOR rate, reset quarterly, callable without penalty25,094  25,015  
Trust preferred securities, net of discount, due 12/15/2036, floating rate of 1.85% above the three month LIBOR rate, reset quarterly, callable without penalty3,013  3,004  
Other subordinated debentures, due 12/31/2036, floating rate of prime rate minus 1.1%, reset quarterly—  5,927  
Unamortized debt issuance costs(2,825) (3,008) 
Total subordinated notes and debentures382,604  388,260  
Total other borrowings and subordinated debt$1,776,293  $1,685,859  

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

The Company assumed subordinated debt of $33.9 million in connection with the Landrum acquisition in October 2019, of which $5.9 million was repaid during second quarter of 2020.

At June 30, 2020, the Company had $442.0 million$1.35 billion of Federal Home Loan Bank (“FHLB”)FHLB advances outstanding with original or expected maturities of one year or less, of which $1.30 billion are FHLB Owns the Option (“FOTO”) advances. FOTO advances are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Typically, FOTO exercise dates follow a specified lockout period at Septemberthe beginning of the term when FHLB cannot terminate the FOTO advance. If FHLB exercises its option to terminate the FOTO advance at one of the specified option exercise dates, there is no termination or prepayment fee, and replacement funding will be available at then-prevailing market rates, subject to FHLB’s credit and collateral requirements. The Company’s FOTO advances outstanding at June 30, 20172020 have maturity dates of ten years to fifteen years with lockout periods that have expired and, $180.0 million at December 31, 2016.

as a result, are considered and monitored by the Company as short-term advances. The possibility of the FHLB exercising the options is analyzed by the Company along with the market expected rate outcome.


36



The Company had total FHLB advances of $478.0 million$1.36 billion at SeptemberJune 30, 2017,2020, with approximately $1.075$2.8 billion of additional advances available from the FHLB. The FHLB advances are secured by mortgage loans and investment securities totaling approximately $2.014$6.1 billion at SeptemberJune 30, 2017.

2020.

The trust preferred securities are tax-advantaged issues that qualifyqualified for Tier 1 capital treatment.treatment until December 31, 2017, when the Company reached $15 billion in assets. They still qualify for inclusion as Tier 2 capital at June 30, 2020. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making paymentpayments on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.


The Company’s long-term debt primarily includes subordinated debt and long-term FHLB advances with an original maturity of greater than one year. Aggregate annual maturities of long-term debt at SeptemberJune 30, 2017, are:

2020, are as follows:
Year (In thousands)
   
2017 $1,851 
2018  23,863 
2019  7,586 
2020  36,343 
2021  2,251 
Thereafter  76,065 
Total $147,959 

Year(In thousands)
Remainder of 2020$1,193  
20212,860  
20222,027  
20231,758  
20242,399  
Thereafter416,056  
Total$426,293  


NOTE 12:13: CONTINGENT LIABILITIES

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

NOTE 13: COMMON14: CAPITAL STOCK

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

On February 12, 2019, the Company filed its Amended and Restated Articles of Incorporation (“February Amended Articles”) with the Arkansas Secretary of State. The February Amended Articles classified and designated three series of preferred stock out of the Corporation’s authorized preferred stock: Series A Preferred Stock, Par Value $0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, Par Value $0.01 Per Share (having 2,000.02 authorized shares); and 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C (having 140 authorized shares).

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


37



On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 850,0001,700,000 shares of common stock. On October 22, 2019, the Company announced a new stock repurchase program (“Program”) that replaced the stock repurchase program approved on July 23, 2012, under which the Company may repurchase up to $60,000,000 of its Class A common stock or approximately 5%currently issued and outstanding. On March 5, 2020, the Company announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000 to $180,000,000. The Program will terminate on October 31, 2021 (unless terminated sooner).

Under the Program, the Company may repurchase shares of the shares outstanding at that time. The shares are to be purchased from time to time at prevailing market prices,its common stock through open market or unsolicitedand privately negotiated transactions depending uponor otherwise. The timing, pricing, and amount of any repurchases under the Program will be determined by the Company’s management at its discretion based on a variety of factors, including, but not limited to, trading volume and market conditions. Underprice of the repurchase program, there is no time limit forCompany’s common stock, corporate considerations, the stock repurchases, nor is there a minimum number of shares thatCompany’s working capital and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate the Company intends to repurchase. The Companyrepurchase any common stock and may discontinue purchasesbe modified, discontinued, or suspended at any time that management determines additional purchases are not warranted.without prior notice. The Company intendsanticipates funding for this Program to usecome from available sources of liquidity, including cash on hand and future cash flow.

During the six months ended June 30, 2020, the Company repurchased 4,922,336 shares to satisfy stock option exercises, paymentat an average price of $18.96 under the Program. NaN shares have been repurchased under the Program since March 31, 2020. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock awardsrepurchases. The Company had 0 repurchases of its common stock during the three and dividends and general corporate purposes.

six month periods ended June 30, 2019.


NOTE 14:15: UNDIVIDED PROFITS

The

Simmons Bank, the Company’s subsidiary bank, is subject to a legal limitationlimitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent (75%) of the total of its net profits, as defined, for that year combined with seventy-five percent (75%) of its retained net profits of the preceding year. At SeptemberJune 30, 2017, the Company’s subsidiary bank2020, Simmons Bank had approximately $1.8$165.1 million available for payment of dividends to the Company, without prior regulatory approval.

The risk-based capital guidelines of the Federal Reserve Board and the Arkansas State Bank Department include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under the Basel III Rules effective January 1, 2015, the criteria for a well-capitalized institution are: a 5% "Tier“Tier l leverage capital"capital” ratio, an 8% "Tier“Tier 1 risk-based capital"capital” ratio, 10% "total“total risk-based capital"capital” ratio; and a 6.50%6.5% “common equity Tier 1 (CET1)” ratio.

The Company and Simmons Bank, must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and will phasewas phased in over a four-yearfour year period (increasing by that amount on each subsequent January 1 until it reachesreached 2.5% on January 1, 2019). Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. As of SeptemberJune 30, 2017,2020, the Company and its subsidiary bankSimmons Bank met all capital adequacy requirements, including the capital conservation buffer, under the Basel III Capital Rules, and management believes the Company and subsidiary bank would meet all Capital Rules on a fully phased-in basis if such requirements were currently effective.Rules. The Company'sCompany’s CET1 ratio was 11.97%11.85% at SeptemberJune 30, 2017.

2020. 



38



NOTE 15: STOCK BASED16: STOCK-BASED COMPENSATION

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


The table below summarizes the transactions under the Company'sCompany’s active stockstock-based compensation plans for the ninesix months ended SeptemberJune 30, 2017:

2020: 
  Stock Options
Outstanding		 Stock Awards
Outstanding		 Stock Units
Outstanding
  Number
of Shares
(000)		 Weighted
Average
Exercise
Price		 Number
of Shares
(000)		 Weighted
Average
Exercise
Price		 Number
of Shares
(000)		 Weighted
Average
Exercise
Price
             
Balance, January 1, 2017  473  $42.85   139  $40.96   113  $45.40 
Granted  --   --   --   --   185   58.18 
Stock Options Exercised  (39)  32.16   --   --   --   -- 
Stock Awards/Units Vested  --   --   (34)  36.45   (124)  52.71 
Forfeited/Expired  (3)  44.68   (12)  43.83   (13)  51.72 
                         
Balance, September 30, 2017  431  $43.82   93  $42.21   161  $53.97 
                         
Exercisable, September 30, 2017  325  $43.23                 
 Stock Options
Outstanding		Non-vested
Stock Awards
Outstanding		Non-vested
Stock Units
Outstanding
 (Shares in thousands)Number
of Shares		Weighted
Average
Exercise
Price		Number
of Shares		Weighted
Average
Grant-Date
Fair Value		Number
of Shares		Weighted
Average
Grant-Date
Fair Value
Balance, January 1, 2020692  $22.46  21  $23.19  1,152  $26.79  
Granted—  —  —  —  480  22.37  
Stock options exercised(1) 10.71  —  —  —  —  
Stock awards/units vested (earned)—  —  (5) 21.15  (386) 26.07  
Forfeited/expired(33) 22.49  —  —  (62) 26.66  
Balance, June 30, 2020658  $22.48  16  $23.75  1,184  $25.23  
Exercisable, June 30, 2020658  $22.48  



The following table summarizes information about stock options under the plans outstanding at SeptemberJune 30, 2017:

2020:
   Options Outstanding  Options Exercisable 

Range of

Exercise Prices

 

Number

of Shares

  

Weighted

Average

Remaining

Contractual

Life (Years)

  

Weighted

Average

Exercise

Price

  

Number

of Shares

  

Weighted

Average

Exercise

Price

 
$17.55-$21.13  3,950   2.76  $19.38   3,950  $19.38 
21.29-21.29  3,700   5.30   21.29   2,500   21.29 
21.51-21.51  1,250   2.30   21.51   1,250   21.51 
30.31-30.31  22,180   0.63   30.31   22,180   30.31 
40.57-40.57  40,490   7.25   40.57   40,490   40.57 
40.72-40.72  1,500   7.13   40.72   600   40.72 
44.40-44.40  49,870   7.25   44.40   37,144   44.40 
45.50-45.50  246,485   7.62   45.50   193,025   45.50 
47.02-47.02  58,090   7.79   47.02   20,838   47.02 
48.13-48.13  3,305   7.96   48.13   2,645   48.13 
$17.55-$48.13  430,820   7.12  $43.82   324,622  $43.23 

Total stock-based

  Options OutstandingOptions Exercisable
Range of
Exercise Prices		Number
of Shares
(In thousands)		Weighted
Average
Remaining
Contractual
Life (Years)		Weighted
Average
Exercise
Price		Number
of Shares
(In thousands)		Weighted
Average
Exercise
Price
$9.46  —$9.46  11.55$9.461$9.46
10.65  —10.65  32.5810.65310.65
20.29  —20.29  663.7020.296620.29
20.36  —20.36  24.3820.36220.36
22.20  —22.20  743.6322.207422.20
22.75  —22.75  4124.3922.7541222.75
23.51  —23.51  934.8023.519323.51
24.07  —24.07  75.2124.07724.07
$9.46  —$24.07  6584.29$22.48658$22.48

39



The table below summarizes the Company’s performance stock unit activity for the six months ended June 30, 2020:
(In thousands)Performance Stock Units
Non-vested, January 1, 2020199 
Granted116 
Vested (earned)(80)
Forfeited(18)
Non-vested, June 30, 2020217 

Stock-based compensation expense was $6,486,000$7,577,000 and $4,204,000$6,249,000 during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was $407,000 of0 unrecognized stock-based compensation expense related to stock options at SeptemberJune 30, 2017.2020. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $15,423,000$21,925,000 at SeptemberJune 30, 2017.2020. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 2.01.9 years.

The intrinsic value of stock options outstanding and stock options exercisable at SeptemberJune 30, 20172020 was $6,066,000 and $4,761,000.$28,000. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $57.90$17.11 as of SeptemberJune 30, 2017,2020, and the exercise price multiplied by the number of options outstanding and exercisable at a price below that closing price.outstanding. The total intrinsic value of stock options exercised during the ninesix months ended SeptemberJune 30, 20172020 and SeptemberJune 30, 2016,2019, was $1,012,000$6,000 and $1,063,000,$5,000, respectively.


The fair value of the Company’s employee stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. There were no0 stock options granted during the ninesix months ended SeptemberJune 30, 2017. 2020 and 2019.
NOTE 17: EARNINGS PER SHARE (“EPS”)
Basic EPS is computed by dividing reported net income available to common stockholders by weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing reported net income available to common stockholders by the weighted average common shares and all potential dilutive common shares outstanding during the period.
The weighted-average fair valuecomputation of earnings per share is as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands, except per share data)2020201920202019
Net income available to common stockholders$58,789  $55,598  $136,012  $103,293  
Average common shares outstanding108,982  96,098  110,936  94,318  
Average potential dilutive common shares148  270  148  270  
Average diluted common shares109,130  96,368  111,084  94,588  
Basic earnings per share$0.54  $0.58  $1.23  $1.10  
Diluted earnings per share$0.54  $0.58  $1.22  $1.09  

There were approximately 653,718 stock options granted duringexcluded from the ninethree and six months ended SeptemberJune 30, 2016 was $11.642020 earnings per share. The Company estimated expectedshare calculations due to the average market prices of the Company’s common stock exceeding the related stock option exercise prices. There were 6,610 stock options excluded from the three months ended June 30, 2019 earnings per share calculation due to the average market price volatility and expected term of the Company’s stock exceeding the related stock option exercise price. There were 0 stock options based on historical data and other factors. The weighted-average assumptions usedexcluded from the earnings per share calculation for the six months ended June 30, 2019 due to determine the fair value of options granted are detailed inrelated exercise price exceeding the table below:

average market price.
Nine Months Ended
September 30, 2016
Expected dividend yield1.96%
Expected stock price volatility27.34%
Risk-free interest rate2.01%
Expected life of options (in years)7



40



NOTE 16:18: ADDITIONAL CASH FLOW INFORMATION

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

information:
  Nine Months Ended
September 30,
(In thousands) 2017 2016
     
Interest paid $21,531  $16,311 
Income taxes paid  21,718   32,069 
Transfers of loans to foreclosed assets and other real estate owned  5,311   3,846 
Transfers of premises to foreclosed assets and other real estate owned  3,188   -- 
Transfers of premises and equipment to premises held for sale  --   7,200 
Transfers of premises held for sale to foreclosed assets and other real estate owned  --   652 

 Six Months Ended
June 30,
(In thousands)20202019
Interest paid$72,146  $87,841  
Income taxes paid (refunded)3,196  28,253  
Transfers of loans to foreclosed assets held for sale1,147  1,506  
Transfers of premises to foreclosed assets and other real estate owned3,120  444  
Transfers of premises to premises held for sale1,072  —  
Transfers of other real estate owned to premises held for sale3,504  —  
Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02)—  32,757  
Transfers of loans to other assets held for sale114,925  —  
Transfers of deposits to other liabilities held for sale58,405  —  

NOTE 17:19: OTHER INCOME AND OTHER OPERATING EXPENSES

Other income for the three and six months ended June 30, 2020 was $9.8 million and $22.6 million, respectively, which included the $8.1 million gains on sale of the Texas Branch Sale and Colorado Branch Sale. Other income for the three and six months ended June 30, 2019 was $6.1 million and $10.2 million, respectively.

Other operating expenses consistconsisted of the following:

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
         
Professional services $3,946  $3,282  $13,079  $9,678 
Postage  1,091   1,150   3,427   3,458 
Telephone  943   912   3,003   3,014 
Credit card expense  3,137   2,947   9,081   8,319 
Marketing  1,219   1,525   4,253   4,647 
Operating supplies  592   457   1,406   1,273 
Amortization of intangibles  1,724   1,503   4,828   4,411 
Branch right sizing expense  153   218   370   3,451 
Other expense  5,458   5,185   18,588   14,851 
Total other operating expenses $18,263  $17,179  $58,035  $53,102 

 Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Professional services$3,921  $3,492  $9,750  $7,815  
Postage1,769  1,445  4,005  3,171  
Telephone2,450  1,480  4,635  3,099  
Credit card expense4,582  3,762  8,964  7,622  
Marketing3,528  2,436  7,913  5,493  
Software and technology10,024  5,580  19,469  10,076  
Operating supplies828  560  1,764  1,178  
Amortization of intangibles3,369  2,947  6,782  5,588  
Branch right sizing expense1,721  2,887  1,959  2,932  
Other expense2,459  8,278  8,198  15,955  
Total other operating expenses$34,651  $32,867  $73,439  $62,929  

NOTE 18:20: CERTAIN TRANSACTIONS

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


41



NOTE 19:21: COMMITMENTS AND CREDIT RISK

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

At SeptemberJune 30, 2017,2020, the Company had outstanding commitments to extend credit aggregating approximately $568,655,000$670,546,000 and $1,628,358,000$2,933,075,000 for credit card commitments and other loan commitments, respectively. At December 31, 2016,2019, the Company had outstanding commitments to extend credit aggregating approximately $562,527,000$634,788,000 and $1,220,137,000$3,991,931,000 for credit card commitments and other loan commitments, respectively.


Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $29,812,000$63,279,000 and $29,362,000$71,074,000 at SeptemberJune 30, 2017,2020, and December 31, 2016,2019, respectively, with terms ranging from 9 months to 15 years. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the Company had no0 deferred revenue under standby letter of credit agreements.

NOTE 20: PREFERRED STOCK

On February 27, 2015, as part of the acquisition of Community First, the Company issued 30,852 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Simmons Series A Preferred Stock”) in exchange for the outstanding shares of Community First Senior Non-Cumulative Perpetual Preferred Stock, Series C (“Community First Series C Preferred Stock”). The preferred stock was held by the United States Department of the Treasury (“Treasury”) as the Community First Series C Preferred Stock was issued when Community First entered into a Small Business Lending Fund Securities Purchase Agreement with the Treasury.  The Simmons Series A Preferred Stock qualified as Tier 1 capital and paid quarterly dividends.  The rate remained fixed at 1% through February 18, 2016, at which time it would convert to a fixed rate of 9%. On January 29, 2016, the Company redeemed all of the preferred stock, including accrued and unpaid dividends.


NOTE 21:22: FAIR VALUE MEASUREMENTS

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

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

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

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

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


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

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




42



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

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

Assets held in trading accounts

Derivative instruments– The Company's assets held in trading accountsCompany’s derivative instruments are reported at fair value utilizing Level 2 inputs.

The Company obtains fair value measurements from dealer quotes.


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

The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis as of SeptemberJune 30, 20172020 and December 31, 2016.

2019.
    Fair Value Measurements Using
(In thousands) Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable Inputs
(Level 3)
         
September 30, 2017                
ASSETS                
Available-for-sale securities                
U.S. Government agencies $208,220  $--  $208,220  $-- 
Mortgage-backed securities  959,698   --   959,698   -- 
State and political subdivisions  84,822   --   84,822   -- 
Other securities  64,680   --   64,680   -- 
Assets held in trading accounts  49   --   49   -- 
                 
December 31, 2016                
ASSETS                
Available-for-sale securities                
U.S. Treasury $300  $300  $--  $-- 
U.S. Government agencies  137,771   --   137,771   -- 
Mortgage-backed securities  868,324   --   868,324   -- 
States and political subdivisions  102,943   --   102,943   -- 
Other securities  48,016   --   48,016   -- 
Assets held in trading accounts  41   --   41   -- 

  Fair Value Measurements Using
(In thousands)Fair ValueQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
June 30, 2020    
Available-for-sale securities    
U.S. Government agencies$210,921  $—  $210,921  $—  
Mortgage-backed securities1,154,086  —  1,154,086  —  
State and political subdivisions1,054,068  —  1,054,068  —  
Other securities77,821  —  77,821  —  
Other assets held for sale399  —  —  399  
Derivative asset44,702  —  44,702  —  
Derivative liability(45,080) —  (45,080) —  
December 31, 2019
Available-for-sale securities
U.S. Treasury$449,729  $449,729  $—  $—  
U.S. Government agencies194,249  —  194,249  —  
Mortgage-backed securities1,742,945  —  1,742,945  —  
States and political subdivisions880,524  —  880,524  —  
Other securities20,896  —  20,896  —  
Other assets held for sale260,332  —  —  260,332  
Derivative asset14,903  —  14,903  —  
Other liabilities held for sale(159,853) —  —  (159,853) 
Derivative liability(12,650) —  (12,650) —  
43



Certain financial assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).circumstances. Financial assets and liabilities measured at fair value on a nonrecurring basis include the following:

Impaired


Individually assessed loans (collateral dependent)(collateral-dependent) – Loan impairment is reportedWhen the Company has a specific expectation to initiate, or has initiated, foreclosure proceedings, and when full payment under the loan terms is not expected. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectabilityrepayment of a loan is confirmed. Impairedexpected to be substantially dependent on the liquidation of underlying collateral, the relationship is deemed collateral-dependent. Fair value of the loan is determined by establishing an allowance for credit loss for any exposure based on the valuation of the underlying collateral. The valuation of the collateral is determined by either an independent third-party appraisal or other collateral analysis. Discounts can be made by the Company based upon the overall evaluation of the independent appraisal. Collateral-dependent loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined usinghierarchy. Collateral values supporting the fair value method.


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

non-current valuations.


Foreclosed assets and other real estate owned – Foreclosed assets and other real estate owned are reported at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loancredit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets and other real estate owned is estimated using Level 3 inputs based on unobservable market data.  As of September 30, 2017 and December 31, 2016, the fair value of foreclosed assets and other real estate owned less estimated costs to sell was $31.5 million and $26.9 million, respectively.


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

Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value if, on an aggregate basis, the fair value of the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments, discounted cash flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Such loans are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3. At SeptemberJune 30, 20172020 and December 31, 2016,2019, the aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, no0 mortgage loans held for sale were marked down and reported at fair value.


The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a nonrecurring basis as of SeptemberJune 30, 20172020 and December 31, 2016.

2019. 
    Fair Value Measurements Using
(In thousands) Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable Inputs
(Level 3)
         
September 30, 2017                
ASSETS                
Impaired loans(1) (2) (collateral dependent) $11,229  $--  $--  $11,229 
Foreclosed assets and other real estate owned(1)  19,506   --   --   19,506 
                 
December 31, 2016                
ASSETS                
Impaired loans(1) (2) (collateral dependent) $17,154  $--  $--  $17,154 
Foreclosed assets and other real estate owned(1)  17,806   --   --   17,806 
  Fair Value Measurements Using
(In thousands)Fair ValueQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
June 30, 2020    
Individually assessed loans (1) (2) (collateral-dependent)
$47,585  $—  $—  $47,585  
Foreclosed assets and other real estate owned (1)
2,995  —  —  2,995  
December 31, 2019
Individually assessed loans (1) (2) (collateral-dependent)
$49,190  $—  $—  $49,190  
Foreclosed assets and other real estate owned (1)
18,798  —  —  18,798  

________________________

(1)These amounts represent the resulting carrying amounts on the Consolidated Balance Sheets for impaired collateral dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period.
(2)Specific allocations of $2,195,000 and $2,384,000 were related to the impaired collateral dependent loans for which fair value re-measurements took place during the periods ended September 30, 2017 and December 31, 2016, respectively.

(1)These amounts represent the resulting carrying amounts on the consolidated balance sheets for collateral-dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period.
(2)Identified reserves of $8,283,000 and $1,297,000 were related to collateral-dependent loans for which fair value re-measurements took place during the periods ended June 30, 2020 and December 31, 2019, respectively.
44



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


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


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

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


Loans – The fair value of loans excluding loans acquired, is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations (Level 3).

Loans acquired– Fair values of loans acquired are based on a discounted cash flow methodology that considersAdditional factors includingconsidered include the type of loan and related collateral, variable or fixed rate, classification status, remaining term, interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans. The fair value of loans is estimated on an exit price basis incorporating the above factors (Level 3).


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

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

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

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

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

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

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



45



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

  Carrying Fair Value Measurements  
(In thousands) Amount Level 1 Level 2 Level 3 Total
           
September 30, 2017                    
Financial assets:                    
Cash and cash equivalents $432,290  $432,290  $--  $--  $432,290 
Interest bearing balances due from banks - time  4,059   --   4,059   --   4,059 
Held-to-maturity securities  406,033   --   412,140   --   412,140 
Mortgage loans held for sale  12,614   --   --   12,614   12,614 
Interest receivable  30,749   --   30,749   --   30,749 
Legacy loans (net of allowance)  5,168,595   --   --   5,140,768   5,140,768 
Loans acquired (net of allowance)  1,092,039   --   --   1,086,160   1,086,160 
                     
Financial liabilities:                    
Non-interest bearing transaction accounts  1,669,860   --   1,669,860   --   1,669,860 
Interest bearing transaction accounts and savings deposits  4,344,779   --   4,344,779   --   4,344,779 
Time deposits  1,310,951   --   --   

1,301,451

   

1,301,451

 
Federal funds purchased and securities sold under agreements to repurchase  121,687   --   121,687   --   121,687 
Other borrowings  522,541   --   

526,266

   --   

526,266

 
Subordinated debentures  67,418   --   

62,142

   --   

62,142

 
Interest payable  2,043   --   2,043   --   2,043 
                     
December 31, 2016                    
Financial assets:                    
Cash and cash equivalents $285,659  $285,659  $--  $--  $285,659 
Interest bearing balances due from banks - time  4,563   --   4,563   --   4,563 
Held-to-maturity securities  462,096   --   465,960   --   465,960 
Mortgage loans held for sale  27,788   --   --   27,788   27,788 
Interest receivable  27,788   --   27,788   --   27,788 
Legacy loans (net of allowance)  4,290,921   --   --   4,305,165   4,305,165 
Loans acquired (net of allowance)  1,305,683   --   --   1,310,017   1,310,017 
                     
Financial liabilities:                    
Non-interest bearing transaction accounts  1,491,676   --   1,491,676   --   1,491,676 
Interest bearing transaction accounts and savings deposits  3,956,483   --   3,956,483   --   3,956,483 
Time deposits  1,287,060   --   --   1,278,339   1,278,339 
Federal funds purchased and securities sold under agreements to repurchase  115,029   --   115,029   --   115,029 
Other borrowings  273,159   --   292,367   --   292,367 
Subordinated debentures  60,397   --   55,318   --   55,318 
Interest payable  1,668   --   1,668   --   1,668 

 CarryingFair Value Measurements
(In thousands)AmountLevel 1Level 2Level 3Total
June 30, 2020     
Financial assets:     
Cash and cash equivalents$2,545,160  $2,545,160  $—  $—  $2,545,160  
Interest bearing balances due from banks - time4,561  —  4,561  —  4,561  
Held-to-maturity securities51,720  —  53,751  —  53,751  
Mortgage loans held for sale120,034  —  —  120,034  120,034  
Interest receivable79,772  —  79,772  —  79,772  
Loans, net14,375,257  —  —  14,420,889  14,420,889  
Financial liabilities:
Non-interest bearing transaction accounts4,608,098  —  4,608,098  —  4,608,098  
Interest bearing transaction accounts and savings deposits8,978,045  —  8,978,045  —  8,978,045  
Time deposits3,029,975  —  —  3,046,955  3,046,955  
Federal funds purchased and securities sold under agreements to repurchase387,025  —  387,025  —  387,025  
Other borrowings1,393,689  —  1,504,732  —  1,504,732  
Subordinated notes and debentures382,604  —  402,716  —  402,716  
Interest payable10,473  —  10,473  —  10,473  
December 31, 2019
Financial assets:
Cash and cash equivalents$996,623  $996,623  $—  $—  $996,623  
Interest bearing balances due from banks - time4,554  —  4,554  —  4,554  
Held-to-maturity securities40,927  —  41,855  —  41,855  
Mortgage loans held for sale58,102  —  —  58,102  58,102  
Interest receivable62,707  —  62,707  —  62,707  
Loans, net14,357,460  —  —  14,290,188  14,290,188  
Financial liabilities:
Non-interest bearing transaction accounts3,741,093  —  3,741,093  —  3,741,093  
Interest bearing transaction accounts and savings deposits9,090,878  —  9,090,878  —  9,090,878  
Time deposits3,276,969  —  —  3,270,333  3,270,333  
Federal funds purchased and securities sold under agreements to repurchase150,145  —  150,145  —  150,145  
Other borrowings1,297,599  —  1,298,011  —  1,298,011  
Subordinated debentures388,260  —  397,088  —  397,088  
Interest payable12,898  —  12,898  —  12,898  

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




46



NOTE 22: SUBSEQUENT EVENTS

On October 19, 2017,23: DERIVATIVE INSTRUMENTS


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

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

Hedge Structures

The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the Agreementsunderlying position being hedged. The term and Plannotional principal amount of Mergers, dated December 14, 2016a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and January 23, 2017, respectively.aggregate exposure to each counterparty is tracked. The Company was the surviving corporation in both mergers, which are referred to individually as the “OKSB Merger” and the “First Texas Merger”, and collectively as the “mergers.” The mergers were described in the Joint Proxy Statement/Prospectus of the Company, OKSB and First Texas filed with the SEC on September 12, 2017. Ashas set a result of the mergers, the Company expanded its reach into three new banking markets and now has approximately $14.7 billion in assets and approximately $10.5 billion and $11.2 billion in loans and deposits, respectively.

In the OKSB Merger, eachmaximum outstanding share of OKSB common stock was cancelled and converted into the right to receive 0.3903 sharesnotional contract amount at 10% of the Company’s common stock and $5.11assets.


Customer Risk Management Interest Rate Swaps

The Company’s qualified loan customers have the opportunity to participate in cash.its interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with the Company. The Company issued 7,250,000 sharesenters into such agreements with customers, then offsetting agreements are executed between the Company and an approved dealer counterparty to minimize market risk from changes in interest rates. The counterparty contracts are identical to customer contracts in terms of notional amounts, interest rates, and maturity dates, except for a fixed pricing spread or fee paid to the Company by the dealer counterparty. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of these derivative instruments is recognized as either derivative assets or liabilities in the accompanying consolidated balance sheets. The Company has a limited number of swaps that are standalone without a similar agreement with the loan customer.

The Company has entered into interest rate swap agreements that effectively convert the loan interest rate from floating rate based on LIBOR or Prime rate to a fixed rate for the customer. The Company has entered into offsetting agreements with dealer counterparties. The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets.
June 30, 2020December 31, 2019
(In thousands)NotionalFair ValueNotionalFair Value
Derivative assets$445,660  $44,702  $401,969  $14,903  
Derivative liabilities455,010  45,080  387,075  12,650  

Risk Participation Agreements

The Company has a limited number of Risk Participation Agreement swaps, that are associated with loan participations, where the Company is not the counterparty to the interest rate swaps that are associated with the risk participation sold. The interest rate swap mark to market only impacts the Company if the swap is in a liability position to the counterparty and the customer defaults on payments to the counterparty. The notional amount of these contingent agreements is $52.2 million as of June 30, 2020.

Energy Hedging

During 2019, the Company began providing energy derivative services to qualifying, high quality oil and gas borrowers for hedging purposes. The Company serves as an intermediary on energy derivative products between the Company’s borrowers and dealers. The Company will only enter into back-to-back trades, thus maintaining a balanced book between the dealer and the borrower.
47



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

The outstanding notional value as of June 30, 2020 for energy hedging Customer Sell to Company swaps were $12.6 million and the corresponding Company Sell to Dealer swaps were $12.6 million and the corresponding net fair value of the derivative asset and derivative liability was $514,800.

NOTE 24: RECENT EVENTS

The coronavirus (COVID-19) pandemic has placed significant health, economic and other major pressure on the communities the Company serves, the United States and the entire world. In March 2020, Congress passed the CARES Act, which is designed to provide comprehensive relief to individuals and businesses following the unprecedented impact of the COVID-19 pandemic. The Company has implemented a number of procedures in response to the pandemic to support the safety and well being of its common stockemployees, customers and paid $95,000,000 in cash to effectshareholders that continue through the OKSB Merger. Indate of filing this report. Some of the First Texas Merger, each outstanding share of First Texas common stock was cancelled and converted intoimplemented procedures include:

•Addressing the right to receive 0.8263 sharessafety of the Company’s common stock226 branches, following local, state, and $6.60federal guidelines. In March, the Company announced the temporary closure of 52 branches and increased its focus on the enhanced digital banking experience. Many of the branches have now been reopened, however we will continue to review our branch network;
•Holding regular executive and pandemic task force meetings to address issues that change rapidly;
•Implementing business continuity plans to help ensure that customers have adequate access to banking services;
•Providing extensions and deferrals to loan customers affected by COVID-19 provided such customers were not 30 days or more past due at December 31, 2019. Through June 30, 2020, the Company has modified more than 4,600 loans totaling approximately $3.3 billion; and
•Participating in cash.both appropriations of the CARES Act Paycheck Protection Program (“PPP”) that provides 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assist with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions during this crisis. The Company issued 6,500,000 sharesoriginated over 7,800 PPP loans with a balance of its common stock$963.7 million at June 30, 2020.

The Company continues to closely monitor this pandemic and paid $70,000,000 in cashexpects to effect the First Texas Merger. Additionally, upon consummation of the mergers, the Company assumed subordinated debt issued by OKSB and First Texas in an aggregate principal amount of $76.7 million. The mergers were approved by stockholders of the Company on October 18, 2017 while the stockholders of OKSB and First Texas approved the mergers on October 19, 2017.

Duemake future changes to respond to the timing of the mergerspandemic as this situation continues to evolve. Further economic downturns accompanying this pandemic, or a delayed economic recovery from this pandemic, could result in increased deterioration in credit quality, past due loans, loans charge offs and the number of assets and liabilities assumed, the Company is continuing to determine their preliminary fair values and the purchase price allocation.  The Company expects to finalize the analysis of the acquired assets and liabilities over the next few months and within one year of the mergers. We will record the mergers using the acquisition method of accounting and will recognize the assets acquired and liabilities assumed at their fair values as of the date of acquisition. Thecollateral value declines, which could cause our results of the mergers willoperations and financial condition to be included in our consolidated operating results beginning on the acquisition date.

On October 6, 2017, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association and executed an unsecured Revolving Credit Note (the “Note”) pursuant to which the Company may borrow, prepay and re-borrow up to $75 million for purposes of financing distributions, financing certain acquisitions, and working capital purposes. The Credit Agreement contains customary representations, warranties, and covenants of the Company, including, among other things, covenants that impose various financial ratio requirements. The Company will primarily use the proceeds of the revolving credit loans under the Credit Agreement to repay the subordinated debt assumed with the mergers as previously discussed.

The principal amounts borrowed under the Credit Agreement will bear interest at a variable rate equal to the applicable one-month LIBOR rate plus 1.50%. The amount of interest accruing under the Note shall be computed on an actual day, 360-day year basis. The line of credit available to the Company under the Credit Agreement expires on October 5, 2018, at which time all amounts borrowed, together with applicable interest, fees, and other amounts owed by the Company shall be due and payable.

negatively impacted.



48



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee, Board of Directors and Stockholders

Simmons First National Corporation

Pine Bluff, Arkansas

Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet ofSIMMONS FIRST NATIONAL CORPORATION Simmons First National Corporation (“the Company”) as of SeptemberJune 30, 2017,2020, and the related condensed consolidated statements of income, and comprehensive income and stockholders’ equity for the threethree-month and nine monthssix-month periods ended SeptemberJune 30, 20172020 and 2016 and the related consolidated statements of stockholders’ equity2019, and cash flows for the nine monthsix-month periods ended SeptemberJune 30, 20172020 and 2016.  These interim2019, and the related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements arereferred to above for them to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company’s management.

America.

We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 27, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Based on our reviews, we are not aware


Emphasis of any material modifications that should be madeMatter

As discussed in Note 1 to the condensed consolidated financial statements, referred to above for them to be in conformity withthe Company has changed its method of accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the year then ended (not presented herein); andallowance for credit losses in our report dated February 28, 2017, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation2020 due to the consolidated balance sheet from which it has been derived.

BKD, LLP
/s/ BKD, LLP

adoption of Topic 326.




 /s/ BKD, LLP
Little Rock, Arkansas

November

August 6, 2017

2020


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

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

OVERVIEW

Our net income for the three months ended SeptemberJune 30, 20172020 was $28.9$58.8 million, andor $0.54 diluted earnings per share, were $0.89,an increase of $3.2 million and a decrease of $0.04, respectively, compared to net incomethe second quarter of $23.4 million and $0.76 diluted earnings per share for the same period of 2016. Diluted earnings per share increased by $0.13, or 17.1%. Net income for the nine months ended September 30, 2017, was $74.0 million and diluted earnings per share were $2.31, compared to net income of $69.8 million and $2.28 diluted earnings per share for the same period in 2016. Year-to-date diluted earnings per share increased by $0.03, or 1.3%.

The first three quarters2019. Included in both 2017second quarter 2020 and 2016 included2019 results were non-core items that impacted net income. The 2017 non-core items were significant and mainly related to our acquisitions, early retirement programs and a gain on the sale of the Company’s property and casualty insurance lines of business further discussed below. The 2016 non-core items primarily related to branch right sizing initiativesinitiatives. Also included in our 2020 results are the gains associated with the Texas Branch Sale and acquisitions.Colorado Branch Sale. Excluding all non-core items, core earnings for the three months ended SeptemberJune 30, 20172020 were $27.7$60.1 million, or $0.86$0.55 core diluted core earnings per share, compared to $24.4$65.5 million, or $0.79$0.68 core diluted coreearnings per share for the three months ended June 30, 2019. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.


Net income for the first six months of 2020 was $136.0 million, or $1.22 diluted earnings per share, compared to $103.3 million, or $1.09 diluted earnings per share, for the same period in 2016. Diluted core earnings per share increased by $0.07, or 8.9%. Year-to-date2019. Excluding the non-core items, year-to-date core earnings were $77.0$134.0 million, an increase of $4.4$19.5 million or 6.0%, compared withto the same period in 2016. Year-to-dateprior year. Core diluted core earnings per share for the first half of 2020 were $2.41, an increase of $0.04, or 1.7%.$1.21, equal to the same period in 2019. See “GAAP Reconciliation of Non-GAAP MeasuresMeasures” below for additional discussion of non-GAAP measures.

On January 17, 2017, we merged Simmons First Finance


We completed the acquisition of The Landrum Company, a wholly-owned subsidiary of Simmons Bank, into Simmons Bank to reduce regulatory risks related to its operations relative to the size of its assets. At September 30, 2017, the loan balance of this portfolio was $33 million.

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

During March 2017, we exited the indirect lending market as this is a low-margin unit and we made a financial decision to reallocate our capital resources. At September 30, 2017, the loan balance of this portfolio was $192 million.

On May 15, 2017, we closed the transaction to acquire Hardeman County Investment Company, Inc. (“Hardeman”) including its wholly-owned bank subsidiary, First South Bank.Landmark Bank, in October 2019. The systems conversion of Landmark Bank was completed during February 2020. See Note 2, Acquisitions, in the accompanying Condensed Notes to Consolidated Financial Statements for additional information related to this acquisition.


On February 28, 2020, we completed the Texas Branch Sale of five Simmons Bank locations in Austin, San Antonio and Tilden, Texas. Additionally, on May 18, 2020 we completed the Colorado Branch Sale of four Simmons Bank locations in Denver, Englewood, Highlands Ranch and Lone Tree, Colorado. The Company completedrecognized a combined gain on sale of $8.1 million on the systems conversionTexas Branches and merged First South Bank into Simmons BankColorado Branches.

Early in September 2017.2020, we offered qualifying associates an early retirement option resulting in $493,000 of non-core expense during the second quarter. We expect ongoing net annualized savings of approximately $2.9 million from this program.

We continuously evaluate our branch network as part of our analysis of our profitability of our operations and the efficiency with which we deliver banking services to our markets. As a result of this acquisition,ongoing evaluation, we recognized $7.9closed 11 branch locations during June 2020, with estimated net annual cost savings of approximately $2.4 million in pretax merger related expensesto these locations. In addition, we expect to close an additional 23 branch locations and one loan production office during the nine-month period ended September 30, 2017.

In June 2017, we executed a salefourth quarter of thirty-five classified loans2020, with a discounted principal balance of $13.8 million, which included $7.3 million of legacy loans and $6.5 million of loans acquired. The loans acquired portion of the sale resulted in a benefit of $1.4 million accretion income and $714,000 increase in provision expense for loans acquired, resulting in aan expected net pretax benefitannual cost savings of approximately $700,000.

$6.8 million.


We have added over 38,000 new digital banking users since the end of February 2020. In March 2020, for the first time, we had more weekly transactions using digital channels than at the branches, and our mobile deposit usage has seen an increase of 75% since the end of February. During August 2017, we were the successful bidder at public auction held to discharge certain indebtedness owed to Simmons Bank and became the sole shareholder of Heartland Bank in Little Rock, Arkansas. Heartland Bank remains a separately chartered state bank, and we are currently evaluating next steps with respect to the institution. See Note 4 for additional information related to assets and liabilities held for sale related to Heartland Bank as of September 30, 2017.

In September 2017, we completed the sale of our property and casualty insurance business lines and an after-tax gain of $1.8 million was recognized on the transaction. Tangible common equity was positively impacted by $7.2 million due to a reduction in intangible assets related to the sold business.

Additionally,May 2020, we completed the conversion of all consumer customers to our new online platform. All consumer customers are now on the same online and integration of First South Bank in September. Subsequent to the third quarter 2017, we completed the acquisitions of Southwest Bancorp, Inc.,mobile platforms, including its wholly-owned bank subsidiary, Bank SNB, and First Texas BHC, Inc., including its wholly-owned bank subsidiary, Southwest Bank. The systems conversions are planned during the first half of 2018, at which time the subsidiary banks will be merged into Simmons Bank. See Note 22 for additional information related to these acquisitions.

Furthermore, we had record results in the third quarter. We continue to experience good loan demand although the rate of growth is lower than we experienced in the first two quarters of 2017. Our net interest income for the quarter increased by 15.8% from third quarter last year while our net interest margin decreased 17 basis points. Our efficiency ratio for the third quarter was 55.06%.

51 

acquired institutions.

Total loans, including loans acquired, were $6.303 billion at September 30, 2017, compared to $5.633 billion at December 31, 2016 and $5.401 billion at September 30, 2016. Total loans increased $78.0 million during the quarter primarily due to growth in our legacy portfolio partially offset by the repayment of loans acquired and loans in our liquidating portfolios.

Stockholders’ equity as of SeptemberJune 30, 20172020 was $1.257$2.9 billion, book value per share was $39.03$26.64 and tangible book value per share was $25.64.$15.79. Our ratio of common stockholders’ equity to total assets was 13.2%13.26% and the ratio of tangible common stockholders’ equity to tangible assets was 9.1%8.31% at SeptemberJune 30, 2017.2020. See “GAAP Reconciliation of Non-GAAP MeasuresMeasures” below for additional discussion of non-GAAP measures. The Company’s Tier I1 leverage ratio of 10.6%8.78%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levels (see Table 12 in the Capital section of this Item).

Total loans were $14.61 billion at June 30, 2020, compared to $14.37 billion at March 31, 2020 and $13.13 billion at June 30, 2019. The increase from prior year is primarily due to the Landrum acquisition. Sequentially, total loans increased $232.6 million from the first quarter 2020. During the second quarter of 2020, we had $963.7 million in loan originations under the Paycheck Protection Program (“PPP”) of the CARES Act. See the COVID-19 Impact section below for additional information.

At June 30, 2020, the allowance for credit losses on loans was $231.6 million. We adopted the new credit loss methodology, CECL, on January 1, 2020. Upon adoption, we recorded an additional allowance for credit losses of approximately $151.4 million, an adjustment to the reserve for unfunded commitments of $24.0 million, and a related $128.1 million adjustment to retained earnings net of taxes.

50



Simmons First National Corporation is a $14.7 billion Arkansas basedan Arkansas-based financial holding company conductingthat, as of June 30, 2020, has approximately $21.9 billion in consolidated assets and, through its subsidiaries, conducts financial operations throughoutin Arkansas, Colorado,Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.


COVID-19 Impact

As discussed in Note 24, Recent Events, in the accompanying Condensed Notes to the Consolidated Financial Statements, we have been actively managing our response to the unfolding COVID-19 pandemic. During the first quarter, we sold approximately $1.1 billion in securities to increase liquidity in response to potential customer withdrawals of deposits as well as for anticipated funding of PPP loans. As of June 30, 2020, the Company has approximately $2.5 billion in cash and cash equivalents and is well capitalized, which management believes has allowed us to continue to approach the crisis from a position of strength.

Through June 30, 2020, we originated approximately 7,800 PPP loans with an average balance of $123,000 per loan. Approximately 93% of our PPP loans had a balance of less than $350,000 at the end of the quarter. The following table categorizes our PPP loans by outstanding balance as of June 30, 2020:

Number ofBalance
(Dollars in thousands)Loans% of LoansJune 30, 2020% of Balance
PPP loan balance less than $350,0007,28693 %$392,329  41 %
PPP loan balance $350,000 or less than $2 million4786 %355,415  37 %
PPP loan balance $2 million to $10 million621 %215,968  22 %
Total7,826100 %$963,712  100 %

PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. As a result, excluding PPP loans from total assets, common equity to total assets was 13.9% and tangible common equity to tangible assets was 8.7% as of June 30, 2020. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

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

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

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

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

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

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

Further economic downturns accompanying this pandemic, or a delayed economic recovery from this pandemic, could result in increased deterioration in credit quality, past due loans, loans charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.


51



CRITICAL ACCOUNTING POLICIES

Overview

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

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.


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

Allowance for LoanCredit Losses on Loans Not Acquired

The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses is management’s estimate of probable lossesand risks inherent in the loan portfolio. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

TheOur allowance for loancredit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses. Accordingly, the methodology is calculated monthly based on management’s assessment of several factors such as (1)our reasonable and supportable economic forecasts, historical loss experience, based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6) the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. We establish general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. General reserves have been established, based uponqualitative adjustments. For further information see the aforementioned factors and allocated to the individual loan categories. Allowances are accruedsection Allowance for probable losses on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral.

Credit Losses below.


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

On January 1, 2020, the Company adopted the new CECL methodology. See Note 1, Preparation of Interim Financial Statements, in the accompanying Condensed Notes to Consolidated Financial Statements for additional information.


Acquisition Accounting, Loans Acquired


We account for our acquisitions under ASC Topic 805,Business Combinations, which requires the use of the purchaseacquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. Our historical acquisitions all occurred under previous US GAAP prior to our adoption of CECL. No allowance for loan losses related to the acquired loans acquired iswas recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair value estimates associated with the loans includeincluded estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.


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

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



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Goodwill and Intangible Assets

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

Stock-based


During the first quarter of 2020, our share price began to decline as the markets in the United States responded to the global COVID-19 pandemic. As a result of that economic decline, the effect on our share price and other factors, we performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed. During the second quarter of 2020, we performed our annual goodwill impairment test and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore, goodwill is not impaired.

Stock-Based Compensation Plans

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

In accordance with ASC Topic 718,Compensation – Stock Compensation, the fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses various assumptions. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For additional information, see Note 15, Stock Based16, Stock-Based Compensation, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report.


Income Taxes

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



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

IMPACTS OF GROWTH

We completed the acquisitions of Southwest Bancorp, Inc. and First Texas BHC, Inc. in October 2017, previously discussed above and Note 22: Subsequent Events (hereinafter referred to as the “Completed Transactions”). With the completion of these acquisitions, our total assets exceed $10 billion.

The Dodd-Frank Act and associated Federal Reserve regulations cap the interchange rate on debit card transactions that can be charged by banks that, together with their affiliates, have at least $10 billion in assets at $0.21 per transaction plus five basis points multiplied by the value of the transaction. The cap goes into effect July 1st of the year following the year in which a bank reaches the $10 billion asset threshold. Due to the closing of the Completed Transactions, Simmons Bank, when viewed together with its affiliates, has assets in excess of $10 billion as of October 2017, and therefore, will be subject to the interchange rate cap effective July 1, 2018. Because of the cap, Simmons Bank estimates that it will receive approximately $3.8 million less in debit card fees on an after-tax basis in 2018 and $7.5 million less on an after-tax basis in 2019.

The Dodd-Frank Act also requires banks and bank holding companies with more than $10 billion in assets to conduct annual stress tests. In anticipation of becoming subject to this requirement, the Company and Simmons Bank have begun the necessary preparations, including undertaking a gap analysis, implementing enhancements to the audit and compliance departments, and investing in various information technology systems. However, the Company believes that significant, additional expenditures will be required in order to fully comply with the stress testing requirements. The Company and Simmons Bank will be required to report the first stress test in July 2020 for the fiscal year 2019.

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

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

NET INTEREST INCOME

Overview

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

Our practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing. Historically,In the last several years, on average, approximately 70%40% of our loan portfolio and approximately 80% of our time deposits have repriced in one year or less. Through acquisition our loans acquired tended to have longer maturities. In addition, due to market pressures, the duration of our legacy loan portfolio has also extended over the past several years. Our current interest rate sensitivity shows that approximately 36%51% of our loans and 72%76% of our time deposits will reprice in the next year.

54 


53



Net Interest Income Quarter-to-Date Analysis


For the three month period ended SeptemberJune 30, 2017,2020, net interest income on a fully taxable equivalent basis was $80.6$166.0 million, an increase of $10.5$14.9 million, or 15.0%9.9%, over the same period in 2016.2019. The increase in net interest income was primarily the result of a $13.8$17.8 million increasedecrease in interest expense partially offset by a reduction in interest income offset by a $3.3 million increase in interest expense.

of $2.9 million.


The increasereduction in interest income primarily resulted from a $12.4decreases of $1.1 million increaseand $1.7 million in interest income on loans consistingand investment securities, respectively. During the second quarter of legacy loans and loans acquired. The increase in loan volume during 20172020, we generated $14.4$24.8 million of additional interest income due to an increase in loan volume, primarily from our Landrum acquisition completed during the fourth quarter 2019, while a 1674 basis point decline in yield resulted in a $2.0$25.8 million decrease in interest income. The interest income increase from loan volumeyield for the second quarter of 2020 was primarily due4.84% compared to our legacy loan growth from5.58% for the same period last year,in 2019. The PPP loan yield was approximately 2.33% (including accretion of net fees), which decreased the Hardeman acquisition during 2017 andloan yield by 10 basis points. Excluding the Citizens acquisition in SeptemberPPP loans, loan yield for the second quarter 2020 was 4.94%. See “GAAP Reconciliation of 2016.

Non-GAAP Measures” below for additional discussion of non-GAAP measures.


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

For the three months ended SeptemberJune 30, 20172020 and 2016,2019, interest income included $2.9$11.7 million and $4.9$10.2 million, respectively, for the yield accretion recognized on loans acquired.


The accretable yield adjustments recorded in future periods will change as we continue to evaluate expected cash flows from the loans acquired.

The increase$17.8 million decrease in interest expense was the result of a $2.3 million increase in interest expense on deposits primarily from deposit volume from the recent acquisitions. Interest expense also increased $827,000is mostly due to the $310.5decline in our deposit account rates and our FHLB borrowing rates. Interest expense decreased $21.2 million due to the decrease in yield of 78 basis points on interest-bearing deposit accounts and $1.8 million due to the decrease in yield of 52 basis points on FHLB borrowings. These decreases were partially offset by an increase in other borrowings. Increasesof $4.4 million in deposit costs continuegrowth primarily due to offset gradual increases in rates on earning assets.

the Landrum acquisition.


Net Interest Income Year-to-Date Analysis


For the ninesix month period ended SeptemberJune 30, 2017,2020, net interest income on a fully taxable equivalent basis was $233.8$335.8 million, an increase of $23.2$47.1 million, or 11.0%16.3%, over the same period in 2016.2019. The increase in net interest income was the result of a $28.9 million increase in interest income offset bycoupled with a $5.7$18.2 million increasedecrease in interest expense.


The increase in interest income primarily resulted from a $25.1$27.2 million increase in interest income on loans and a $3.9an increase of $1.6 million increase in interest income on investment securities. The increase in loan volume during 2017the first six months of 2020 generated $36.7$61.2 million of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, while a 2954 basis point decline in yield resulted in a $11.7$34.0 million decrease in interest income. The increase in loan volume was primarily due to our acquisitions. $943,000 of the increase in interest income on investment securities was due to volume increases while $2.9 million was a result of an increase in yield on the security portfolio.


For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, interest income included $12.1$23.6 million and $17.7$16.8 million, respectively, for the yield accretion recognized on loans acquired.


The $5.7$18.2 million increasedecrease in interest expense is primarily frommostly due to the growthdecrease in our deposit account rates and our FHLB borrowing rates. Interest expense decreased $27.4 million due to the decrease in yield of 53 basis points on interest-bearing deposit accounts and $4.2 million due to the decrease in yield of 64 basis points on FHLB borrowings. These decreases were partially offset by an increase of $11.1 million in deposit accounts relatedgrowth primarily due to the Landrum and Reliance acquisitions and the increasecompleted in other debt.

2019.


Net Interest Margin

Our net interest margin decreased 1752 basis points to 3.91%3.42% for the three month period ended SeptemberJune 30, 2017,2020, when compared to 4.08%3.94% for the same period in 2016.2019. Normalized for all accretion, our core net interest margin for the three months ended June 30, 2020 and 2019 was 3.18% and 3.67%, respectively. For the ninesix month period ended SeptemberJune 30, 2017,2020, our net interest margin decreased 2235 basis points to 3.99%3.55% when compared to 4.21%3.90% for the same period in 2016.  2019.

The most significant factordecreases in the decreasingnet interest margin during the nine month periodthree and six months ended SeptemberJune 30, 2017 is2020 were primarily driven by the lower interest rate environment, additional liquidity created in response to the COVID-19 pandemic, and the lower yielding PPP loans originated during the second quarter of 2020. The impact of these items on the lower accretable yield adjustments discussed. Normalized for all accretion on loans acquired, oursecond quarter 2020 core net interest margin at September 30, 2017was 25 basis points, bringing the core net interest margin adjusted for PPP loans and 2016 was 3.79% and 3.86%, respectively. We expect that increases in deposit costs will continueadditional liquidity to offset short-term increases in rates on earning assets. These increases are a result of increased competition for deposits and the recent Federal Reserve rate hikes.3.43%. See “GAAP Reconciliation of Non-GAAP MeasuresMeasures” below for additional discussion of non-GAAP measures.


54




During March 2020, the Federal Open Market Committee, or FOMC, of the Federal Reserve substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic. Because our interest bearing deposits are repricing more quickly in response to the substantial interest rate cuts in March 2020 than we can manage the rate decrease in our variable rate loan portfolio also caused by such cuts, we expect continued pressure on the net interest margin for the remainder of 2020.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, as well as changes in fully taxable equivalent net interest margin for the three and ninesix months ended SeptemberJune 30, 20172020 versus SeptemberJune 30, 2016.

2019.



Table 1: Analysis of Net Interest Margin

 (FTE = Fully Taxable Equivalent)

 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
         
Interest income $87,484  $73,418  $249,809  $220,940 
FTE adjustment  1,751   1,969   5,799   5,728 
Interest income – FTE  89,235   75,387   255,608   226,668 
Interest expense  8,665   5,355   21,798   16,062 
Net interest income – FTE $80,570  $70,032  $233,810  $210,606 
         ��       
Yield on earning assets – FTE  4.33%  4.39%  4.36%  4.53%
Cost of interest bearing liabilities  0.55%  0.41%  0.49%  0.42%
Net interest spread – FTE  3.78%  3.98%  3.87%  4.11%
Net interest margin – FTE  3.91%  4.08%  3.99%  4.21%

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


 
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Interest income$191,654  $195,241  $400,885  $373,326  
FTE adjustment2,350  1,706  4,655  3,307  
Interest income – FTE194,004  196,947  405,540  376,633  
Interest expense27,973  45,813  69,721  87,903  
Net interest income – FTE$166,031  $151,134  $335,819  $288,730  
Yield on earning assets – FTE4.00 %5.13 %4.28 %5.09 %
Cost of interest bearing liabilities0.78 %1.53 %0.98 %1.53 %
Net interest spread – FTE3.22 %3.60 %3.30 %3.56 %
Net interest margin – FTE3.42 %3.94 %3.55 %3.90 %

Table 2: Changes in Fully Taxable Equivalent Net Interest Margin

(In thousands) Three Months Ended
September 30,
2017 vs. 2016		 Nine Months Ended
September 30,
2017 vs. 2016
     
Increase due to change in earning assets $14,647  $37,099 
Decrease due to change in earning asset yields  (799)  (8,159)
Decrease due to change in interest bearing liabilities  (1,850)  (4,235)
Decrease due to change in interest rates paid on interest bearing liabilities  (1,460)  (1,501)
Increase in net interest income $10,538  $23,204 


Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020 vs. 20192020 vs. 2019
Increase due to change in earning assets$28,949  $74,760  
Decrease due to change in earning asset yields(31,892) (45,853) 
Decrease due to change in interest bearing liabilities(5,670) (13,732) 
Increase due to change in interest rates paid on interest bearing liabilities23,510  31,914  
Increase in net interest income$14,897  $47,089  
Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Nonaccrual loans were included in average loans for the purpose of calculating the rate earned on total loans.


55



Table 3: Average Balance Sheets and Net Interest Income Analysis

  Three Months Ended September 30,
  2017 2016
  Average Income/ Yield/ Average Income/ Yield/
($ in thousands) Balance Expense Rate (%) Balance Expense Rate (%)
             
ASSETS                        
Earning assets:                        
Interest bearing balances due from banks and federal funds sold $269,111  $650   0.96  $253,249  $263   0.41 
Investment securities - taxable  1,313,333   6,574   1.99   1,038,437   4,775   1.83 
Investment securities - non-taxable  324,901   4,341   5.30   391,495   4,926   5.01 
Mortgage loans held for sale  13,388   159   4.71   31,256   299   3.81 
Assets held in trading accounts  52   --   --   5,108   4   0.31 
Loans  6,261,507   77,511   4.91   5,105,474   65,120   5.07 
Total interest earning assets  8,182,292   89,235   4.33   6,825,019   75,387   4.39 
Non-earning assets  993,315           878,818         
Total assets $9,175,607          $7,703,837         
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Liabilities:                        
Interest bearing liabilities                        
Interest bearing transaction and savings accounts $4,227,567  $3,920   0.37  $3,645,414  $1,965   0.21 
Time deposits  1,330,889   2,110   0.63   1,213,895   1,767   0.58 
Total interest bearing deposits  5,558,456   6,030   0.43   4,859,309   3,732   0.31 
Federal funds purchased and securities sold under agreement to repurchase  115,583   83   0.28   105,576   59   0.22 
Other borrowings  502,972   1,875   1.48   192,453   1,048   2.17 
Subordinated debentures  67,367   677   3.99   60,238   516   3.41 
Total interest bearing liabilities  6,244,378   8,665   0.55   5,217,576   5,355   0.41 
Non-interest bearing liabilities:                        
Non-interest bearing deposits  1,613,248           1,322,818         
Other liabilities  62,287           49,191         
Total liabilities  7,919,913           6,589,585         
Stockholders’ equity  1,255,694           1,114,252         
Total liabilities and stockholders’ equity $9,175,607          $7,703,837         
Net interest spread          3.78           3.98 
Net interest margin     $80,570   3.91      $70,032   4.08 


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

  Nine Months Ended September 30,
  2017 2016
  Average Income/ Yield/ Average Income/ Yield/
($ in thousands) Balance Expense Rate(%) Balance Expense Rate(%)
             
ASSETS                        
Earning assets:                        
Interest bearing balances due from banks and federal funds sold $186,423  $986   0.71  $183,718  $511   1.37 
Investment securities - taxable  1,326,680   19,925   2.01   1,064,670   16,025   2.01 
Investment securities - non-taxable  336,988   14,343   5.69   415,296   14,378   4.62 
Mortgage loans held for sale  12,371   430   4.65   28,905   872   4.03 
Assets held in trading accounts  50   --   --   5,745   13   0.30 
Loans  5,967,036   219,924   4.93   4,984,349   194,869   5.22 
Total interest earning assets  7,829,548   255,608   4.36  ��6,682,683   226,668   4.53 
Non-earning assets  971,127           892,370         
Total assets $8,800,675          $7,575,053         
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
Liabilities:                        
Interest bearing liabilities                        
Interest bearing transaction and savings accounts $4,082,157  $9,350   0.31  $3,552,088  $6,018   0.23 
Time deposits  1,290,218   5,700   0.59   1,253,437   5,144   0.55 
Total interest bearing deposits  5,372,375   15,050   0.37   4,805,525   11,162   0.31 
Federal funds purchased and securities sold under agreement to repurchase  114,054   250   0.29   107,932   183   0.23 
Other borrowings  427,741   4,628   1.45   182,908   3,114   2.27 
Subordinated debentures  63,946   1,870   3.91   60,160   1,603   3.56 
Total interest bearing liabilities  5,978,116   21,798   0.49   5,156,525   16,062   0.42 
Non-interest bearing liabilities:                        
Non-interest bearing deposits  1,559,093           1,273,337         
Other liabilities  52,979           53,304         
Total liabilities  7,590,188           6,483,166         
Stockholders’ equity  1,210,487           1,091,887         
Total liabilities and stockholders’ equity $8,800,675          $7,575,053         
Net interest spread          3.87           4.11 
Net interest margin     $233,810   3.99      $210,606   4.21 



Three Months Ended June 30,
20202019
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
ASSETS
Earning assets:
Interest bearing balances due from banks and federal funds sold$2,190,878  $603  0.11  $276,370  $1,121  1.63  
Investment securities - taxable1,642,083  7,131  1.75  1,641,986  11,066  2.70  
Investment securities - non-taxable866,944  8,434  3.91  624,898  6,209  3.99  
Mortgage loans held for sale86,264  668  3.11  32,030  332  4.16  
Loans14,731,306  177,168  4.84  12,814,386  178,219  5.58  
Total interest earning assets19,517,475  194,004  4.00  15,389,670  196,947  5.13  
Non-earning assets2,304,798  1,993,202  
Total assets$21,822,273  $17,382,872  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Interest bearing liabilities:
Interest bearing transaction and savings deposits$9,138,563  $7,203  0.32  $7,139,356  $20,190  1.13  
Time deposits3,057,153  10,803  1.42  3,072,246  14,606  1.91 ��
Total interest bearing deposits12,195,716  18,006  0.59  10,211,602  34,796  1.37  
Federal funds purchased and securities sold under agreements to repurchase392,633  337  0.35  133,242  257  0.77  
Other borrowings1,395,109  4,963  1.43  1,277,450  6,219  1.95  
Subordinated debt and debentures387,422  4,667  4.84  354,088  4,541  5.14  
Total interest bearing liabilities14,370,880  27,973  0.78  11,976,382  45,813  1.53  
Non-interest bearing liabilities:
Non-interest bearing deposits4,354,781  2,834,452  
Other liabilities216,508  207,500  
Total liabilities18,942,169  15,018,334  
Stockholders’ equity2,880,104  2,364,538  
Total liabilities and stockholders’ equity$21,822,273  $17,382,872  
Net interest spread3.22  3.60  
Net interest margin$166,031  3.42  $151,134  3.94  


56



Six Months Ended June 30,
20202019
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
ASSETS
Earning assets:
Interest bearing balances due from banks and federal funds sold$1,477,759  $3,044  0.41  $335,089  $3,275  1.97  
Investment securities - taxable1,983,134  19,883  2.02  1,683,534  23,024  2.76  
Investment securities - non-taxable883,585  16,749  3.81  608,012  12,043  3.99  
Mortgage loans held for sale64,927  949  2.94  24,922  542  4.39  
Loans14,640,082  364,915  5.01  12,265,936  337,749  5.55  
Total interest earning assets19,049,487  405,540  4.28  14,917,493  376,633  5.09  
Non-earning assets2,321,761  1,928,035  
Total assets$21,371,248  $16,845,528  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:      
Interest bearing liabilities:      
Interest bearing transaction and savings deposits$9,072,133  $25,157  0.56  $6,945,274  $38,620  1.12  
Time deposits3,104,030  24,126  1.56  2,927,722  26,926  1.85  
Total interest bearing deposits12,176,163  49,283  0.81  9,872,996  65,546  1.34  
Federal funds purchased and securities sold under agreements to repurchase361,768  1,096  0.61  121,338  393  0.65  
Other borrowings1,357,677  9,840  1.46  1,251,000  13,012  2.10  
Subordinated debt and debentures387,876  9,502  4.93  354,043  8,952  5.10  
Total interest bearing liabilities14,283,484  69,721  0.98  11,599,377  87,903  1.53  
Non-interest bearing liabilities:
Non-interest bearing deposits3,978,728  2,771,435  
Other liabilities213,918  167,678  
Total liabilities18,476,130  14,538,490  
Stockholders’ equity2,895,118  2,307,038  
Total liabilities and stockholders’ equity$21,371,248  $16,845,528  
Net interest spread3.30  3.56  
Net interest margin$335,819  3.55  $288,730  3.90  

57



Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and ninesix month periods ended SeptemberJune 30, 2017,2020, as compared to the same periods of the prior year. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 4: Volume/Rate Analysis

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 over 2016 2017 over 2016
(In thousands, on a fully   Yield/     Yield/  
taxable equivalent basis) Volume Rate Total Volume Rate Total
             
Increase (decrease) in:                        
                         
Interest income:                        
Interest bearing balances due from banks and federal funds sold $17  $370  $387  $8  $467  $475 
Investment securities - taxable  1,348   451   1,799   3,935   (35)  3,900 
Investment securities - non-taxable  (876)  291   (585)  (2,992)  2,957   (35)
Mortgage loans held for sale  (200)  60   (140)  (559)  117   (442)
Assets held in trading accounts  (2)  (2)  (4)  (7)  (6)  (13)
Loans  14,360   (1,969)  12,391   36,714   (11,659)  25,055 
Total  14,647   (799)  13,848   37,099   (8,159)  28,940 
                         
Interest expense:                        
Interest bearing transaction and savings accounts  355   1,600   1,955   992   2,340   3,332 
Time deposits  178   165   343   154   402   556 
Federal funds purchased and securities sold under agreements to repurchase  7   17   24   10   57   67 
Other borrowings  1,245   (418)  827   2,974   (1,460)  1,514 
Subordinated debentures  65   96   161   105   162   267 
Total  1,850   1,460   3,310   4,235   1,501   5,736 
Increase (decrease) in net interest income $12,797  $(2,259) $10,538  $32,864  $(9,660) $23,204 


Three Months Ended
June 30,		Six Months Ended
June 30,
2020 vs. 20192020 vs. 2019
(In thousands, on a fully taxable equivalent basis)VolumeYield/
Rate		TotalVolumeYield/
Rate		Total
Increase (decrease) in:   
Interest income:   
Interest bearing balances due from banks and federal funds sold$1,386  $(1,904) $(518) $4,011  $(4,242) $(231) 
Investment securities - taxable1  (3,936) (3,935) 3,659  (6,800) (3,141) 
Investment securities - non-taxable2,358  (133) 2,225  5,243  (537) 4,706  
Mortgage loans held for sale438  (102) 336  633  (226) 407  
Loans24,766  (25,817) (1,051) 61,214  (34,048) 27,166  
Total28,949  (31,892) (2,943) 74,760  (45,853) 28,907  
Interest expense:
Interest bearing transaction and savings accounts4,514  (17,501) (12,987) 9,579  (23,042) (13,463) 
Time deposits(72) (3,731) (3,803) 1,551  (4,351) (2,800) 
Federal funds purchased and securities sold under agreements to repurchase283  (203) 80  731  (28) 703  
Other borrowings534  (1,790) (1,256) 1,036  (4,208) (3,172) 
Subordinated notes and debentures411  (285) 126  835  (285) 550  
Total5,670  (23,510) (17,840) 13,732  (31,914) (18,182) 
Increase (decrease) in net interest income$23,279  $(8,382) $14,897  $61,028  $(13,939) $47,089  

PROVISION FOR LOANCREDIT LOSSES

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

The provision for loancredit losses for the three and six month periodperiods ended SeptemberJune 30, 2017,2020, was $5.5$26.9 million and $53.0 million, respectively, compared to $8.3$7.1 million for the three month period ended September 30, 2016, a decrease of $2.8 million. The provision for loan losses for the nine month period ended September 30, 2017, was $16.8 million, compared to $15.7 million for the nine month period ended September 30, 2016, an increase of $1.1 million. See Allowance for Loan Losses section for additional information.

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

Finally, a loan provision of $1.5 million was recorded on loans acquired during the nine months ended September 30, 2017 as a result of an estimated shortage in our credit mark on certain purchased credit impaired loans. The estimated shortage in credit mark was due to subsequent deterioration in the loans after purchase.


NON-INTEREST INCOME

Total non-interest income was $36.3 million for the three month period ended September 30, 2017, a decrease of $544,000, or 1.5%, compared to the same period in 2016. Total non-interest income was $102.1 million for the nine month period ended September 30, 2017, a decrease of $1.1 million, or 1.1%, compared to $103.3$16.4 million for the same periods ended June 30, 2019, increases of $19.8 million and $36.7 million. The increase during the quarter ended June 30, 2020 was primarily related to updated credit loss forecast models using multiple Moody’s economic scenarios. The updates capture the possibility of a longer, more prolonged recovery to the economies that affect the loan portfolio. The increase during the six month period ended June 30, 2020 also included an additional provision related to problem energy credits, subsequently charged-off during second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in 2016.

first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing. The remainder of the increase was related to the economic impact of the COVID-19 pandemic that is incorporated in the Company’s allowance for credit losses.



58



NON-INTEREST INCOME
Non-interest income is principally derived from recurring fee income, which includes service charges, trust fees and debit and credit card fees. Non-interest income also includes income on the sale of mortgage and SBA loans, investment banking income, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities.

The decrease in


Total non-interest income was due$50.2 million for the three month period ended June 30, 2020, an increase of approximately $10.3 million, or 25.8%, compared to the same period in 2019, primarily driven by increases in trust income and mortgage lending income. Conversely, we had decreases in total service charges on deposit accounts and fees of $1.8 million, or 15.2%, primarily attributable to a reduction in customer transactions related to the impact of the COVID-19 pandemic and lower gains recorded on the sale of securities that totaled $2.3 million during second quarter of 2020.

For the ninesix month period ended SeptemberJune 30, 20172020, total non-interest income was $132.6 million, an increase of approximately $57.9 million, or 77.5%, compared to $4.4 million for the same period in 2016. In addition, non-interest income from mortgage and SBA lending was $2.3 million less than2019. During the same periodfirst half of 2020, we sold approximately $1.2 billion of investment securities resulting in 2016. These decreasesa net gain of $32.5 million. The majority of the investment securities were partially offset bysold in March 2020, in response to the $3.7 million gainunfolding events of the COVID-19 pandemic, as we focused on the salecreation of additional liquidity and strengthening our balance sheet. We used a portion of the propertyliquidity generated by these investment security sales to fund PPP loans originated during second quarter of 2020. We plan to reinvest back into our investment portfolio when the PPP loans are repaid, subject to economic conditions and casualty insurance linesother concerns at such time. Additionally, the gains on sale from the Texas Branch Sale and Colorado Branch Sales of $8.1 million, which we consider a non-core item, contributed to the increase during 2020.

The increase in mortgage lending income in both the three and six month periods ended June 30, 2020 was a result of the current low mortgage interest rate environment as well as increased business related to our Landrum and increases in trust income, service charges, and debit and credit card fees.

Reliance acquisitions.


Table 5 presents the changes inshows non-interest income for the three and ninesix month periods ended SeptemberJune 30, 20172020 and 2016, respectively.

2019, respectively, as well as changes in 2020 from 2019.

Table 5: Non-Interest Income

  Three Months 2017 Nine Months 2017
  Ended September 30 Change from Ended September 30 Change from
(In thousands)  2017   2016   2016   2017   2016   2016 
Trust income $4,225  $3,873  $352   9.09% $12,550  $11,160  $1,390   12.46%
Service charges on deposit accounts  8,907   8,771   136   1.55   25,492   23,748   1,744   7.34 
Other service charges and fees  2,433   3,261   (828)  -25.39   7,145   8,846   (1,701)  -19.23 
Mortgage and SBA lending income  3,219   4,339   (1,120)  -25.81   9,603   11,903   (2,300)  -19.32 
Investment banking income  680   1,131   (451)  -39.88   2,007   2,999   (992)  -33.08 
Debit and credit card fees  8,864   7,825   1,039   13.28   25,457   22,713   2,744   12.08 
Bank owned life insurance income  725   606   119   19.64   2,402   2,429   (27)  -1.11 
Gain on sale of securities, net  3   315   (312)  -99.05   2,302   4,403   (2,101)  -47.72 
Net (loss) gain on sale of premises held for sale  (325)  175   (500)  *   264   175   89   50.86 
Net gain on sale of insurance lines of business  3,708   --   3,708   *   3,708   --   3,708   * 
Other income  3,893   6,580   (2,687)  -40.84   11,206   14,891   (3,685)  -24.75 
       Total non-interest income $36,332  $36,876  $(544)  -1.48% $102,136  $103,267  $(1,131)  -1.10%

______________________


Three Months Ended
June 30,		2020
Change from		Six Months Ended
June 30,		2020
Change from
(Dollars in thousands)202020192019202020192019
Trust income$7,253  $5,794  $1,459  25.2 %$14,404  $11,502  $2,902  25.2 %
Service charges on deposit accounts8,570  10,557  (1,987) (18.8) 21,898  20,625  1,273  6.2  
Other service charges and fees1,489  1,312  177  13.5  3,077  2,601  476  18.3  
Mortgage lending income12,459  3,656  8,803  *17,505  6,479  11,026  170.2  
SBA lending income245  895  (650) (72.6) 541  1,392  (851) (61.1) 
Investment banking income571  360  211  58.6  1,448  978  470  48.1  
Debit and credit card fees7,996  7,212  784  10.9  15,910  13,310  2,600  19.5  
Bank owned life insurance income1,445  1,260  185  14.7  2,743  2,055  688  33.5  
Gain on sale of securities, net390  2,823  (2,433) (86.2) 32,485  5,563  26,922  *
Gain on sale of banking operations, net2,204  —  2,204  *8,093  —  8,093  *
Other income7,605  6,065  1,540  25.4  14,517  10,221  4,296  42.0  
Total non-interest income$50,227  $39,934  $10,293  25.8 %$132,621  $74,726  $57,895  77.5 %
_____________________________
*Not meaningful

Recurring fee income (service(total service charges, trust fees, debit and credit card fees) for the three month period ended SeptemberJune 30, 2017,2020 was $24.4$25.3 million, an increase of $699,000$433,000 from the threesame period in 2019. Recurring fee income for the six month period ended SeptemberJune 30, 2016.  Trust income increased by $352,000 or 9.1%, service charges and fees decreased by $692,000 or 5.8% and debit and credit card fees increased by $1.02020, was $55.3 million, or 13.3%. Thean increase in debit and credit card fees is related to a higher volume of debit and credit card transactions due to the additions of accounts$7.3 million from the Hardeman and Citizen acquisitions and continued positive growth in our trust department.

Mortgage and SBA lending income decreased by $2.3 million forsix month period ended June 30, 2019, primarily the nine months ended September 30, 2017 compared to last year, primarily due to the seasonal nature of the mortgage volume as well as the timing of selling the guaranteed portion of SBA loans. Investment banking income decreased $992,000 during the nine months ended September 30, 2017 compared to the same period last year as a result of the closure of our Institutional DivisionLandrum and exit from its lines of business in the third quarter of 2016.

Reliance acquisitions completed during 2019.


59



NON-INTEREST EXPENSE

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

Non-interest expense for the three months ended SeptemberJune 30, 20172020 was $66.2$112.6 million, an increase of $3.7$1.9 million, or 6.0%1.7%, from the same period in 2016.2019. Non-interest expense during the second quarter of 2020 included $4.0 million of pre-tax non-core items: $1.8 million of merger-related costs, $493,000 of early retirement program expenses, and $1.7 million of branch-right sizing costs. Normalizing for thethese non-core merger related costs, and branch right sizing expenses,core non-interest expense for the three months ended SeptemberJune 30, 20172020 increased $4.6$11.2 million, or 7.5%11.4%, from the same period in 2016,2019.

Non-interest expense for the six months ended June 30, 2020 was $238.4 million, an increase of $26.3 million, or 12.4%, from the same period in 2019. Normalizing for the non-core costs, core non-interest expense for the six months ended June 30, 2020 increased $36.1 million, or 18.3%, from the same period in 2019. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

The increases during both periods were primarily due to the incremental operating expenses of the acquired franchises and increased professional fees associated with preparation to pass $10 billion in assets.

Non-interest expense for the nine months ended September 30, 2017 was $203.9 million, an increase of $15.5 million, or 8.2%, from the same period in 2016. The most significant impacts to non-interest expense were the following non-core items.

First, we saw a $5.9 million increase in merger related costs from last year. Included in the nine months ended September 30, 2017 were $7.9 million in merger related costs, primarily fromLandrum and Reliance acquisitions completed during 2019. Also, our Hardeman transactionNext Generation Banking (“NGB”) technology initiative is well underway and recently completed acquisitions.

Second, branch right sizing expense for the nine months ended September 30, 2017 decreased by $3.1 million from the same period in 2016. We had $3.5 million of branch right sizing expense in 2016 from our ten branch closings. We continue to monitor branch operations and profitability as well as changing customer habits.

Normalizing for the non-core merger related costs and branch right sizing, non-interest expense for the nine months ended September 30, 2017 increased $12.7 million, or 7.0%, from the same period in 2016, primarily due to the incremental operating expensessoftware and technology expenditures of $9.4 million during the acquired franchises.

Salaries and employee benefits increased by $3.5 million for the threefirst six months ended September 30, 2017 compared to the same period in 2016. Salaries and employee benefits increased by $5.4 million for the nine months ended September 30, 2017of 2020 were primarily related to the Hardeman acquisition which occurred during May 2017.

The increases in several other operating expense categories during the periods were a result of the 2017 and 2016 acquisitions. Professional services increased by $664,000 for the three months ended September 30, 2017 from the same period in 2016. Professional services increased by $3.4 million for the nine months ended September 30, 2017 from the same period in 2016 related to exam fees, auditing and accounting services and general consulting expenses.

this initiative.


Table 6 below shows non-interest expense for the three and ninesix month periods ended SeptemberJune 30, 20172020 and 2016,2019, respectively, as well as changes in 20172020 from 2016.

2019.

Table 6: Non-Interest Expense

  Three Months 2017 Nine Months 2017
  Ended September 30 Change from Ended September 30 Change from
(In thousands)  2017   2016   2016   2017   2016   2016 
Salaries and employee benefits $35,285  $31,784  $3,501   11.01% $105,026  $99,660  $5,366   5.38%
Occupancy expense, net  4,928   4,690   238   5.07   14,459   14,151   308   2.18 
Furniture and equipment expense  4,840   4,272   568   13.30   13,833   12,296   1,537   12.50 
Other real estate and foreclosure expense  1,071   1,849   (778)  -42.08   2,177   3,782   (1,605)  -42.44 
Deposit insurance  1,020   1,136   (116)  -10.21   2,480   3,380   (900)  -26.63 
Merger related costs  752   1,524   (772)  -50.66   7,879   1,989   5,890   -- 
Other operating expenses:                                
   Professional services  3,946   3,282   664   20.23   13,079   9,678   3,401   35.14 
   Postage  1,091   1,150   (59)  -5.13   3,427   3,458   (31)  -0.90 
   Telephone  943   912   31   3.40   3,003   3,014   (11)  -0.36 
   Credit card expenses  3,137   2,947   190   6.45   9,081   8,319   762   9.16 
  Marketing  1,219   1,525   (306)  -20.07   4,253   4,647   (394)  -8.48 
   Operating supplies  592   457   135   29.54   1,406   1,273   133   10.45 
   Amortization of intangibles  1,724   1,503   221   14.70   4,828   4,411   417   9.45 
  Branch right sizing expense  153   218   (65)  -29.82   370   3,451   (3,081)  -89.28 
   Other expense  5,458   5,185   273   5.27   18,588   14,851   3,737   25.16 
       Total non-interest expense $66,159  $62,434  $3,725   5.97% $203,889  $188,360  $15,529   8.24%

Three Months Ended
June 30,		2020
Change from		Six Months Ended
June 30,		2020
Change from
(Dollars in thousands)202020192019202020192019
Salaries and employee benefits$57,151  $53,196  $3,955  7.4 %$125,075  $109,208  $15,867  14.5 %
Early retirement program493  2,932  (2,439) (83.2) 493  3,287  (2,794) (85.0) 
Occupancy expense, net9,217  6,919  2,298  33.2  18,727  14,394  4,333  30.1  
Furniture and equipment expense6,144  4,206  1,938  46.1  11,867  7,564  4,303  56.9  
Other real estate and foreclosure expense274  591  (317) (53.6) 599  1,228  (629) (51.2) 
Deposit insurance2,838  2,510  328  13.1  5,313  4,550  763  16.8  
Merger related costs1,830  7,522  (5,692) (75.7) 2,898  8,992  (6,094) (67.8) 
Other operating expenses:
Professional services3,921  3,492  429  12.3  9,750  7,815  1,935  24.8  
Postage1,769  1,445  324  22.4  4,005  3,171  834  26.3  
Telephone2,450  1,480  970  65.5  4,635  3,099  1,536  49.6  
Credit card expenses4,582  3,762  820  21.8  8,964  7,622  1,342  17.6  
Marketing3,528  2,436  1,092  44.8  7,913  5,493  2,420  44.1  
Software and technology10,024  5,580  4,444  79.6  19,469  10,076  9,393  93.2  
Operating supplies828  560  268  47.9  1,764  1,178  586  49.8  
Amortization of intangibles3,369  2,947  422  14.3  6,782  5,588  1,194  21.4  
Branch right sizing expense1,721  2,887  (1,166) (40.4) 1,959  2,932  (973) (33.2) 
Other expense2,459  8,278  (5,819) (70.3) 8,198  15,955  (7,757) (48.6) 
Total non-interest expense$112,598  $110,743  $1,855  1.7 %$238,411  $212,152  $26,259  12.4 %
_____________________________
* Not meaningful

60



LOAN PORTFOLIO

Our legacy loan portfolio excluding loans acquired, averaged $4.778$14.64 billion and $3.515$12.27 billion during the first ninesix months of 20172020 and 2016,2019, respectively. As of SeptemberJune 30, 2017,2020, total loans excluding loans acquired, were $5.211$14.61 billion, an increase of $884.1$181.2 million from December 31, 2016.2019. The most significant components of the loan portfolio were loans to businesses (commercial loans, commercial real estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans).

The growth in the legacy portfolio is primarily attributable to very strong growth in the majority of our market areas in which we operate. We continue to actively recruit and hire new associates in our growth markets in an effort to make quality loans. In addition, $48 million of the increase was related to loan participations with First Texas BHC, Inc.

Also contributing to our legacy loan growth are loans acquired that have migrated to legacy loans. When we make a credit decision on an acquired loan as a result of the loan maturing or renewing, the outstanding balance of that loan migrates from loans acquired to legacy loans. Our legacy loan growth from December 31, 2016 to September 30, 2017 included $148.7 million in balances that migrated from loans acquired during the period. These migrated loan balances are included in the legacy loan balances as of September 30, 2017.


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



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


Table 7: Loan Portfolio

(In thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Credit cards $176,316  $184,591 
Other consumer  317,946   303,972 
Total consumer  494,262   488,563 
Real estate:        
Construction  515,274   336,759 
Single family residential  1,048,403   904,245 
Other commercial  2,231,223   1,787,075 
Total real estate  3,794,900   3,028,079 
Commercial:        
Commercial  688,960   639,525 
Agricultural  207,849   150,378 
Total commercial  896,809   789,903 
Other  25,341   20,662 
Total loans, excluding loans acquired, before allowance for loan losses $5,211,312  $4,327,207 

June 30,December 31,
(In thousands)20202019
Consumer:  
Credit cards$184,348  $204,802  
Other consumer214,024  249,195  
Total consumer398,372  453,997  
Real estate:
Construction and development2,010,256  2,248,673  
Single family residential2,207,087  2,414,753  
Other commercial6,316,444  6,358,514  
Total real estate10,533,787  11,021,940  
Commercial:
Commercial3,038,216  2,451,119  
Agricultural217,715  191,525  
Total commercial3,255,931  2,642,644  
Other418,810  307,123  
Total loans before allowance for credit losses$14,606,900  $14,425,704  

Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $494.3$398.4 million at SeptemberJune 30, 2017,2020, or 9.5%2.7% of total loans, compared to $488.6$454.0 million, or 11.3%3.1% of total loans at December 31, 2016.2019. The increasedecrease in consumer loans from December 31, 2016,2019, to SeptemberJune 30, 2017,2020, was primarily due to growth in direct consumer loans offset by the expected seasonal decreasedecline in our credit card portfolio.


Real estate loans consist of construction and development (“C&D”) loans, single-family residential loans and commercial real estate (“CRE”) loans. Real estate loans were $3.795$10.53 billion at SeptemberJune 30, 2017,2020, or 72.8%72.1% of total loans, compared to the $3.028$11.02 billion, or 70.0%76.4%, of total loans at December 31, 2016, an increase2019, a decrease of $766.8 million.

$488.2 million, or 4.4%. Our C&D loans decreased by $238.4 million, or 10.6%, single family residential loans decreased by $207.7 million, or 8.6%, and CRE loans decreased by $42.1 million, or 0.7%. Real estate loans declined approximately $104.6 million due to the Colorado Branch Sale. The remaining decrease was due to less activity as a result of the pandemic and our effort to manage our real estate portfolio concentration. In the near term, we expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers.


Commercial loans consist of non-real estate loans related to business and agricultural loans. CommercialTotal commercial loans were $896.8 million$3.26 billion at SeptemberJune 30, 2017,2020, or 17.2%22.3% of total loans, compared to $789.9 million,$2.64 billion, or 18.3% of total loans at December 31, 2016,2019, an increase of $106.9 million.  Non-agricultural$613.3 million, or 23.2%, that is mostly in our non-agricultural commercial loan portfolio. The $963.7 million in PPP loan originations drove the increase in commercial loans increased to $689.0 million, a $49.4 million increase, or 7.7%, growth from December 31, 2016. Agriculturalduring the first half of 2020.
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Other loans increased to $207.8 million, a $57.5 million increase, or 38.2%, primarilymainly consists of mortgage warehouse lending. Mortgage volume surged during second quarter of 2020 due to seasonalitythe low interest rate environment leading to an increase of the portfolio, which normally peaks in the third quarter and is at its lowest point at the end of the first quarter.

LOANS ACQUIRED

On September 9, 2016, we completed the acquisition of Citizens and issued 835,741 shares of the Company’s common stock valued at approximately $41.3 million as of September 9, 2016, plus $35.0$111.7 million in cash in exchange for all outstanding shares of Citizens common stock. Included in the acquisition were loans with a fair value of $340.8 million.

On May 15, 2017, we completed the acquisition of Hardeman and issued 799,970 shares of the Company’s common stock valued at approximately $42.6 million as of May 15, 2017, plus $30.0 million in cash in exchange for all outstanding shares of Hardeman common stock. Included in the acquisition were loans with a fair value of $251.6 million.


Table 8 reflects the carrying value of all loans acquired as of September 30, 2017 and December 31, 2016.

Table 8:  Loans Acquired

(In thousands) September 30,
2017		 December 31,
2016
     
Consumer:        
Other consumer $29,662  $49,677 
Total consumer  29,662   49,677 
Real estate:        
Construction  48,520   57,587 
Single family residential  363,796   423,176 
Other commercial  565,993   690,108 
Total real estate  978,309   1,170,871 
Commercial:        
Commercial  70,620   81,837 
Agricultural  13,448   3,298 
Total commercial  84,068   85,135 
Total loans acquired(1) $1,092,039  $1,305,683 

______________________

(1)Loans acquired are reported net of a $391,000 and $954,000 allowance at September 30, 2017 and December 31, 2016, respectively.

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

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

Some purchased impaired loans were determined to have experienced additional impairment upon disposition or foreclosure in 2017. During the nine months ended September 30, 2017, we recorded $1.5 million of provision for these loans and charge-offs of $2.0 million, resulting in an allowance for loan losses for purchased impaired loans at September 30, 2017 of $391,000. See Note 2 and Note 6 of the Notes to Consolidated Financial Statements for further discussion of loans acquired.

ASSET QUALITY

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

primarily from mortgage warehouse lines of credit.


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

Credit


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



Total non-performing assets excluding all loans acquired, increased by $20.0$34.9 million from December 31, 20162019 to SeptemberJune 30, 2017.  Foreclosed2020. Nonaccrual loans increased by $40.2 million during the period and foreclosed assets held for sale and other real estate owned increaseddecreased by $4.6$5.0 million. During the period, $6.7 millionThe increase in former bank branches previously classifiednonaccrual loans was related to several energy portfolio loans that became reportable as premises heldnon-performing loans since year-end. We are actively pursuing an exit of our energy lending portfolio, except for sale or fixed assets were transferred to other real estate owned. As part of the First South Bank conversion 5 branches were closed during the third quarter.

Nonaccrual loans increased by $15.3 million during the period, primarily CRE loans.our customers who have a diversified relationship with us. Non-performing assets, including troubletroubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 1.01%0.70% at SeptemberJune 30, 2017,2020, compared to 0.93%0.56% at December 31, 2016. The increase in the non-performing ratio from the fourth quarter is primarily the result of two credit relationships totaling $11.0 million in the Wichita market.

In June 2017, we executed a sale of thirty-five classified loans with a discounted principal balance of $13.8 million, which included $7.3 million of legacy loans and $6.5 million of loans acquired. The loans acquired portion of the sale resulted in a benefit of $1.4 million in accretion income and $714,000 increase in provision expense for loans acquired, resulting in a net benefit of approximately $700,000.

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

2019.

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

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

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

Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. Our TDR balance increaseddecreased to $17.4$4.8 million at SeptemberJune 30, 2017, compared to $14.22020 from $5.3 million at December 31, 2016.2019. The majority of our TDRs remainTDR balance remains in the CREcommercial portfolio with the largest increasebalance comprised of twofour relationships.


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

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


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Through June 30, 2020, the Company has modified more than 4,600 loans totaling approximately $3.3 billion to loan customers affected by COVID-19. Of these COVID-19 loan modifications, approximately $3.1 billion are commercial loan modifications, comprised of the following industries:

(Dollars in thousands)Loan Balance%
Real estate rental and leasing$1,404,416  45.0 %
Accommodation and food services743,940  23.8  
Health care and social assistance272,868  8.8  
Construction197,242  6.3  
Retail trade141,456  4.5  
All other categories362,238  11.6  
Total$3,122,160  100.0 %

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


We continue to maintain good asset quality.quality, compared to the industry. Strong asset quality remains a primary focus of our strategy. The allowance for loancredit losses as a percent of total loans was 0.82%1.59% as of SeptemberJune 30, 2017.2020. Non-performing loans equaled 1.05%0.91% of total loans,loans. Non-performing assets were 0.68% of total assets, a 1415 basis point increase from December 31, 2016 and a 10 basis point increase from September 30, 2016. Non-performing assets were 0.91% of total assets.2019. The allowance for loancredit losses was 78%175% of non-performing loans. Our annualized net charge-offs to total loans for the first ninesix months of 20172020 was 0.25%0.56%. Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.20%0.54%. Annualized net credit card charge-offs to total credit card loans were 1.65%1.98%, compared to 1.28%1.86% during the full year 2016,2019, and approximately 200193 basis points better than the most recently published industry average charge-off ratio as reported by the Federal Reserve for all banks.



Table 9 presents information concerning non-performing assets, including nonaccrual loans and foreclosed assets and other real estate owned (excluding all loans acquired).

held for sale.

Table 9: Non-performing Assets
June 30,December 31,
(Dollars in thousands)20202019
Nonaccrual loans (1)
$131,888  $91,723  
Loans past due 90 days or more (principal or interest payments)537  855  
Total non-performing loans132,425  92,578  
Other non-performing assets:
Foreclosed assets held for sale and other real estate owned14,111  19,121  
Other non-performing assets2,008  1,964  
Total other non-performing assets16,119  21,085  
Total non-performing assets$148,544  $113,663  
Performing TDRs$3,960  $4,411  
Allowance for credit losses to non-performing loans175 %74 %
Non-performing loans to total loans0.91 %0.64 %
Non-performing assets (including performing TDRs) to total assets0.70 %0.56 %
Non-performing assets to total assets0.68 %0.53 %

($ in thousands) September 30,
2017		 December 31,
2016
     
Nonaccrual loans(1) $54,439  $39,104 
Loans past due 90 days or more (principal or interest payments)  232   299 
Total non-performing loans  54,671   39,403 
Other non-performing assets:        
Foreclosed assets and other real estate owned  31,477   26,895 
Other non-performing assets  639   471 
Total other non-performing assets  32,116   27,366 
Total non-performing assets $86,787  $66,769 
         
Performing TDRs $9,212  $10,998 
Allowance for loan losses to non-performing loans  78%  92%
Non-performing loans to total loans  1.05%  0.91%
Non-performing assets to total assets(2)  0.91%  0.79%

______________________

(1)Includes nonaccrual TDRs of approximately $8.2 million at September 30, 2017 and $3.2 million at December 31, 2016.
(2)Excludes all loans acquired, except for their inclusion in total assets.

Foreclosed assets

(1)Includes nonaccrual TDRs of approximately $818,000 at June 30, 2020 and other real estate owned were $31.5 million and $26.9 million$902,000 at September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, these assets include closed bank branches, branch sites and associate relocation real estate of $12.8 million, foreclosed assets-acquired of $11.1 million and foreclosed assets-legacy of $7.6 million.

2019.


There was no interest income on nonaccrual loans recorded for the three and ninesix month periods ended SeptemberJune 30, 20172020 and 2016.

At September 30, 2017, impaired loans, net of government guarantees and loans acquired, were $51.8 million compared to $43.7 million at December 31, 2016. The increase in impaired loans is primarily related to the non-performing loans discussed above. On an ongoing basis, management evaluates the underlying collateral on all impaired loans and allocates specific reserves, where appropriate, in order to absorb potential losses if the collateral were ultimately foreclosed.

2019. 



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ALLOWANCE FOR LOANCREDIT LOSSES

Overview

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

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

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

•Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the judgmentreserve factor.
•Changes in the nature and volume of management, is necessarythe portfolio - Adjustments related to reserve for estimated loan losses and risks inherentcurrent changes in the loan portfolio. The Company’s allowanceportfolio that are not fully represented or accounted for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310-10,Receivables, and allowance allocations calculated in accordance with ASC Topic 450-20,Loss Contingencies. Accordingly, the methodology is based on our internal grading system, specific impairment analysis, qualitative and quantitative factors.

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

Specific Allocations

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent loan, our evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance forreserve factors.

•Changes in lending and loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

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General Allocations

The general allocation is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lendingmonitoring policies and procedures including those for - Adjustments related to current changes in lending and loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6)monitoring procedures as well as review of specific internal policy compliance metrics.

•Changes in the experience, ability, and depth of lending management and other relevant staff (7) seasoning - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.
•Changes in the value of new products obtainedunderlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors.
•Changes in and new markets entered through acquisitionthe existence and (8) other factorseffect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors.
•Changes in regional and trendslocal economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that will affect specificare not fully captured within our reasonable and supportable forecast.
•Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio.

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans and categories of loans. We established general allocations for each major loan category. This category also includes allocations to loans whichwith a deteriorated internal risk rating or that are collectively evaluated for loss suchclassified as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.

Reserve for Unfunded Commitments

In addition to thea TDR. The allowance for loan losses, we have established a reserve for unfunded commitments, classified in other liabilities.  This reservecredit loss is maintained at a level sufficient to absorb losses arising from unfunded loan commitments.  The adequacydetermined based on several methods including estimating the fair value of the reserve for unfunded commitments is determined monthly based on methodology similar to our methodology for determiningunderlying collateral or the allowance for loan losses.  Net adjustments to the reserve for unfunded commitments are included in other non-interest expense.

present value of expected cash flows.



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

Table 10: Allowance for LoanCredit Losses

(In thousands) 2017 2016
     
Balance, beginning of year $36,286  $31,351 
Loans charged off:        
Credit card  2,962   2,260 
Other consumer  2,986   1,482 
Real estate  3,264   7,350 
Commercial  3,083   3,043 
Total loans charged off  12,295   14,135 
Recoveries of loans previously charged off:        
Credit card  788   694 
Other consumer  1,771   358 
Real estate  757   278 
Commercial  83   337 
Total recoveries  3,399   1,667 
Net loans charged off  8,896   12,468 
Provision for loan losses(1)  15,327   15,211 
Balance, September 30(3) $42,717   34,094 
Loans charged off:        
Credit card      935 
Other consumer      493 
Real estate      167 
Commercial      913 
Total loans charged off      2,508 
Recoveries of loans previously charged off:        
Credit card      213 
Other consumer      158 
Real estate      73 
Commercial      28 
Total recoveries      472 
Net loans charged off      2,036 
Provision for loan losses(2)      4,228 
Balance, end of year(3)     $36,286 

______________________

(1)Provision for loan losses of $1,464,000 attributable to loans acquired, was excluded from this table for 2017 (total year-to-date provision for loan losses is $16,792,000) and $522,000 was excluded from this table for 2016 (total 2016 provision for loan losses is $15,733,000). Charge offs of $2.0 million on loans acquired were excluded from this table for 2017 (total net loan charged off is $10.9 million.)
(2)Provision for loan losses of $626,000 attributable to loans acquired, was excluded from this table for 2016 (total 2016 provision for loan losses is $20,065,000).
(3)Allowance for loan losses at September 30, 2017 includes $391,000 allowance for loans acquired (not shown in the table above) and December 31, 2016 and September 30, 2016 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2017 was $43,108,000 and the total allowance for loan losses at December 31, 2016 and September 30, 2016 was $37,240,000 and $35,048,000 respectively.

(In thousands)20202019
Balance, beginning of year$68,244  $56,694  
Impact of CECL adoption151,377  —  
Loans charged off:
Credit card2,494  2,181  
Other consumer1,971  2,517  
Real estate2,220  1,633  
Commercial36,210  5,115  
Total loans charged off42,895  11,446  
Recoveries of loans previously charged off:
Credit card497  511  
Other consumer746  631  
Real estate354  300  
Commercial445  1,125  
Total recoveries2,042  2,567  
Net loans charged off40,853  8,879  
Provision for credit losses52,875  16,364  
Balance, June 30$231,643  $64,179  
Loans charged off:
Credit card2,404  
Other consumer2,490  
Real estate2,259  
Commercial18,237  
Total loans charged off25,390  
Recoveries of loans previously charged off:
Credit card510  
Other consumer1,726  
Real estate201  
Commercial142  
Total recoveries2,579  
Net loans charged off22,811  
Provision for credit losses26,876  
Balance, end of year$68,244  

Provision for LoanCredit Losses

The amount of provision added to the allowance during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, and for the year ended December 31, 2016,2019, was based on management'smanagement’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience. It is management'smanagement’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance.

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Allowance for Credit Losses Allocation
 

Allowance for Loan Losses Allocation

As of SeptemberJune 30, 2017,2020, the allowance for loancredit losses reflectsreflected an increase of approximately $6.4$163.4 million from December 31, 2016,2019 while total loans excluding loans acquired, increased by $884.1$181.2 million over the same ninesix month period. The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix.

During the first quarter of 2020, we recorded an additional allowance for credit losses of approximately $151.4 million due to the adoption of CECL.


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

The remaining increase in the allowance for credit losses during the first six months of 2020 was predominately related to updated credit loss forecast models using multiple Moody’s economic scenarios previously discussed in Provision for Credit Losses.
The following table sets forth the sum of the amounts of the allowance for loancredit losses attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of loans in each category to the total loan portfolio excluding loans acquired, for each of the periods indicated. TheseThe allowance amounts have been computed using the Company’s internal grading system,for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific impairment analysis, qualitative and quantitative factor allocations.allowance allocations that are identified on individually evaluated loans. The amounts shown are not necessarily indicative of the actual future losses that may occur within individual categories.

Table 11: Allocation of Allowance for LoanCredit Losses
 June 30, 2020December 31, 2019
(Dollars in thousands)Allowance
Amount
% of
loans (1)
Allowance
Amount
% of
loans (1)
Credit cards$10,979  1.3 %$4,051  1.4 %
Other consumer10,802  1.4 %1,998  1.7 %
Real estate149,471  72.1 %39,161  76.5 %
Commercial59,138  22.3 %22,863  18.3 %
Other1,253  2.9 %171  2.1 %
Total$231,643  100.0 %$68,244  100.0 %

  September 30, 2017 December 31, 2016
  Allowance % of Allowance % of
($ in thousands) Amount loans(1) Amount loans(1)
         
Credit cards $3,773   3.4% $3,779   4.3%
Other consumer  3,457   6.1%  2,796   7.0%
Real estate  27,294   72.8%  21,817   70.0%
Commercial  7,994   17.2%  7,739   18.2%
Other  199   0.5%  155   0.5%
Total(2) $42,717   100.0% $36,286   100.0%

______________________

(1)Percentage of loans in each category to total loans, excluding loans acquired.
(2)Allowance for loan losses at September 30, 2017 and December 31, 2016 includes $391,000 and $954,000, respectively, of allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2017 and December 31, 2016 was $43,108,000 and $37,240,000, respectively

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

DEPOSITS

Deposits are our primary source of funding for earning assets and are primarily developed through our network of over 156approximately 226 financial centers. We offer a variety of products designed to attract and retain customers with a continuing focus on developing core deposits. Our core deposits consist of all deposits excluding time deposits of $100,000 or more and brokered deposits. As of SeptemberJune 30, 2017,2020, core deposits comprised 90.9%84.1% of our total deposits.

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


We manage our interest expense through deposit pricing and do not anticipate a significant change in total deposits.pricing. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. We can also utilize brokered deposits as an additional source of funding to meet liquidity needs.

We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.



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Our total deposits as of SeptemberJune 30, 2017,2020, were $7.326$16.62 billion, an increase of $590.4$507.2 million from December 31, 2016.  We have continued our strategy to move more volatile time deposits to less expensive, revenue enhancing transaction accounts.2019. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $6.015$13.6 billion at SeptemberJune 30, 2017,2020, compared to $5.448$12.8 billion at December 31, 2016, a $566.5 million increase.2019, an increase of $754.2 million. Total time deposits increased $23.9decreased $247.0 million to $1.311$3.0 billion at SeptemberJune 30, 2017,2020, from $1.287$3.3 billion at December 31, 2016.2019. We had $27.3$552.2 million and $7.0 million$1.1 billion of brokered deposits at SeptemberJune 30, 20172020, and December 31, 2016,2019, respectively.

We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits.


OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $590.0 million$1.78 billion and $333.6 million$1.69 billion at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively. The outstanding balance for SeptemberJune 30, 20172020 includes $442.0 million$1.4 billion in FHLB short-term advances, $36.0advances; $9.5 million in FHLB long-term advances, $44.6advances; $330.0 million in notes payable and $67.4subordinated notes; $52.6 million of trust preferred securities. The outstanding balance for December 31, 2016 included $180.0securities and unamortized debt issuance costs; and $34.2 million inof other long-term debt.

Most of the FHLB short-term advances $45.3outstanding at the end of the second quarter 2020 are FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Our FOTO advances outstanding at June 30, 2020 have 10 to 15 year maturity dates with lockout periods that have expired and, as a result, are considered and monitored as short-term advances. We analyze the possibility of the FHLB exercising the options along with the market expected rate outcome.

We assumed trust preferred securities and other subordinated debt in an aggregate principal amount, net of discounts, of $33.9 million related to the Landrum acquisition during 2019. During the second quarter of 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.
In March 2018, we issued $330 million in FHLB long-term advances, $47.9aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The Company incurred $3.6 million in notes payable and $60.4 million of trust preferred securities.

The $44.6 million notes payable is unsecured debt from correspondent banks at a rate of 3.85% with quarterly principal and interest payments. The debt has a 10 year amortization with a 5 year balloon payment due in October 2020.

During the nine months ended September 30, 2017, we increased total debt by $256.4 million from December 31, 2016 primarily dueissuance costs related to the $262.0 million increaseoffering. The Notes will mature on April 1, 2028 and are subordinated in FHLB short-term advances partially offsetright of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, the maturityany of $9.3 million of FHLB long-term advances.

its subsidiaries.


CAPITAL

Overview

At SeptemberJune 30, 2017,2020, total capital was $1.257$2.90 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At SeptemberJune 30, 2017,2020, our common equity to assetsasset ratio was 13.2%, down 52 basis points from13.26% compared to 14.06% at year-end 2016.

2019.

Capital Stock

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

On February 27, 2015, as part12, 2019, we filed Amended and Restated Articles of Incorporation (“February Amended Articles”) with the acquisitionArkansas Secretary of Community First, the Company issued 30,852 sharesState. The February Amended Articles classified and designated three series of Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Simmonspreferred stock out of our authorized preferred stock: Series A Preferred Stock”) in exchange for the outstanding shares of Community First Senior Non-Cumulative PerpetualStock, Par Value $0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, Par Value $0.01 Per Share (having 2,000.02 authorized shares); and 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C (having 140 authorized shares).

On October 29, 2019, we filed our Amended and Restated Articles of Incorporation (“Community FirstOctober Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series CD Preferred Stock”).Stock, Par Value $0.01 Per Share, out of our authorized preferred stock. The preferred stock was held by the United States Department of the Treasury (“Treasury”) as the Community FirstOctober Amended Articles also canceled our 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C Preferred Stock, wasof which no shares were ever issued when Community First entered into a Small Business Lending Fund Securities Purchase Agreement with the Treasury.  The Simmons Series A Preferred Stock qualified as Tier 1 capital and paid quarterly dividends. On January 29, 2016, the Company redeemed all of the Simmons Series A Preferred Stock, including accrued and unpaid dividends.

or outstanding.



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Stock Repurchase

During 2007, the Company


On July 23, 2012, our Board of Directors approved a stock repurchase program which authorized the repurchase of up to 700,0001,700,000 shares of common stock.stock (“2012 Program”). On July 23, 2012,October 22, 2019, we announced the substantial completion of the existing stock repurchase program and the adoption by our Board of Directors of a new stock repurchase program.  The current program authorizes(“Program”) that replaced the 2012 Program, under which we may repurchase of up to 850,000 additional shares$60,000,000 of our Class A common stock or approximately 5%currently issued and outstanding. On March 5, 2020, we announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000 to $180,000,000. The Program will terminate on October 31, 2021 (unless terminated sooner).

Under the Program, we may repurchase shares of the shares outstanding. The shares are to be purchased from time to time at prevailing market prices,our common stock through open market or unsolicitedand privately negotiated transactions depending uponor otherwise. The timing, pricing, and amount of any repurchases under the Program will be determined by management at its discretion based on a variety of factors, including, but not limited to, trading volume and market conditions.  Under theprice of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate us to repurchase program, there is no time limit for theany common stock repurchases, nor is there a minimum number of shares that we intend to repurchase.  Weand may discontinue purchasesbe modified, discontinued, or suspended at any time that management determineswithout prior notice. We anticipate funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow.

During the six month period ended June 30, 2020, we repurchased — shares at an average price of $18.96 under the Program. No shares have been repurchased since March 31, 2020. Market conditions and our capital needs will drive decisions regarding additional purchases are not warranted.  We intend to use the repurchased shares to satisfy stock option exercises, payment of future stock awards and dividends and general corporate purposes.repurchases. We had no stock repurchases during 2016 or 2017.

the first six months of 2019.


Cash Dividends

We declared cash dividends on our common stock of $0.75$0.34 per share for the first ninesix months of 20172020 compared to $0.72$0.32 per share for the first ninesix months of 2016,2019, an increase of $0.03,$0.02, or 4.2%6%. The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock at the current levels or at all.



Parent Company Liquidity

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

The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising via, among other things, equity or debt offerings.

Risk Based Capital

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

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of SeptemberJune 30, 2017,2020, we meet all capital adequacy requirements to which we are subject.



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

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Our risk-based capital ratios at SeptemberJune 30, 20172020 and December 31, 20162019 are presented in Table 12 below:

Table 12: Risk-Based Capital

June 30,December 31,
(Dollars in thousands)20202019
Tier 1 capital:  
Stockholders’ equity$2,904,703  $2,988,924  
CECL transition provision130,480  —  
Goodwill and other intangible assets(1,160,385) (1,160,079) 
Unrealized gain on available-for-sale securities, net of income taxes(54,310) (20,891) 
Total Tier 1 capital1,820,488  1,807,954  
Tier 2 capital:
Trust preferred securities and subordinated debt382,604  388,260  
Qualifying allowance for credit losses and reserve for unfunded commitments83,780  76,644  
Total Tier 2 capital466,384  464,904  
Total risk-based capital$2,286,872  $2,272,858  
Risk weighted assets$15,362,175  $16,554,081  
Assets for leverage ratio$20,742,824  $18,852,798  
Ratios at end of period:
Common equity Tier 1 ratio (CET1)11.85 %10.92 %
Tier 1 leverage ratio8.78 %9.59 %
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)
9.06 %N/A
Tier 1 risk-based capital ratio11.85 %10.92 %
Total risk-based capital ratio14.89 %13.73 %
Minimum guidelines:
Common equity Tier 1 ratio (CET1)4.50 %4.50 %
Tier 1 leverage ratio4.00 %4.00 %
Tier 1 risk-based capital ratio6.00 %6.00 %
Total risk-based capital ratio8.00 %8.00 %

  September 30, December 31,
($ in thousands) 2017 2016
     
Tier 1 capital:        
Stockholders’ equity $1,257,199  $1,151,111 
Trust preferred securities  67,418   60,397 
Goodwill and other intangible assets, net of deferred taxes  (401,419)  (354,028)
Unrealized gain on available-for-sale securities, net of income taxes  10,651   15,212 
Other  --   15 
Total Tier 1 capital  933,849   872,707 
Tier 2 capital:        
Qualifying unrealized gain on available-for-sale equity securities  1   -- 
Qualifying allowance for loan losses  46,709   40,241 
Total Tier 2 capital  46,710   40,241 
Total risk-based capital $980,559  $912,948 
         
Risk weighted assets $7,239,923  $6,039,034 
         
Assets for leverage ratio $8,789,175  $7,966,681 
         
Ratios at end of period:        
Common equity Tier 1 ratio (CET1)  11.97%  13.45%
Tier 1 leverage ratio  10.62%  10.95%
Tier 1 risk-based capital ratio  12.90%  14.45%
Total risk-based capital ratio  13.54%  15.12%
Minimum guidelines:        
Common equity Tier 1 ratio  4.50%  4.50%
Tier 1 leverage ratio  4.00%  4.00%
Tier 1 risk-based capital ratio  6.00%  6.00%
Total risk-based capital ratio  8.00%  8.00%
Well capitalized guidelines:        
Common equity Tier 1 ratio  6.50%  6.50%
Tier 1 leverage ratio  5.00%  5.00%
Tier 1 risk-based capital ratio  8.00%  8.00%
Total risk-based capital ratio  10.00%  10.00%

(1)PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios. Tier 1 leverage ratio, excluding average PPP loans is a non-GAAP measurement. See “GAAP Reconciliation of Non-GAAP Measures” below for the additional discussion of non-GAAP measures.

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Regulatory Capital Changes

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

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

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

institutions.

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

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


The final rules includeincluded a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raiseraised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The Basel III Capital Rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Management believes that, as of September 30,on January 1, 2019.

Prior to December 31, 2017, the Company and Simmons Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective.

Tier 1 capital includesincluded common equity tierTier 1 capital and certain additional tierTier 1 items as provided under the Basel III Capital Rules. The tierTier 1 capital for the Company consistsconsisted of common equity tierTier 1 capital and $67.4 million of trust preferred securities. The Basel III Capital Rules include certain provisions that would require trust preferred securities to be phased out of qualifying tierTier 1 capital. Currently, the Company’s trust preferred securities are grandfathered under the Basel III Rules and will continue to be included as tier 1 capital. However, shouldcapital when assets surpass $15 billion. As of December 31, 2017, the Company exceedexceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities would no longer apply and such trust preferred securities wouldare no longer be included as tierTier 1 capital, but would continue to becapital. Trust preferred securities and qualifying subordinated debt of $382.6 million is included as Tier 2 and total capital.

capital as of June 30, 2020.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report may not be based on historical facts and areshould be considered “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.1995. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,“believe,” “estimate,“budget,” “expect,” “foresee,” “believe,“anticipate,” “may,“intend,” “might,“indicate,” “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,” “prospects,” “predict,” or “potential,” by future conditional verbs such as “will,” “would,” “could”“should,” “could,” “might” or “intend,“may,” future or conditional verb tenses, andby variations or negatives of such terms.words or by similar expressions. These forward-looking statements include, without limitation, those relating to the Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase program, acquisition strategy, balance sheet and liquidity management, NGB and other digital banking initiatives, the Company’s ability to recruit and retain key employees, the benefits associated with the Company’s early retirement program and completed and future branch closures, the adequacy of the allowance for loancredit losses, the ability of the Company to manage the impact of the COVID-19 pandemic, the effect of certain new accounting standards on the Company’s financial statements (including, without limitation, the CECL methodology and its anticipated effect on the provision and allowance for credit losses), income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of pendingfuture litigation, acquisition strategy, efficiency initiatives, legal and regulatory limitations and compliance and competition.

These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation: changes in the Company’s operating, acquisition, or expansion strategy; the effects of future economic conditions (including unemployment levels and slowdowns in economic growth), governmental monetary and fiscal policies, as well as legislative and regulatory changes; changes in real estate values; the risks of changes in interest rates and their effects on the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities; changes in the securities markets generally or the price of the Company’s common stock specifically; the effect of the steps the Company takes in response to COVID-19, the severity and duration of the pandemic, including whether there is a “second wave” as a result of the loosening of governmental restrictions, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein; the effects of the COVID-19 pandemic on, among other things, the Company’s operations, liquidity, and credit quality; developments in information technology affecting the financial industry; cyber threats, attacks or events; reliance on third parties for key services; changes in the assumptions, forecasts, models, and methodology used to calculate the impact of CECL on the Company’s financial statements; claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the CARES Act); the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;internet; the failure of assumptions underlying the establishment of reserves for possible loan losses; and those factors set forth under Item 1A. Risk-Factors of this reportcredit losses, fair value for loans, other real estate owned, and other cautionary statements set forth elsewhere in this report. Please also refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s annual report on Form 10-K for the year ended December 31, 2019, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. Many of these factors are beyond our ability to predict or control.control, and actual results could differ materially from those in the forward-looking statements due to these factors and others. In addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of future performance.

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




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GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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

The Company believestables below also present computations of certain figures that are exclusive of the impact of PPP loans: the ratios of common equity to total assets and tangible common equity to tangible assets, each adjusted for PPP loans (each non-GAAP), Tier 1 leverage ratio excluding average PPP loans (non-GAAP), core net interest income and core net interest margin, each adjusted for PPP loans and excess liquidity (each non-GAAP), and loan yield excluding PPP loans (non-GAAP).

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

•Preparation of the Company’s operating budgets
•Monthly financial performance reporting
•Monthly “flash” reporting of consolidated results (management only)
•
•   Preparation of the Company’s operating budgets
•   Monthly financial performance reporting
•   Monthly “flash” reporting of consolidated results (management only)
•   Investor presentations of Company performance

The Company believesperformance

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

•Calculation of annual performance-based incentives for certain executives
•Calculation of long-term performance-based incentives for certain executives
•Investor presentations of Company performance

•   Calculation of annual performance-based incentives for certain executives
•   Calculation of long-term performance-based incentives for certain executives
•   Investor presentations of Company performance
We have $431.2 million and $401.5 million$1.183 billion total goodwill and other intangible assets at Septemberfor the periods ended June 30, 20172020 and December 31, 2016, respectively.2019. Because of our acquisition strategy has resulted in a high level of intangible assets, management believes useful calculations include tangible book value per share (non-GAAP) and tangible common equity to tangible assets (non-GAAP).

We believe the exclusion of PPP loans or their impact, as applicable, in expressing earnings and certain other financial measures provides a useful calculation is return onmeaningful basis for period-to-period and company-to-company comparisons because PPP loans are 100% federally guaranteed and have very low interest rates. The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “common equity to total assets” and “tangible common equity to tangible equityassets,” each adjusted for PPP loans (each non-GAAP), “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “core net interest margin,” each adjusted for PPP loans and excess liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP).

The Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, believesincluding the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance. Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance.


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


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

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



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

Table 13: Reconciliation of Core Earnings (non-GAAP)
 Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands, except per share data)2020201920202019
Net income available to common stockholders$58,789  $55,598  $136,012  $103,293  
Non-core items:
Gain on sale of branches(2,204) —  (8,093) —  
Merger related costs1,830  7,522  2,898  8,992  
Early retirement program493  2,932  493  3,287  
Branch right sizing1,721  2,887  1,959  2,932  
Tax effect (1)
(482) (3,486) 716  (3,975) 
Net non-core items1,358  9,855  (2,027) 11,236  
Core earnings (non-GAAP)$60,147  $65,453  $133,985  $114,529  
Diluted earnings per share(2)
$0.54  $0.58  $1.22  $1.09  
Non-core items:
Gain on sale of branches(0.02) —  (0.07) —  
Merger related costs0.02  0.08  0.03  0.10  
Early retirement program—  0.03  —  0.03  
Branch right sizing0.02  0.03  0.02  0.03  
Tax effect (1)
(0.01) (0.04) 0.01  (0.04) 
Net non-core items0.01  0.10  (0.01) 0.12  
Core diluted earnings per share (non-GAAP)$0.55  $0.68  $1.21  $1.21  

  Three Months Ended Nine Months Ended
  September 30, September 30,
($ in thousands) 2017 2016 2017 2016
         
Net income $28,852  $23,429  $74,037  $69,819 
Non-core items:                
Gain on sale of insurance lines of business  (3,708)  --   (3,708)  -- 
Gain from early retirement of trust preferred securities  --   --   --   (594)
Merger related costs  752   1,524   7,879   1,989 
Branch right sizing  435   43   53   3,276 
Tax effect(1)  1,415   (614)  (1,230)  (1,832)
Net non-core items  (1,106)  953   2,994   2,839 
Core earnings (non-GAAP) $27,746  $24,382  $77,031  $72,658 
                 
Diluted earnings per share $0.89  $0.76  $2.31  $2.28 
Non-core items:                
Gain on sale of insurance lines of business  (0.11)  --   (0.11)  -- 
Gain from early retirement of trust preferred securities  --   --   --   (0.02)
Merger related costs  0.02   0.05   0.25   0.06 
Branch right sizing  0.01   --   --   0.11 
Tax effect(1)  0.05   (0.02)  (0.04)  (0.06)
Net non-core items  (0.03)  0.03   0.10   0.09 
Diluted core earnings per share (non-GAAP) $0.86  $0.79  $2.41  $2.37 

______________________

(1)Effective tax rate of 39.225%, adjusted for non-deductible merger related costs and deferred tax adjustments related to the sale of insurance lines of business.

(1)Effective tax rate of 26.135%.
(2)See Note 17, Earnings Per Share, for number of shares used to determine EPS.


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See Table 14 below for the reconciliation of core other income and core non-interest expense for the periods presented.
Table 14: Reconciliation of Core Other Income and Core Non-Interest Expense (non-GAAP)

 Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2020201920202019
Other income$9,809  $6,065  $22,610  $10,221  
Gain on sale of banking operations(2,204) —  (8,093) —  
Core other income (non-GAAP)$7,605  $6,065  $14,517  $10,221  
Non-interest expense$112,598  $110,743  $238,411  $212,152  
Non-core items:
Merger related costs1,830  7,522  2,898  8,992  
Early retirement program493  2,932  493  3,287  
Branch right sizing1,721  2,887  1,959  2,932  
Total non-core items4,044  13,341  5,350  15,211  
Core non-interest expense (non-GAAP)$116,642  $124,084  $243,761  $227,363  


See Table 15 below for the reconciliation of tangible book value per common share.

Table 14:15: Reconciliation of Tangible Book Value per Common Share (non-GAAP)

(In thousands, except per share data) September 30,
2017		 December 31,
2016
     
Total common stockholders’ equity $1,257,199  $1,151,111 
Intangible assets:        
Goodwill  (375,731)  (348,505)
Other intangible assets  (55,501)  (52,959)
Total intangibles  (431,232)  (401,464)
Tangible common stockholders’ equity $825,967  $749,647 
Shares of common stock outstanding  32,212,242   31,277,723 
         
Book value per common share $39.03  $36.80 
         
Tangible book value per common share (non-GAAP) $25.64  $23.97 


June 30,December 31,
(In thousands, except per share data)20202019
Total stockholders’ equity$2,904,703  $2,988,924  
Preferred stock(767) (767) 
Total common stockholders’ equity2,903,936  2,988,157  
Intangible assets:
Goodwill(1,064,765) (1,055,520) 
Other intangible assets(117,823) (127,340) 
Total intangibles(1,182,588) (1,182,860) 
Tangible common stockholders’ equity$1,721,348  $1,805,297  
Shares of common stock outstanding108,994,389  113,628,601  
Book value per common share$26.64  $26.30  
Tangible book value per common share (non-GAAP)$15.79  $15.89  



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See Table 1516 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets as of September 30, 2017 and December 31, 2016.

assets.

Table 15:16: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)

(In thousands, except per share data) September 30,
2017		 December 31,
2016
     
Total common stockholders’ equity $1,257,199  $1,151,111 
Intangible assets:        
Goodwill  (375,731)  (348,505)
Other intangible assets  (55,501)  (52,959)
Total intangibles  (431,232)  (401,464)
Tangible common stockholders’ equity $825,967  $749,647 
         
Total assets $9,535,370  $8,400,056 
Intangible assets:        
Goodwill  (375,731)  (348,505)
Other intangible assets  (55,501)  (52,959)
Total intangibles  (431,232)  (401,464)
Tangible assets $9,104,138  $7,998,592 
         
Ratio of equity to assets  13.18%  13.70%
Ratio of tangible common equity to tangible assets (non-GAAP)  9.07%  9.37%

June 30,December 31,
(Dollars in thousands)20202019
Total common stockholders’ equity$2,903,936  $2,988,157  
Intangible assets:
Goodwill(1,064,765) (1,055,520) 
Other intangible assets(117,823) (127,340) 
Total intangibles(1,182,588) (1,182,860) 
Tangible common stockholders’ equity$1,721,348  $1,805,297  
Total assets$21,903,684  $21,259,143  
Intangible assets:
Goodwill(1,064,765) (1,055,520) 
Other intangible assets(117,823) (127,340) 
Total intangibles(1,182,588) (1,182,860) 
Tangible assets$20,721,096  $20,076,283  
Paycheck Protection Program (“PPP”) loans(963,712) 
Total assets less PPP loans$20,939,972  
Tangible assets less PPP loans$19,757,384  
Ratio of common equity to assets13.26 %14.06 %
Ratio of tangible common equity to tangible assets (non-GAAP)8.31 %8.99 %
Ratio of common equity to assets less PPP loans (non-GAAP)13.87 %
Ratio of tangible common equity to tangible assets less PPP loans (non-GAAP)8.71 %


See Table 1617 below for the calculation of Tier 1 leverage ratio excluding average PPP loans for the period presented.
Table 17: Reconciliation of Tier 1 Leverage Ratio Excluding Average PPP Loans (non-GAAP)

(Dollars in thousands)Three Months Ended
June 30, 2020
Total Tier 1 capital$1,820,488 
Adjusted average assets for leverage ratio$20,742,824 
Average PPP loans(645,172)
Adjusted average assets less average PPP loans$20,097,652 
Tier 1 leverage ratio8.78 %
Tier 1 leverage ratio excluding average PPP loans (non-GAAP)9.06 %


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See Table 18 below for the calculation of core net interest margin and core net interest margin adjusted for PPP loans and additional liquidity for the periods presented.

Table 16:18: Reconciliation of Core Net Interest Margin (non-GAAP)

  Three Months Ended Nine Months Ended
  September 30, September 30,
($ in thousands) 2017 2016 2017 2016
         
Net interest income $78,819  $68,063  $228,011  $204,878 
FTE adjustment  1,751   1,969   5,798   5,728 
Fully tax equivalent net interest income  80,570   70,032   233,809   210,606 
Total accretable yield  (2,890)  (4,928)  (12,109)  (17,705)
Core net interest income $77,680  $65,104  $221,700  $192,901 
                 
Average earning assets – quarter-to-date $8,182,292  $6,825,019  $7,829,548  $6,682,683 
                 
Net interest margin  3.95   4.08   3.99   4.21 
Core net interest margin (non-GAAP)  3.81   3.79   3.79   3.86 

Three Months Ended
June 30,		Six Months Ended
June 30,
(Dollars in thousands)2020201920202019
Net interest income$163,681  $149,428  $331,164  $285,423  
FTE adjustment2,350  1,706  4,655  3,307  
Fully tax equivalent net interest income166,031  151,134  335,819  288,730  
Total accretable yield(11,723) (10,162) (23,560) (16,822) 
Core net interest income$154,308  $140,972  $312,259  $271,908  
PPP loan and excess liquidity interest income(5,623) 
Core net interest income adjusted for PPP loans and additional liquidity$148,685  
Average earning assets – quarter-to-date$19,517,475  $15,389,670  $19,049,487  $14,917,493  
Average PPP loan balance and additional liquidity(2,071,411) 
Average earning assets adjusted for PPP loans and additional liquidity$17,446,064  
Net interest margin3.42 %3.94 %3.55 %3.90 %
Core net interest margin (non-GAAP)3.18 %3.67 %3.30 %3.68 %
Core net interest margin adjusted for PPP loans and additional liquidity (non-GAAP)3.43 %


See Table 19 below for the calculation of loan yield excluding PPP loans for the period presented.
Table 19: Reconciliation of Loan Yield Excluding PPP Loans (non-GAAP)

(Dollars in thousands)Three Months Ended
June 30, 2020
Loan interest income$177,168 
PPP loan interest income(3,733)
Loan interest income excluding PPP loans$173,435 
Average loan balance$14,731,306 
Average PPP loan balance(645,172)
Average loan balance excluding PPP loans$14,086,134 
Loan yield4.84 %
Loan yield excluding PPP loans (non-GAAP)4.94 %

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Item 3.Quantitative and Qualitative Disclosure About Market Risk

Parent Company

Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has leveraged its investment in its subsidiary bank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary bank, as a principal source of funds for dividends to shareholders, stock repurchaserepurchases and debt service requirements. At SeptemberJune 30, 2017,2020, undivided profits of the Company's subsidiary bank wasSimmons Bank were approximately $274.5$466.8 million, of which approximately $1.8$165.1 million was available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds.

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Subsidiary Bank

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

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

Liquidity Management

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

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

The first source of liquidity available to the Company is Federalfederal funds. Federal funds are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. The Company and our subsidiary bank have approximately $285Bank has approximately $415 million in Federalfederal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure availability of these upstream funds we test these borrowing lines at least annually. Historical monitoring of these funds has made it possible for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis.


Second, Simmons Bank has a linelines of credit available with the Federal Home Loan Bank. While we use portions of this linethose lines to match off longer-term mortgage loans, we also use this linethose lines to meet liquidity needs. Approximately $1.1$2.8 billion of this linethese lines of credit isare currently available, if needed, for liquidity.

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

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

Fifth, we use a laddered investment portfolio that ensures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. Approximately 76.4% of98.0% of the investment portfolio is classified as available-for-sale. We also use securities held in the securities portfolio to pledge when obtaining public funds.


Sixth, we have a network of downstream correspondent banks from which we can access debt to meet liquidity needs, as was demonstrated by the $52.3 million of unsecured debt issued in the fourth quarter of 2015.

needs.

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


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



Market Risk Management

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

Interest Rate Sensitivity

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

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

As of SeptemberJune 30, 2017,2020, the model simulations projected that 100 and 200 basis point increases in interest rates would result in a positive variance in net interest income of 0.97%3.90% and 1.68%8.09%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of 10025 basis points would result in a negative variance in net interest income of -3.55%(0.44)% relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 5025 basis points as of SeptemberJune 30, 20172020, is considered remote given current interest rate levels and the recent rate increase by the Federal Reserve.levels. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-endperiod-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.

The table below presents our sensitivity to net interest income at SeptemberJune 30, 2017:  

2020:  

Table 17:20:Net Interest Income Sensitivity

Interest Rate Scenario% Change from Base
Up 200 basis points1.68%8.09%
Up 100 basis points0.97%3.90%
Down 10025 basis points-3.55%(0.44)%



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Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, havehas reviewed and evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act)Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company'sCompany’s current disclosure controls and procedures were effective foras of the period.

end of the period covered by this report to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiary to disclose material information required to be set forth in the Company’s periodic reports.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended SeptemberJune 30, 2017,2020, which materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II:Other Information

Part II: Other Information

Item 1.  Legal Proceedings

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

Item 1A.Risk Factors

Management

Item 1A.  Risk Factors

The disclosures below supplement the risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”).

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, our business, as well as our customers and third-party vendors; and the ultimate severity of these impacts is not awaredependent on future events that are highly uncertain and challenging to predict.
The COVID-19 pandemic has caused extensive disruptions to the global economy and the lives of people around the world. As a result of the pandemic, governmental authorities, businesses, and the public have taken unprecedented actions designed to limit the scope and duration of the coronavirus, as well as mitigate its effects. However, at this time, we are unable to determine whether these actions will be effective. In fact, future developments related to the pandemic could cause the imposition of additional measures that may further increase the severity of its effects.

Although we have business continuity plans and other safeguards in place, the COVID-19 pandemic and responses to it have impacted, and are likely to continue to adversely impact, our operations, as well as those of our customers and third-party vendors, due to, among other things, significant and widespread disruption in our usual methods of working caused by social distancing, quarantines, and other restrictions. Many responses to the COVID-19 pandemic have adversely impacted the economy and forced temporary closures of nonessential businesses, and as a result the businesses of many of our customers have been adversely impacted, which could materially adversely impact our business, financial condition and results of operations. Additionally, changes due to COVID-19 may have adverse impacts on the Company’s business due to reduced effectiveness of operations, unavailability of personnel (including due to illness), and increased cybersecurity risks related to use of remote technology. We may experience financial losses and declines in our financial condition due to a number of factors associated with the pandemic, including, among other things, deteriorations in credit quality, past due loans, and charge offs resulting from difficulties faced by our hospitality, retail, restaurant, energy, and other borrowers as a result of the pandemic and responses to it. We may also become subject to litigation or government action arising from our participation in and administration of programs related to the pandemic (including, among other things, the PPP loan program authorized by the CARES Act) that could have significant effects on the Company, its financial condition and its operations. The ultimate severity of these impacts will depend on future developments, including, among other things, how long the pandemic lasts and when restrictions imposed on businesses
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and individuals are fully lifted, which, at this time, are unknown. If the severity of the COVID-19 pandemic worsens, additional actions may be taken by federal, state, and local governments to contain COVID-19 or treat its impact, including additional shelter-in-place orders. There can be no assurance that any efforts by the Company to address the adverse impacts of the COVID-19 pandemic will be effective. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future, or as a result of changes in the behavior of customers, businesses and their employees.

There have been no other material changes to the risk factors discussed in Part 1, Item 1A of our 2019 Form 10-K for the year ended December 31, 2016.10-K. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our 2019 Form 10-K, which could materially and adversely affect the Company’s business, ongoing financial condition and results of operations. The risks described are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management currently believes to be immaterial may also adversely affect our business, ongoing financial condition or results of operations.

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

(c) Issuer Purchases of Equity Securities.Securities and Use of Proceeds


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

During the quarter ended June 30, 2020, we repurchased restricted stock in connection with employee tax withholding obligations under employee compensation plans. Information concerning our purchases of its common stock during the three months ended September 30, 2017.is as follows:

Period
Total Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2020 - April 30, 2020—  $—  —  $76,560,000  
May 1, 2020 - May 31, 2020147  17.02  —  $76,560,000  
June 1, 2020 - June 30, 2020—  —  —  $76,560,000  
Total147  $17.02  —  

(1)Total number of shares purchased consists of 147 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.

Item 6.  Exhibits
Item 6.Exhibits

Exhibit No.Description

PurchaseAgreement and Assumption Agreement Whole Bank All Deposits, among Federal Insurance Deposit Corporation, ReceiverPlan of Truman Bank, St. Louis, Missouri, Federal Deposit Insurance Corporation, and Simmons First National Bank, Pine Bluff, Arkansas,Merger, dated as of September 14, 2012 (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K, as amended, for September 20, 2012 (File No. 000-06253)).

2.2Loan Sale Agreement, by and between Federal Deposit Insurance Corporation, as Receiver for Truman Bank, St. Louis, Missouri, and Simmons First National Bank, Pine Bluff, Arkansas, dated as of September 14, 2012 (incorporated by reference to Exhibit 2.2 to Simmons First National Corporation’s Current Report on Form 8-K, as amended, for September 20, 2012 (File No. 000-06253)).

2.3Purchase and Assumption Agreement Whole Bank All Deposits, among Federal Insurance Deposit Corporation, Receiver of Excel Bank, Sedalia, Missouri, Federal Deposit Insurance Corporation, and Simmons First National Bank, Pine Bluff, Arkansas, dated as of October 19, 2012 (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K, as amended, for October 25, 2012 (File No. 000-06253)).

2.4Stock Purchase AgreementNovember 13, 2018, by and between Simmons First National Corporation and RogersReliance Bancshares, Inc., dated as of September 10, 2013amended on February 11, 2019 (incorporated by reference to Exhibit 10.1Annex A to the Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) by Simmons First National Corporation’s Current Report on Form 8-KCorporation for September 12, 2013March 4, 2019 (File No. 000-06253)333-229378)).

Agreement and Plan of Merger, dated as of March 24, 2014,July 30, 2019, by and between Simmons First National Corporation and Delta Trust & Banking Corporation(incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on July 23, 2014 (File No. 000-06253)).

2.6Agreement and Plan of Merger, dated as of May 6, 2014, by and between Simmons First National Corporation and Community First Bancshares, Inc., as amended on September 11, 2014 (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on October 8, 2014 (File No. 000-06253)).

2.7Agreement and Plan of Merger, dated as of May 27, 2014, by and between Simmons First National Corporation and Liberty Bancshares, Inc., as amended on September 11, 2014 (incorporated by reference to Annex B to the Joint Proxy Statement/Prospectus filed by Simmons First National Corporation on October 8, 2014 (File No. 000-06253)).

2.8Agreement and Plan of Merger, dated as of April 28, 2015, by and between Simmons First National Corporation and Ozark Trust & Investment Corporation (incorporated by reference to Exhibit 10.1 to Simmons First National Corporation’s Current Report on Form 8-K for April 29, 2015 (File No. 000-06253)).

2.9Stock Purchase Agreement by and among Citizens National Bank, Citizens National Bancorp, Inc. and Simmons First National Corporation, dated as of May 18, 2016The Landrum Company (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for May 18, 2016July 30, 2019 (File No. 000-06253)).

2.10Agreement and Plan of Merger, dated as of November 17, 2016, by and between Simmons First National Corporation and Hardeman County Investment Company, Inc. (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for November 17, 2016 (File No. 000-06253)).

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

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

Amended and Restated Articles of Incorporation of Simmons First National Corporation, (incorporated by reference to Exhibit 3.1 to Simmons First National Corporation’s Quarterly Reportas amended on Form 10-Q for the Quarter ended March 31, 2009 (File No. 000-06253)).

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

3.3Certificate of Designation of Senior Non-Cumulative Perpetual Preferred Stock, Series A of Simmons First National Corporation, dated February 27, 2015October 29, 2019 (incorporated by reference to Exhibit 3.1 to Simmons First National Corporation’s Current Report on Form 8-K on February 27, 2015filed November 1, 2019 (File No. 000-06253)).

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4.1
Exhibit No.Description
As Amended By-Laws of Simmons First National Corporation (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4 (File No. 333-233559) filed by Simmons First National Corporation on August 30, 2019 (File No. 000-06253)).
4.1Instruments defining the rights of security holders, including indentures. Simmons First National Corporation hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of the Corporation and its consolidated subsidiaries to the U.S. Securities and Exchange Commission upon request. No issuance of debt exceeds ten percent of the total assets of the Corporation and its subsidiaries on a consolidated basis.

ComputationSecond Amended and Restated Simmons First National Corporation 2015 Incentive Plan, effective as of Ratios of EarningsJuly 1, 2020 (incorporated by reference to Combined Fixed Charges and Preferred Dividend.*Exhibit 10.1 to Simmons First National Corporation’s Amendment No. 1 to Current Report on Form 8-K filed April 7, 2020 (File No. 000-06253)).

Amended and Restated Simmons First National Corporation Code of Ethics dated March 22, 2017(as amended and restated on July 23, 2020) (incorporated by reference to Exhibit 14.1 to Simmons First National Corporation’s Current Report on Form 8-K filed March 22, 2017July 28, 2020 (File No. 000-06253)).

14.2Finance Group Code of Ethics, dated December 2003 (incorporated by reference to Exhibit 14 to Simmons First National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2003 (File No. 000-06253)).

Awareness Letter of BKD, LLP.*

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

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

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

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

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

Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – David W. Garner, Executive Vice President, ControllerExecutive Director of Finance and Accounting and Chief Accounting Officer.*
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. **
101.SCHInline XBRL Taxonomy Extension Schema.**
101.CALInline XBRL Taxonomy Extension Calculation Linkbase.**
101.DEFInlineXBRL Taxonomy Extension Definition Linkbase.**
101.LABInline XBRL Taxonomy Extension Labels Linkbase.**
101.PREInline XBRL Taxonomy Extension Presentation Linkbase.**
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).**

101.INS        XBRL Instance Document.**

101.SCH        XBRL Taxonomy Extension Schema.**

101.CAL        XBRL Taxonomy Extension Calculation Linkbase.**

101.DEF        XBRL Taxonomy Extension Definition Linkbase.**

101.LAB        XBRL Taxonomy Extension Labels Linkbase.**

101.PRE        XBRL Taxonomy Extension Presentation Linkbase.**

* Filed herewith

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


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SIGNATURES


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


SIMMONS FIRST NATIONAL CORPORATION

(Registrant)


Date:NovemberAugust 6, 2017                  2020/s/ George A. Makris, Jr.
George A. Makris, Jr.
Chairman and Chief Executive Officer
Date:
 Date: NovemberAugust 6, 2017                  2020/s/ Robert A. Fehlman
Robert A. Fehlman
Senior Executive Vice President,
Chief Financial Officer,
Chief Operating Officer and Treasurer
Date:
 Date:NovemberAugust 6, 2017                   2020/s/ David W. Garner
David W. Garner
Executive Vice President, ControllerExecutive Director of Finance and
Accounting and Chief Accounting Officer



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