UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
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-20210630_g1.jpgSIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas71-0407808
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
  
501 Main Street71601
Pine Bluff(Zip Code)
Arkansas
(Address of principal executive offices)
 (870) 541-1000
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 

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

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

The number of shares outstanding of the Registrant’s Common Stock as of August 3, 2020,2021, was 109,016,379.108,284,170.




Simmons First National Corporation
Quarterly Report on Form 10-Q
June 30, 20202021

Table of Contents

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





Part I:    Financial Information
Item 1.    Financial Statements (Unaudited)
Simmons First National Corporation
Consolidated Balance Sheets
June 30, 20202021 and December 31, 20192020
June 30,December 31,
(In thousands, except share data)20202019
 (Unaudited) 
ASSETS  
Cash and non-interest bearing balances due from banks$234,998  $277,208  
Interest bearing balances due from banks and federal funds sold2,310,162  719,415  
Cash and cash equivalents2,545,160  996,623  
Interest bearing balances due from banks - time4,561  4,554  
Investment securities:
Held-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)2,496,896  3,288,343  
Total investments2,548,616  3,329,270  
Mortgage loans held for sale120,034  58,102  
Other assets held for sale399  260,332  
Loans14,606,900  14,425,704  
Allowance for credit losses on loans(231,643) (68,244) 
Net loans14,375,257  14,357,460  
Premises and equipment478,896  492,384  
Premises held for sale4,576  —  
Foreclosed assets and other real estate owned14,111  19,121  
Interest receivable79,772  62,707  
Bank owned life insurance256,643  254,152  
Goodwill1,064,765  1,055,520  
Other intangible assets117,823  127,340  
Other assets293,071  241,578  
Total assets$21,903,684  $21,259,143  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing transaction accounts$4,608,098  $3,741,093  
Interest bearing transaction accounts and savings deposits8,978,045  9,090,878  
Time deposits3,029,975  3,276,969  
Total deposits16,616,118  16,108,940  
Federal funds purchased and securities sold under agreements to repurchase387,025  150,145  
Other borrowings1,393,689  1,297,599  
Subordinated debentures382,604  388,260  
Other liabilities held for sale—  159,853  
Accrued interest and other liabilities219,545  165,422  
Total liabilities18,998,981  18,270,219  
Stockholders’ equity:
Preferred stock, 40,040,000 shares authorized; Series D, $0.01 par value, $1,000 liquidation value per share; 767 shares issued and outstanding at 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, respectively1,090  1,136  
Surplus2,029,383  2,117,282  
Undivided profits819,153  848,848  
Accumulated other comprehensive income54,310  20,891  
Total stockholders’ equity2,904,703  2,988,924  
Total liabilities and stockholders’ equity$21,903,684  $21,259,143  

June 30,December 31,
(In thousands, except share data)20212020
 (Unaudited) 
ASSETS  
Cash and non-interest bearing balances due from banks$215,381 $217,499 
Interest bearing balances due from banks and federal funds sold2,123,743 3,254,653 
Cash and cash equivalents2,339,124 3,472,152 
Interest bearing balances due from banks - time1,335 1,579 
Investment securities:
Held-to-maturity, net of allowance for credit losses of $1,132 and $2,915 at June 30, 2021 and December 31, 2020, respectively931,352 333,031 
Available-for-sale, net of allowance for credit losses of $0 and $312 at June 30, 2021 and December 31, 2020, respectively (amortized cost of $6,543,022 and $3,397,043 at June 30, 2021 and December 31, 2020, respectively)6,556,581 3,473,598 
Total investments7,487,933 3,806,629 
Mortgage loans held for sale36,011 137,378 
Loans11,386,352 12,900,897 
Allowance for credit losses on loans(227,239)(238,050)
Net loans11,159,113 12,662,847 
Premises and equipment429,587 441,692 
Premises held for sale6,090 15,008 
Foreclosed assets and other real estate owned15,239 18,393 
Interest receivable67,916 72,597 
Bank owned life insurance419,198 255,630 
Goodwill1,075,305 1,075,305 
Other intangible assets103,759 111,110 
Other assets282,549 289,432 
Total assets$23,423,159 $22,359,752 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing transaction accounts$4,893,959 $4,482,091 
Interest bearing transaction accounts and savings deposits10,569,602 9,672,608 
Time deposits2,841,052 2,832,327 
Total deposits18,304,613 16,987,026 
Federal funds purchased and securities sold under agreements to repurchase187,215 299,111 
Other borrowings1,339,193 1,342,067 
Subordinated notes and debentures383,143 382,874 
Other liabilities held for sale154,620 
Accrued interest and other liabilities169,629 217,398 
Total liabilities20,383,793 19,383,096 
Stockholders’ equity:
Preferred stock, 40,040,000 shares authorized; Series D, $0.01 par value, $1,000 liquidation value per share; 767 shares issued and outstanding at June 30, 2021 and December 31, 2020767 767 
Common stock, Class A, $0.01 par value; 175,000,000 shares authorized at June 30, 2021 and December 31, 2020; 108,386,669 and 108,077,662 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively1,084 1,081 
Surplus2,021,128 2,014,076 
Undivided profits1,004,314 901,006 
Accumulated other comprehensive income12,073 59,726 
Total stockholders’ equity3,039,366 2,976,656 
Total liabilities and stockholders’ equity$23,423,159 $22,359,752 

See Condensed Notes to Consolidated Financial Statements.
3




Simmons First National Corporation
Consolidated Statements of Income
Three and Six Months Ended June 30, 20202021 and 20192020

Three Months Ended
June 30,
Six Months Ended June 30, Three Months Ended June 30,Six Months Ended
June 30,
(In thousands, except per share data)(In thousands, except per share data)2020201920202019(In thousands, except per share data)2021202020212020
(Unaudited)(Unaudited) (Unaudited)(Unaudited)
INTEREST INCOMEINTEREST INCOMEINTEREST INCOME
Loans$176,910  $178,122  $364,476  $337,562  
Loans, including feesLoans, including fees$138,804 $176,910 $285,228 $364,476 
Interest bearing balances due from banks and federal funds soldInterest bearing balances due from banks and federal funds sold603  1,121  3,044  3,275  Interest bearing balances due from banks and federal funds sold651 603 1,449 3,044 
Investment securitiesInvestment securities13,473  15,666  32,416  31,947  Investment securities27,128 13,473 48,701 32,416 
Mortgage loans held for saleMortgage loans held for sale668  332  949  542  Mortgage loans held for sale386 668 1,025 949 
TOTAL INTEREST INCOMETOTAL INTEREST INCOME191,654  195,241  400,885  373,326  TOTAL INTEREST INCOME166,969 191,654 336,403 400,885 
INTEREST EXPENSEINTEREST EXPENSEINTEREST EXPENSE
DepositsDeposits18,006  34,796  49,283  65,546  Deposits10,782 18,006 23,961 49,283 
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase337  257  1,096  393  Federal funds purchased and securities sold under agreements to repurchase192 337 437 1,096 
Other borrowingsOther borrowings4,963  6,219  9,840  13,012  Other borrowings4,897 4,963 9,699 9,840 
Subordinated notes and debenturesSubordinated notes and debentures4,667  4,541  9,502  8,952  Subordinated notes and debentures4,565 4,667 9,092 9,502 
TOTAL INTEREST EXPENSETOTAL INTEREST EXPENSE27,973  45,813  69,721  87,903  TOTAL INTEREST EXPENSE20,436 27,973 43,189 69,721 
NET INTEREST INCOMENET INTEREST INCOME163,681  149,428  331,164  285,423  NET INTEREST INCOME146,533 163,681 293,214 331,164 
Provision for credit lossesProvision for credit losses26,915  7,079  53,049  16,364  Provision for credit losses(12,951)21,915 (11,506)45,049 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSESNET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES136,766  142,349  278,115  269,059  NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES159,484 141,766 304,720 286,115 
NON-INTEREST INCOMENON-INTEREST INCOMENON-INTEREST INCOME
Trust incomeTrust income7,253  5,794  14,404  11,502  Trust income7,238 7,253 13,904 14,404 
Service charges on deposit accountsService charges on deposit accounts8,570  10,557  21,898  20,625  Service charges on deposit accounts10,050 8,570 19,765 21,898 
Other service charges and feesOther service charges and fees1,489  1,312  3,077  2,601  Other service charges and fees2,048 1,489 3,970 3,077 
Mortgage lending incomeMortgage lending income12,459  3,656  17,505  6,479  Mortgage lending income4,490 12,459 10,937 17,505 
SBA lending incomeSBA lending income245  895  541  1,392  SBA lending income287 245 527 541 
Investment banking incomeInvestment banking income571  360  1,448  978  Investment banking income654 571 1,349 1,448 
Debit and credit card feesDebit and credit card fees7,996  7,212  15,910  13,310  Debit and credit card fees7,882 6,575 15,283 13,140 
Bank owned life insurance incomeBank owned life insurance income1,445  1,260  2,743  2,055  Bank owned life insurance income2,038 1,445 3,561 2,743 
Gain on sale of securities, netGain on sale of securities, net390  2,823  32,485  5,563  Gain on sale of securities, net5,127 390 10,598 32,485 
Other incomeOther income9,809  6,065  22,610  10,221  Other income8,110 9,809 18,370 22,610 
TOTAL NON-INTEREST INCOMETOTAL NON-INTEREST INCOME50,227  39,934  132,621  74,726  TOTAL NON-INTEREST INCOME47,924 48,806 98,264 129,851 
NON-INTEREST EXPENSENON-INTEREST EXPENSENON-INTEREST EXPENSE
Salaries and employee benefitsSalaries and employee benefits57,644  56,128  125,568  112,495  Salaries and employee benefits60,261 57,644 120,601 125,568 
Occupancy expense, netOccupancy expense, net9,217  6,919  18,727  14,394  Occupancy expense, net9,103 9,217 18,403 18,727 
Furniture and equipment expenseFurniture and equipment expense6,144  4,206  11,867  7,564  Furniture and equipment expense4,859 6,144 10,274 11,867 
Other real estate and foreclosure expenseOther real estate and foreclosure expense274  591  599  1,228  Other real estate and foreclosure expense863 274 1,206 599 
Deposit insuranceDeposit insurance2,838  2,510  5,313  4,550  Deposit insurance1,687 2,838 2,995 5,313 
Merger related costsMerger related costs1,830  7,522  2,898  8,992  Merger related costs686 1,830 919 2,898 
Other operating expensesOther operating expenses34,651  32,867  73,439  62,929  Other operating expenses38,007 38,230 74,861 78,669 
TOTAL NON-INTEREST EXPENSETOTAL NON-INTEREST EXPENSE112,598  110,743  238,411  212,152  TOTAL NON-INTEREST EXPENSE115,466 116,177 229,259 243,641 
INCOME BEFORE INCOME TAXESINCOME BEFORE INCOME TAXES74,395  71,540  172,325  131,633  INCOME BEFORE INCOME TAXES91,942 74,395 173,725 172,325 
Provision for income taxesProvision for income taxes15,593  15,616  36,287  28,014  Provision for income taxes17,018 15,593 31,381 36,287 
NET INCOMENET INCOME58,802  55,924  136,038  103,619  NET INCOME74,924 58,802 142,344 136,038 
Preferred stock dividendsPreferred stock dividends13  326  26  326  Preferred stock dividends13 13 26 26 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERSNET INCOME AVAILABLE TO COMMON STOCKHOLDERS$58,789  $55,598  $136,012  $103,293  NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$74,911 $58,789 $142,318 $136,012 
BASIC EARNINGS PER SHAREBASIC EARNINGS PER SHARE$0.54  $0.58  $1.23  $1.10  BASIC EARNINGS PER SHARE$0.69 $0.54 $1.31 $1.23 
DILUTED EARNINGS PER SHAREDILUTED EARNINGS PER SHARE$0.54  $0.58  $1.22  $1.09  DILUTED EARNINGS PER SHARE$0.69 $0.54 $1.31 $1.22 
See Condensed Notes to Consolidated Financial Statements.
4




Simmons First National Corporation
Consolidated Statements of Comprehensive Income (Loss)
Three and Six Months Ended June 30, 20202021 and 20192020

 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  

 Three Months Ended
June 30,
Six Months Ended June 30,
(In thousands)2021202020212020
 (Unaudited)(Unaudited)
NET INCOME$74,924 $58,802 $142,344 $136,038 
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) arising during the period on available-for-sale securities71,801 22,159 (53,916)77,728 
Less: Reclassification adjustment for realized gains included in net income5,127 390 10,598 32,485 
Other comprehensive income (loss), before tax effect66,674 21,769 (64,514)45,243 
Less: Tax effect of other comprehensive income (loss)17,425 5,689 (16,861)11,824 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)49,249 16,080 (47,653)33,419 
COMPREHENSIVE INCOME$124,173 $74,882 $94,691 $169,457 

See Condensed Notes to Consolidated Financial Statements.
5




Simmons First National Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 20202021 and 20192020
(In thousands)(In thousands)June 30, 2020June 30, 2019(In thousands)June 30, 2021June 30, 2020
(Unaudited) (Unaudited)
OPERATING ACTIVITIESOPERATING ACTIVITIES  OPERATING ACTIVITIES  
Net incomeNet income$136,038  $103,619  Net income$142,344 $136,038 
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:Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortizationDepreciation and amortization24,148  16,019  Depreciation and amortization23,837 24,148 
Provision for credit lossesProvision for credit losses53,049  16,364  Provision for credit losses(11,506)45,049 
(Benefit) provision for credit losses on unfunded commitments(8,000) 950  
Gain on sale of investmentsGain on sale of investments(32,485) (5,563) Gain on sale of investments(10,598)(32,485)
Net accretion of investment securities and assetsNet accretion of investment securities and assets(30,078) (22,663) Net accretion of investment securities and assets(24,377)(30,078)
Net amortization on borrowingsNet amortization on borrowings271  182  Net amortization on borrowings269 271 
Stock-based compensation expenseStock-based compensation expense7,577  6,249  Stock-based compensation expense7,592 7,577 
Gain on sale of premises held for saleGain on sale of premises held for sale(606)
Gain on sale of foreclosed assets held for saleGain on sale of foreclosed assets held for sale(400) (16) Gain on sale of foreclosed assets held for sale(177)(400)
Gain on sale of mortgage loans held for saleGain on sale of mortgage loans held for sale(14,993) (8,257) Gain on sale of mortgage loans held for sale(20,006)(14,993)
Gain on sale of other intangiblesGain on sale of other intangibles(301) —  Gain on sale of other intangibles(301)
Gain on sale of branches(8,094) —  
Gain on sale of banking operationsGain on sale of banking operations(5,300)(8,094)
Fair value write-down of closed branchesFair value write-down of closed branches1,465  —  Fair value write-down of closed branches1,465 
Deferred income taxesDeferred income taxes4,616  4,940  Deferred income taxes6,315 4,616 
Income from bank owned life insuranceIncome from bank owned life insurance(3,245) (2,136) Income from bank owned life insurance(3,630)(3,245)
Originations of mortgage loans held for saleOriginations of mortgage loans held for sale(470,797) (282,204) Originations of mortgage loans held for sale(534,124)(470,797)
Proceeds from sale of mortgage loans held for saleProceeds from sale of mortgage loans held for sale423,858  282,861  Proceeds from sale of mortgage loans held for sale655,497 423,858 
Changes in assets and liabilities:Changes in assets and liabilities:Changes in assets and liabilities:
Interest receivableInterest receivable(18,021) (1,494) Interest receivable4,680 (18,021)
Lease right-of-use assets5,995  (2,469) 
Other assetsOther assets(19,676) 18,911  Other assets(2,402)(19,676)
Accrued interest and other liabilitiesAccrued interest and other liabilities70,270  (5,326) Accrued interest and other liabilities(58,284)76,265 
Income taxes payableIncome taxes payable(34,233) 2,553  Income taxes payable6,786 (34,233)
Net cash provided by operating activitiesNet cash provided by operating activities86,964  122,520  Net cash provided by operating activities176,310 86,964 
INVESTING ACTIVITIESINVESTING ACTIVITIESINVESTING ACTIVITIES
Net originations of loans(318,795) (302,151) 
Net change in loansNet change in loans1,520,504 (318,795)
Proceeds from sale of loansProceeds from sale of loans4,600  —  Proceeds from sale of loans1,847 4,600 
(Increase) decrease in due from banks - time(7) 395  
Net change in due from banks - timeNet change in due from banks - time244 (7)
Purchases of premises and equipment, netPurchases of premises and equipment, net(19,784) (21,689) Purchases of premises and equipment, net(5,829)(19,784)
Proceeds from sale of premises held for saleProceeds from sale of premises held for sale5,156 
Proceeds from sale of foreclosed assets held for saleProceeds from sale of foreclosed assets held for sale6,173  9,870  Proceeds from sale of foreclosed assets held for sale10,988 6,173 
Proceeds from sale of available-for-sale securitiesProceeds from sale of available-for-sale securities1,201,778  449,107  Proceeds from sale of available-for-sale securities249,454 1,201,778 
Proceeds from maturities of available-for-sale securitiesProceeds from maturities of available-for-sale securities2,048,453  296,409  Proceeds from maturities of available-for-sale securities314,547 2,048,453 
Purchases of available-for-sale securitiesPurchases of available-for-sale securities(2,386,878) (383,416) Purchases of available-for-sale securities(3,672,029)(2,386,878)
Proceeds from maturities of held-to-maturity securitiesProceeds from maturities of held-to-maturity securities5,932  25,406  Proceeds from maturities of held-to-maturity securities9,479 5,932 
Purchases of held-to-maturity securitiesPurchases of held-to-maturity securities(16,997) —  Purchases of held-to-maturity securities(606,187)(16,997)
Purchase of bank owned life insurancePurchase of bank owned life insurance(160,000)
Proceeds from bank owned life insurance death benefitsProceeds from bank owned life insurance death benefits763  1,310  Proceeds from bank owned life insurance death benefits3,032 763 
Disposition of assets and liabilities held for saleDisposition of assets and liabilities held for sale181,261  1,393  Disposition of assets and liabilities held for sale(134,166)181,261 
Purchase of Reliance Bancshares, Inc.—  (37,017) 
Net cash provided by investing activities706,499  39,617  
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(2,462,960)706,499 
FINANCING ACTIVITIESFINANCING ACTIVITIESFINANCING ACTIVITIES
Net change in depositsNet change in deposits561,185  (107,806) Net change in deposits1,307,965 561,185 
Repayments of subordinated debenturesRepayments of subordinated debentures(5,927) —  Repayments of subordinated debentures(5,927)
Dividends paid on preferred stockDividends paid on preferred stock(26) (326) Dividends paid on preferred stock(26)(26)
Dividends paid on common stockDividends paid on common stock(37,606) (30,265) Dividends paid on common stock(39,010)(37,606)
Net change in other borrowed fundsNet change in other borrowed funds96,090  (178,756) Net change in other borrowed funds(2,874)96,090 
Net change in federal funds purchased and securities sold under agreements to repurchaseNet change in federal funds purchased and securities sold under agreements to repurchase236,880  20,532  Net change in federal funds purchased and securities sold under agreements to repurchase(111,896)236,880 
Net shares cancelled under stock compensation plans(3,171) (3,030) 
Net shares issued (cancelled) under stock compensation plansNet shares issued (cancelled) under stock compensation plans1,373 (3,171)
Shares issued under employee stock purchase planShares issued under employee stock purchase plan956  1,312  Shares issued under employee stock purchase plan1,170 956 
Retirement of preferred stock—  (42,000) 
Repurchases of common stockRepurchases of common stock(93,307) —  Repurchases of common stock(3,080)(93,307)
Net cash provided by (used in) financing activities755,074  (340,339) 
Net cash provided by financing activitiesNet cash provided by financing activities1,153,622 755,074 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS1,548,537  (178,202) 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(1,133,028)1,548,537 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIODCASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD996,623  833,458  CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,472,152 996,623 
CASH AND CASH EQUIVALENTS, END OF PERIODCASH AND CASH EQUIVALENTS, END OF PERIOD$2,545,160  $655,256  CASH AND CASH EQUIVALENTS, END OF PERIOD$2,339,124 $2,545,160 
See Condensed Notes to Consolidated Financial Statements.
6




Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Three Months Ended June 30, 2020 2021and 2019

2020

(In thousands, except share data)(In thousands, except share data)Preferred StockCommon StockSurplusAccumulated Other Comprehensive Income (Loss)Undivided ProfitsTotal(In thousands, except share data)Preferred StockCommon
Stock
SurplusAccumulated
Other
Comprehensive
(Loss) Income
Undivided
Profits
Total
Three Months Ended June 30, 2021Three Months Ended June 30, 2021
Balance, March 31, 2021 (Unaudited)Balance, March 31, 2021 (Unaudited)$767 $1,083 $2,017,188 $(37,176)$948,913 $2,930,775 
Comprehensive incomeComprehensive income— — — 49,249 74,924 124,173 
Stock-based compensation plans, net – 40,937 sharesStock-based compensation plans, net – 40,937 shares— 3,940 — — 3,941 
Dividends on preferred stockDividends on preferred stock— — — — (13)(13)
Dividends on common stock – $0.18 per shareDividends on common stock – $0.18 per share— — — — (19,510)(19,510)
Balance, June 30, 2021 (Unaudited)Balance, June 30, 2021 (Unaudited)$767 $1,084 $2,021,128 $12,073 $1,004,314 $3,039,366 
Three Months Ended June 30, 2020Three Months Ended June 30, 2020Three Months Ended June 30, 2020
Balance, March 31, 2020 (Unaudited)Balance, March 31, 2020 (Unaudited)$767  $1,090  $2,026,420  $38,230  $778,893  $2,845,400  Balance, March 31, 2020 (Unaudited)$767 $1,090 $2,026,420 $38,230 $778,893 $2,845,400 
Comprehensive incomeComprehensive income—  —  —  16,080  58,802  74,882  Comprehensive income— — — 16,080 58,802 74,882 
Stock-based compensation plans, net – 28,058 sharesStock-based compensation plans, net – 28,058 shares—  —  2,963  —  —  2,963  Stock-based compensation plans, net – 28,058 shares— — 2,963 — — 2,963 
Dividends on preferred stockDividends on preferred stock—  —  —  —  (13) (13) Dividends on preferred stock— — — — (13)(13)
Dividends on common stock – $0.17 per shareDividends on common stock – $0.17 per share—  —  —  —  (18,529) (18,529) Dividends on common stock – $0.17 per share— — ��� — (18,529)(18,529)
Balance, June 30, 2020 (Unaudited)Balance, June 30, 2020 (Unaudited)$767  $1,090  $2,029,383  $54,310  $819,153  $2,904,703  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, 20202021 and 20192020
(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—   955  —  —  956  
Stock-based compensation plans, net – 244,443 shares—   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—   1,311  —  —  1,312  
Stock-based compensation plans, net – 182,977 shares—   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  


(In thousands, except share data)Preferred StockCommon
Stock
SurplusAccumulated
Other
Comprehensive
(Loss) Income
Undivided
Profits
Total
Six Months Ended June 30, 2021
Balance, December 31, 2020$767 $1,081 $2,014,076 $59,726 $901,006 $2,976,656 
Comprehensive (loss) income— — — (47,653)142,344 94,691 
Stock issued for employee stock purchase plan – 60,697 shares— 1,169 — — 1,170 
Stock-based compensation plans, net – 379,226 shares— 8,962 — — 8,965 
Stock repurchases – 130,916 shares— (1)(3,079)— — (3,080)
Dividends on preferred stock— — — — (26)(26)
Dividends on common stock – $0.36 per share— — — — (39,010)(39,010)
Balance, June 30, 2021 (Unaudited)$767 $1,084 $2,021,128 $12,073 $1,004,314 $3,039,366 
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— 955 — — 956 
Stock-based compensation plans, net – 244,443 shares— 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 



See Condensed Notes to Consolidated Financial Statements.
8




SIMMONS FIRST NATIONAL CORPORATION
 
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)
 
NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS

Description of Business and Organizational Structure
 
Simmons First National Corporation (“Company”) is a Mid-South 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 1903.1903 (“Simmons Bank” or the “Bank”). 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 226198 financial centers as of June 30, 2021, located throughout market areas in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.
 
Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2019,2020, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, which was filed with the SEC on February 27, 2020.25, 2021.
 
The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (“US GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates. Such estimates include, but are not limited to, the Company’s allowance for credit losses.

CertainMaterial estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of acquired loans. Management obtains independent appraisals for significant properties in connection with the determination of the allowance for credit losses and the valuation of foreclosed assets.
During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. These transaction fees, as well as additional certain prior year amounts, have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.

Recently Adopted Accounting Standards

Fair Value Measurement DisclosuresReference Rate Reform – In August 2018,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), that eliminates, amends and adds disclosure requirements for fair value measurements. These amendments are part of FASB’s disclosure review project and they are expected to reduce costs for preparers while providing more decision-useful information for financial statement users. The eliminated disclosure requirements include the 1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy of timing of transfers between levels of the fair value hierarchy; and 3) the valuation processes for Level 3 fair value measurements. Among other modifications, the amended disclosure requirements remove the term “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Under the new disclosure requirements, entities must disclose the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is
9




effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. ASU 2018-13 did not have a material impact on the Company’s fair value disclosures.

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

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

The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In preparation for implementation of ASU 2016-13, the Company formed a cross functional team that assessed its data and system needs and evaluated the potential impact of adopting the new guidance. The Company anticipated a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the 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 registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company has not elected to temporarily defer the adoption of ASU 2016-13 and adopted the new standard as of January 1, 2020. Upon adoption, the Company recorded an additional allowance for credit losses on loans of approximately $151.4 million and an adjustment to the reserve for unfunded commitments recorded in other liabilities of $24.0 million. The Company also recorded an additional allowance for credit losses on investment securities of $742,000. The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $128.1 million.

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

In December 2018, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “agencies”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13 that 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 date of adoption.

Collateral Dependent Loans - Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to 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 amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

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

11




Recently Issued Accounting Standards

Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. AfterOn March 5, 2021, banksthe U.K. Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates will no longer be requiredpublished after December 31, 2021, although a number of key settings will continue until June
9




2023, to report information that is used to determine LIBOR.support the rundown of legacy contracts only. As a result, LIBOR couldshould be discontinued.discontinued as a reference rate. 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,The Company formed a LIBOR Transition Team in 2020, has created standard LIBOR replacement language for new and modified loan notes, and is monitoring the remaining loans with LIBOR rates monthly to ensure progress in updating these loans with acceptable LIBOR replacement language or converting them to other interest rates. The Company has not been offering LIBOR-indexed rates originated by other banks, subject to the Company’s determination that the LIBOR replacement language in the loan documents meets the Company’s standards. Pursuant to the Interagency Statement on LIBOR Transition issued in November 2020, the Company will not enter into any new LIBOR-based credit agreements after December 31, 2021. The adoption of ASU 2020-04 has not made anyhad a material impact on the Company’s financial position or results of operations.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in Accounting Standard Codification (“ASC”) 848 for contract modifications and hedge accounting apply to hedgesderivatives that are affected by the changes in the interest rates used for margining, discounting, or othercontract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference an interest rate that is expectedrates (commonly referred to as the “discounting transition”). ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be discontinued.applied through December 31, 2022. ASU 2021-01 did not have a material impact on the Company’s financial position or results of operations.

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

Fair Value Measurement Disclosures – In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), that eliminates, amends and adds disclosure requirements for fair value measurements. These amendments are part of FASB’s disclosure review project and are expected to reduce costs for preparers while providing more decision-useful information for financial statement users. The eliminated disclosure requirements include the 1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy of timing of transfers between levels of the fair value hierarchy; and 3) the valuation processes for Level 3 fair value measurements. Among other modifications, the amended disclosure requirements remove the term “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Under the new disclosure requirements, entities must disclose the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2018-13 did not have a material impact on the Company’s fair value disclosures.


10




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 replaced the incurred loss impairment methodology in 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 replaced the multiple existing impairment methods in previous guidance, which generally required 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 previous 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 was for fiscal years beginning after December 15, 2019. In preparation for implementation of ASU 2016-13, the Company formed a cross functional team that assessed its data and system needs and evaluated the potential impact of adopting the new guidance. The Company anticipated a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the 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 (“President”) and allows the option to temporarily defer or suspend the adoption of ASU 2016-13. During the deferral, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company did not elect 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 of a similar size.

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.

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 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 date of adoption.
11




Recently Issued Accounting Standards

Leases - In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments (“ASU 2021-05”), that amends lease classification requirements for lessors. In accordance with ASU 2021-05, lessors should classify and account for a lease that have variable lease payments that do not depend on a reference index rate as an operating lease if both of the following criteria are met: i) the lease would have been classified as a sales-type lease or a direct financing lease under the previous lease classification criteria and ii) sales-type or direct financing lease classification would result in a Day 1 loss. ASU 2021-05 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating all of the amendments in ASU 2019-12 and has not yet determined the impact of this new standard.standard, but the standard is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

There have been no other significant changes to the Company’s accounting policies from the 20192020 Form 10-K. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on its present or future financial position or results of operations.

NOTE 2: PROPOSED ACQUISITIONS

The Landrum CompanyLandmark Community Bank

On October 31, 2019,June 4, 2021, the Company completed its mergerand the Bank entered into an Agreement and Plan of Merger (“Landmark Agreement”) with The Landrum CompanyLandmark Community Bank (“Landrum”Landmark”), headquartered in Collierville, Tennessee, pursuant to which, upon the terms and subject to the conditions of the Landmark Agreement, Landmark will merge with and into the Bank, with the Bank continuing as the surviving entity. According to the terms of the Landmark Agreement, upon consummation of the merger, holders of Landmark’s common stock and common stock equivalents will receive, in the aggregate, 4,500,000 shares of the Company’s common stock and $7,000,000, all subject to certain conditions and potential adjustments under the Landmark agreement.

Landmark conducts banking business from 8 branches located in the Memphis and Nashville, Tennessee, metropolitan areas. As of June 30, 2021, Landmark had approximately $986.7 million in assets, $783.1 million in loans and $823.1 million in deposits. Completion of the Landmark transaction is expected during the fourth quarter of 2021 and is subject to certain closing conditions, including approval by the shareholders of Landmark and customary regulatory approvals.

Triumph Bancshares, Inc.

On June 4, 2021, the Company entered into an Agreement and Plan of Merger dated as(“Triumph Agreement”) with Triumph Bancshares, Inc. (“Triumph”), the parent company of July 30, 2019 (“Landrum Agreement”), atTriumph Bank, headquartered in Memphis, Tennessee, pursuant to which, time Landrum was mergedupon the terms and subject to the conditions of the Triumph Agreement, Triumph will merge with and into the Company, with the Company continuing as the surviving corporation. PursuantAccording to the terms of the LandrumTriumph Agreement, upon consummation of the sharesmerger, holders of Landrum Class A Common Voting Stock, par value $0.01 per share,Triumph’s common stock and Landrum Class B Common Nonvoting Stock, par value $0.01 per share, were converted into the right tocommon stock equivalents will receive, in the aggregate, approximately 17,350,0004,164,839 shares of the Company’s common stock and each share of Landrum’s series E preferred stock was converted into$2,645,937.83, all subject to certain conditions and potential adjustments under the right to receive 1 share of the Company’s comparable series D preferred stock. The Company issued 17,349,722 shares of its common stock and 767 shares of its series D preferred stock, par value $0.01 per share, in exchange for all outstanding shares of Landrum capital stock to effect the merger.Triumph Agreement.

Prior to the acquisition, Landrum, headquartered in Columbia, Missouri, conductedTriumph conducts banking business through its subsidiary bank, Landmark Bank, from 396 branches located in Missouri, Oklahomathe Memphis and Texas. Including the effectsNashville, Tennessee, metropolitan areas. As of June 30, 2021, Triumph had approximately $886.7 million in assets, $715.8 million in loans and $712.8 million in deposits. Completion of the acquisition method accounting adjustments,Triumph transaction is expected during the Company acquired approximately $3.4 billion in assets,fourth quarter of 2021 and is subject to certain closing conditions, including approximately $2.0 billion in loans (inclusiveapproval by the shareholders of loan discounts),Triumph and approximately $3.0 billion in deposits. The systems conversion occurred on February 14, 2020, at which time Landmark Bank merged into Simmons Bank, with Simmons Bank as the surviving institution.

Goodwill of $140.6 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.customary regulatory approvals.

12




A summary, at fair value, of the assets acquired and liabilities assumed in the Landrum acquisition, as of the acquisition date, is as follows:
(In thousands)Acquired from LandrumFair Value AdjustmentsFair Value
Assets Acquired
Cash and due from banks$215,285  $—  $215,285  
Due from banks - time248  —  248  
Investment securities1,021,755  4,228  1,025,983  
Loans acquired2,049,137  (43,651) 2,005,486  
Allowance for loan losses(22,736) 22,736  —  
Foreclosed assets373  (183) 190  
Premises and equipment63,878  18,867  82,745  
Bank owned life insurance19,206  —  19,206  
Goodwill407  (407) —  
Core deposit intangible—  24,345  24,345  
Other intangibles412  4,704  5,116  
Other assets33,924  (13,290) 20,634  
Total assets acquired$3,381,889  $17,349  $3,399,238  
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts$716,675  $—  $716,675  
Interest bearing transaction accounts and savings deposits1,465,429  —  1,465,429  
Time deposits867,197  299  867,496  
Total deposits3,049,301  299  3,049,600  
Other borrowings10,055  —  10,055  
Subordinated debentures34,794  (877) 33,917  
Accrued interest and other liabilities31,057  (586) 30,471  
Total liabilities assumed3,125,207  (1,164) 3,124,043  
Equity256,682  (256,682) —  
Total equity assumed256,682  (256,682) —  
Total liabilities and equity assumed$3,381,889  $(257,846) $3,124,043  
Net assets acquired275,195  
Purchase price415,779  
Goodwill$140,584  

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

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

13




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

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

Goodwill of $78.5 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s St. Louis metropolitan area footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Reliance acquisition, as of the acquisition date, is as follows:
(In thousands)Acquired from RelianceFair Value AdjustmentsFair Value
Assets Acquired
Cash and due from banks$25,693  $—  $25,693  
Due from banks - time502  —  502  
Investment securities287,983  (1,873) 286,110  
Loans acquired1,138,527  (41,657) 1,096,870  
Allowance for loan losses(10,808) 10,808  —  
Foreclosed assets11,092  (5,180) 5,912  
Premises and equipment32,452  (3,001) 29,451  
Bank owned life insurance39,348  —  39,348  
Core deposit 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 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities.

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

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the acquisitions above.
Cash and due from banks and time deposits due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.
Loans acquired – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Foreclosed assets – These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.
Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.
Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.
Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill. Goodwill established prior to the acquisitions, if applicable, was written off.
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. Any core deposit intangible established prior to the acquisitions, if applicable, was written off.
Other intangibles – These intangible assets represent the value of the relationship that Landrum had with their trust and wealth management customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Intangible assets for Landrum also included mortgage servicing rights. Other intangibles established prior to the acquisitions, if applicable, were written off.
Other assets – The fair value adjustment results from certain assets whose value was estimated to be more or less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.
Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference 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.
Other borrowings – The fair value of 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.
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. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value.

NOTE 3: INVESTMENT SECURITIES

Held-to-maturity securities (“HTM”), which include any security for which the Company has both 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 effective yield method over the periodsecurity’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to maturity.their earliest call date.

Available-for-sale securities (“AFS”), 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 effective yield method over the periodestimated life of the security. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to maturity.their earliest call date.

The amortized cost, fair value and allowance for credit losses of investment securities that are classified as HTM are as follows:
(In thousands)Amortized CostAllowance
for Credit Losses
Net Carrying AmountGross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
Held-to-Maturity   
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  
16




(In thousands)Amortized CostAllowance
for Credit Losses
Net Carrying AmountGross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
Held-to-maturity   
June 30, 2021
U.S. Government agencies$77,396 $$77,396 $$(2,054)$75,342 
Mortgage-backed securities60,649 60,649 474 (729)60,394 
State and political subdivisions794,178 (871)793,307 8,118 (2,523)798,902 
Other securities261 (261)958 958 
Total HTM$932,484 $(1,132)$931,352 $9,550 $(5,306)$935,596 
December 31, 2020
Mortgage-backed securities$22,354 $$22,354 $683 $$23,037 
State and political subdivisions312,416 (2,307)310,109 8,148 (30)318,227 
Other securities1,176 (608)568 93 661 
Total HTM$335,946 $(2,915)$333,031 $8,924 $(30)$341,925 
(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  

Mortgage-backed securities (“MBS”) are commercial MBS, secured by commercial properties, and residential MBS, generally secured by single-family residential properties. As of June 30, 2021, HTM MBS consists of $6.1 million and $54.5 million of commercial MBS and residential MBS, respectively. As of December 31, 2020, HTM MBS consists of $7.7 million and $14.7 million of commercial MBS and residential MBS, respectively.

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

(In thousands)(In thousands)Amortized
Cost
Allowance for Credit LossesGross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
(In thousands)Amortized
Cost
Allowance
for Credit Losses
Gross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
Available-for-saleAvailable-for-saleAvailable-for-sale
June 30, 2020
June 30, 2021June 30, 2021
U.S. TreasuryU.S. Treasury$600 $$$$600 
U.S. Government agenciesU.S. Government agencies$210,496  $—  $1,416  $(991) $210,921  U.S. Government agencies567,722 720 (13,505)554,937 
Mortgage-backed securitiesMortgage-backed securities1,125,484  —  28,804  (202) 1,154,086  Mortgage-backed securities3,996,823 13,405 (23,019)3,987,209 
State and political subdivisionsState and political subdivisions1,015,625  (371) 39,510  (696) 1,054,068  State and political subdivisions1,526,833 36,945 (6,281)1,557,497 
Other securitiesOther securities76,943  (238) 1,354  (238) 77,821  Other securities451,044 8,291 (2,997)456,338 
Total AFSTotal AFS$2,428,548  $(609) $71,084  $(2,127) $2,496,896  Total AFS$6,543,022 $$59,361 $(45,802)$6,556,581 
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  
13




(In thousands)Amortized
Cost
Allowance
for Credit Losses
Gross Unrealized
Gains
Gross Unrealized
(Losses)
Estimated Fair
Value
December 31, 2020
U.S. Government agencies$477,693 $$844 $(1,300)$477,237 
Mortgage-backed securities1,374,769 21,261 (1,094)1,394,936 
State and political subdivisions1,416,136 (217)55,111 (307)1,470,723 
Other securities128,445 (95)2,447 (95)130,702 
Total AFS$3,397,043 $(312)$79,663 $(2,796)$3,473,598 

As of June 30, 2021, AFS MBS consists of $1.34 billion and $2.65 billion of commercial MBS and residential MBS, respectively. As of December 31, 2020, AFS MBS consists of $406.1 million and $988.8 million of commercial MBS and residential MBS, respectively.

Accrued interest receivable on HTM and AFS securities at June 30, 20202021 was $247,000$4.2 million and $12.7$21.8 million, respectively, and is included in interest receivable on the consolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities from the estimate of credit losses.

The following table summarizes the Company’s AFS investments in an unrealized loss position for which an allowance for credit loss has not been recorded as of June 30, 2020,2021, 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 Less Than 12 Months12 Months or MoreTotal
(In thousands)(In thousands)Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
(In thousands)Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Available-for-saleAvailable-for-saleAvailable-for-sale
U.S. Government agenciesU.S. Government agencies$3,209  $(3) $56,007  $(988) $59,216  $(991) U.S. Government agencies$429,402 $(13,091)$35,862 $(414)$465,264 $(13,505)
Mortgage-backed securitiesMortgage-backed securities47,380  (161) 4,266  (41) 51,646  (202) Mortgage-backed securities2,196,453 (23,016)290 (3)2,196,743 (23,019)
State and political subdivisionsState and political subdivisions30,468  (324) 388  (1) 30,856  (325) State and political subdivisions377,432 (6,196)2,485 (85)379,917 (6,281)
Other securitiesOther securities142,041 (2,997)142,041 (2,997)
Total AFSTotal AFS$81,057  $(488) $60,661  $(1,030) $141,718  $(1,518) Total AFS$3,145,328 $(45,300)$38,637 $(502)$3,183,965 $(45,802)
 
17




As of June 30, 2020,2021, the Company’sCompany���s investment portfolio included $2.5$6.6 billion of AFS securities, of which $141.7 million,$3.2 billion, or 5.7%48.6%, were in an unrealized loss position that arewere not deemed to have credit losses. A portion of the unrealized losses were related to the Company’s mortgage-backed securities,MBS, which are issued and guaranteed by U.S. government-sponsored entities and agencies, and the Company’s state and political subdivision securities, specifically investments in insured fixed rate municipal bonds meaningfor which the issuers continue to make timely principal and interest payments under the contractual terms of the securities.

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

Allowance for Credit Losses

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

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, and (v) whether or not such securities provide insurance or other credit enhancement or are pre-refunded by the issuers.
14




The following table details activity in the allowance for credit losses by investment security type for the three and six months ended June 30, 2021 on the Company’s HTM and AFS securities portfolios.

(In thousands)State and Political SubdivisionsOther
Securities
Total
Three Months Ended June 30, 2021
Held-to-maturity
Beginning balance, April 1, 2021$1,042 $576 $1,618 
Provision for credit loss expense(171)(315)(486)
Ending balance, June 30, 2021$871 $261 $1,132 
Available-for-sale
Beginning balance, April 1, 2021$64 $2,390 $2,454 
Net decrease in allowance on previously impaired securities(64)(2,390)(2,454)
Ending balance, June 30, 2021$$$
Six Months Ended June 30, 2021
Held-to-maturity
Beginning balance, January 1, 2021$2,307 $608 $2,915 
Provision for credit loss expense(1,436)253 (1,183)
Securities charged-off(600)(600)
Ending balance, June 30, 2021$871 $261 $1,132 
Available-for-sale
Beginning balance, January 1, 2021$217 $95 $312 
Reduction due to sales(11)(11)
Net decrease in allowance on previously impaired securities(217)(84)(301)
Ending balance, June 30, 2021$$$

Activity in the allowance 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 held.
(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  
portfolio was as follows:

(In thousands)State and Political SubdivisionsOther
Securities
Total
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 decrease in allowance on previously impaired securities(94)(96)(190)
Ending balance, June 30, 2020$371 $238 $609 
18
15




(In thousands)State and Political SubdivisionsOther
Securities
Total
Six Months Ended June 30, 2020
Held-to-maturity
Beginning balance, January 1, 2020$$$
Impact of ASU 2016-13 adoption58 311 369 
Provision for credit loss expense37 (99)(62)
Ending balance, June 30, 2020$95 $212 $307 
Available-for-sale
Beginning balance, January 1, 2020$$$
Impact of ASU 2016-13 adoption373 373 
Credit losses on securities not previously recorded77 192 269 
Reduction due to sales(142)(142)
Net increase in allowance on previously impaired securities63 46 109 
Ending balance, June 30, 2020$371 $238 $609 

Based upon the Company’s analysis of the underlying risk characteristics of its AFS portfolio, including credit ratings and other qualitative factors, as previously discussed, the provision for credit losses related to AFS securities was reduced by $2,454,000 and $312,000 during the three and six months ended June 30, 2021, respectively. During the three and six months ended June 30, 2020, the provision for credit losses was $340,000 and $236,000, respectively, related to AFS securities.

The following table summarizes bond ratings for the Company’s HTM portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of June 30, 2020:2021:

State and Political SubdivisionsState and Political Subdivisions
(In thousands)(In thousands)Not Guaranteed or Pre-RefundedOther Credit Enhancement or InsurancePre-RefundedTotalOther Securities(In thousands)Not Guaranteed or Pre-RefundedOther Credit Enhancement or InsurancePre-RefundedTotalOther Securities
Aaa/AAAAaa/AAA$2,112  $—  $—  $2,112  $—  Aaa/AAA$63,864 $57,797 $$121,661 $
Aa/AAAa/AA11,512  5,922  —  17,434  —  Aa/AA308,600 130,664 439,264 
AA961  1,147  —  2,108  —  A31,365 9,970 41,335 
Not RatedNot Rated2,849  369  —  3,218  1,175  Not Rated185,598 6,320 191,918 261 
TotalTotal$17,434  $7,438  $—  $24,872  $1,175  Total$589,427 $204,751 $$794,178 $261 

Historical loss rates associated with securities having similar grades as those in the Company’s portfolio have generally not been significant. Pre-refunded securities, if any, have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Securities with other credit enhancement or insurance continue to make timely principal and interest payments under the contractual terms of the securities. Accordingly, no allowance for credit losses has been recorded for these securities as there is no current expectation of credit losses related to these securities.


16




Income earned on securities for the three and six months ended June 30, 20202021 and 2019,2020, is as follows:

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  

Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)2021202020212020
Taxable:  
Held-to-maturity$837 $288 $1,350 $459 
Available-for-sale13,757 7,086 23,364 19,667 
Non-taxable:
Held-to-maturity3,030 68 5,034 140 
Available-for-sale9,504 6,031 18,953 12,150 
Total$27,128 $13,473 $48,701 $32,416 

The amortized cost and estimated fair value by maturity of securities as of June 30, 2021 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-MaturityAvailable-for-Sale Held-to-MaturityAvailable-for-Sale
(In thousands)(In thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
One year or lessOne year or less$4,928  $4,962  $15,006  $15,077  One year or less$6,819 $6,884 $11,777 $11,834 
After one through five yearsAfter one through five years15,201  15,793  35,995  36,348  After one through five years7,680 8,029 51,854 52,281 
After five through ten yearsAfter five through ten years5,918  6,219  203,777  205,627  After five through ten years9,734 10,115 531,599 537,748 
After ten yearsAfter ten years—  —  1,047,772  1,084,495  After ten years847,602 850,174 1,949,938 1,966,476 
Securities not due on a single maturity dateSecurities not due on a single maturity date25,980  26,777  1,125,484  1,154,086  Securities not due on a single maturity date60,649 60,394 3,996,823 3,987,209 
Other securities (no maturity)Other securities (no maturity)—  —  514  1,263  Other securities (no maturity)— — 1,031 1,033 
TotalTotal$52,027  $53,751  $2,428,548  $2,496,896  Total$932,484 $935,596 $6,543,022 $6,556,581 
 
19




The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $1.38$3.89 billion at June 30, 20202021 and $1.73$2.01 billion at December 31, 2019.2020.

There were approximately $5.2 million of gross realized gains and $26,000 of gross realized losses from the sale of securities during the three months ended June 30, 2021, and approximately $10.6 million of gross realized gains and $39,000 of gross realized losses from the sale of securities during the six months ended June 30, 2021. The Company sold approximately $249.5 million of investment securities during the six months ended June 30, 2021. There were approximately $391,000 of gross realized gains and $1,000 of gross realized losses from the sale of securities during the three months ended June 30, 2020, and approximately $32.5 million of gross realized gains and $2,600 of gross realized losses from the sale of securities during the six months ended June 30, 2020. During the first half of 2020, the Company sold approximately $1.2 billion of investment securities to create additional liquidity. There were approximately $2.8 million of gross realized gains and 0 gross realized losses from the sale of securities during the three months ended June 30, 2019, and approximately $5.6 million of gross realized gains and 0 gross realized losses from the sale of securities during the six months ended June 30, 2019. The income tax expense/benefit related to security gain/gains/losses was 26.135% of the gross amounts in 20202021 and 2019.2020.

NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE

ColoradoIllinois Branch Sale

On February 10,November 30, 2020, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “First Western“Citizens Equity Agreement”) with Citizens Equity First Western Trust BankCredit Union (“First Western”CEFCU”), a wholly-owned subsidiary of First Western Financial, Inc..

On May 18, 2020, First WesternMarch 12, 2021, CEFCU completed its purchase of certain assets and assumption of certain liabilities (“ColoradoIllinois Branch Sale”) associated with four4 Simmons Bank locations in Denver, Englewood, Highlands Ranch, and Lone Tree, Coloradothe Metro East area of Southern Illinois, near St. Louis (collectively, the “Colorado“Illinois Branches”). Pursuant to the terms of the First WesternCitizens Equity Agreement, First WesternCEFCU assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Colorado Branches.
Texas Branch Sale

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

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

The Company recognized a combined gain on sale of $8.1 million related to the Texas Branches and Colorado Branches in the six month period ended June 30, 2020.


2017




The Company recognized a gain on sale of $5.3 million related to the Illinois Branches in the six month period ended June 30, 2021.

As of June 30, 2021, there were 0 outstanding other liabilities held for sale.

NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES

At June 30, 2020,2021, the Company’s loan portfolio was $14.61$11.39 billion, compared to $14.43$12.90 billion at December 31, 2019.2020. The various categories of loans are summarized as follows:
 
June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Consumer:Consumer:  Consumer:  
Credit cardsCredit cards$184,348  $204,802  Credit cards$177,634 $188,845 
Other consumerOther consumer214,024  249,195  Other consumer181,712 202,379 
Total consumerTotal consumer398,372  453,997  Total consumer359,346 391,224 
Real Estate:Real Estate:Real Estate:
Construction and developmentConstruction and development2,010,256  2,248,673  Construction and development1,428,165 1,596,255 
Single family residentialSingle family residential2,207,087  2,414,753  Single family residential1,608,028 1,880,673 
Other commercialOther commercial6,316,444  6,358,514  Other commercial5,332,655 5,746,863 
Total real estateTotal real estate10,533,787  11,021,940  Total real estate8,368,848 9,223,791 
Commercial:Commercial:Commercial:
CommercialCommercial3,038,216  2,451,119  Commercial2,074,729 2,574,386 
AgriculturalAgricultural217,715  191,525  Agricultural193,462 175,905 
Total commercialTotal commercial3,255,931  2,642,644  Total commercial2,268,191 2,750,291 
OtherOther418,810  307,123  Other389,967 535,591 
Total loansTotal loans$14,606,900  $14,425,704  Total loans$11,386,352 $12,900,897 

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$43.7 million and $91.6$57.3 million at June 30, 20202021 and December 31, 2019,2020, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $66.9$41.9 million and $48.9$54.4 million at June 30, 20202021 and December 31, 2019,2020, 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; and providing an adequate allowance for credit 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.
 
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 resultingthat result in increasingincreased unemployment. Other consumer loans include direct and indirect installment loans and account overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
 

18




Real estate – The real estate loan portfolio consists of construction and development loans (“C&D”), single family residential loans and commercial loans. Construction and development loans (“C&D”)&D and commercial real estate loans (“CRE”) loans can be particularly sensitive to valuation of real estate. Commercial real estateCRE 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




estateCRE – 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.duration. The Company monitors these loans closely. 

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

Paycheck Protection Program Loans – The Company originated loans pursuant to multiple PPP appropriations of the CARES Act which provided 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assistance 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. PPP loans have a zero percent risk-weight for regulatory capital ratios. As of June 30, 2021 and December 31, 2020, the total outstanding balance of PPP loans was $441.4 million and $904.7 million, respectively.

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.

The amortized cost basis of nonaccrual loans segregated by classcategory of loans are as follows:

June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Consumer:Consumer:  Consumer:  
Credit cardsCredit cards$223  $382  Credit cards$282 $301 
Other consumerOther consumer1,912  1,705  Other consumer594 1,219 
Total consumerTotal consumer2,135  2,087  Total consumer876 1,520 
Real estate:Real estate:Real estate:
Construction and developmentConstruction and development6,501  5,289  Construction and development1,737 3,625 
Single family residentialSingle family residential32,244  27,695  Single family residential29,553 28,062 
Other commercialOther commercial36,255  16,582  Other commercial19,018 24,155 
Total real estateTotal real estate75,000  49,566  Total real estate50,308 55,842 
Commercial:Commercial:Commercial:
CommercialCommercial53,538  40,924  Commercial28,649 65,244 
AgriculturalAgricultural710  753  Agricultural449 273 
Total commercialTotal commercial54,248  41,677  Total commercial29,098 65,517 
TotalTotal$131,383  $93,330  Total$80,282 $122,879 

19




NonaccrualAs of June 30, 2021 and December 31, 2020, nonaccrual loans for which there iswas no related allowance for credit losses as of June 30, 2020 had an amortized cost of $18.0 million.$15.7 million and $16.8 million, respectively. 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, including nonaccrual loans, segregated by class of loans is as follows:
(In thousands)Gross
30-89 Days
Past Due
90 Days
or More
Past Due
Total
Past Due
CurrentTotal
Loans
90 Days
Past Due &
Accruing
June 30, 2021      
Consumer:      
Credit cards$644 $273 $917 $176,717 $177,634 $132 
Other consumer944 121 1,065 180,647 181,712 
Total consumer1,588 394 1,982 357,364 359,346 132 
Real estate:
Construction and development4,360 1,595 5,955 1,422,210 1,428,165 
Single family residential6,883 8,061 14,944 1,593,084 1,608,028 
Other commercial11,846 15,242 27,088 5,305,567 5,332,655 127 
Total real estate23,089 24,898 47,987 8,320,861 8,368,848 127 
Commercial:
Commercial18,162 9,167 27,329 2,047,400 2,074,729 394 
Agricultural105 353 458 193,004 193,462 
Total commercial18,267 9,520 27,787 2,240,404 2,268,191 394 
Other389,967 389,967 
Total$42,944 $34,812 $77,756 $11,308,596 $11,386,352 $653 
December 31, 2020
Consumer:
Credit cards$708 $256 $964 $187,881 $188,845 $256 
Other consumer2,771 302 3,073 199,306 202,379 13 
Total consumer3,479 558 4,037 387,187 391,224 269 
Real estate:
Construction and development1,375 3,089 4,464 1,591,791 1,596,255 
Single family residential23,726 14,339 38,065 1,842,608 1,880,673 253 
Other commercial2,660 9,586 12,246 5,734,617 5,746,863 
Total real estate27,761 27,014 54,775 9,169,016 9,223,791 253 
Commercial:
Commercial7,514 7,429 14,943 2,559,443 2,574,386 56 
Agricultural226 187 413 175,492 175,905 
Total commercial7,740 7,616 15,356 2,734,935 2,750,291 56 
Other92 92 535,499 535,591 
Total$39,072 $35,188 $74,260 $12,826,637 $12,900,897 $578 
 
(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   
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   
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  
23




The following table presents information pertaining to impaired loans as of December 31, 2019, in accordance with previous US GAAP prior to the adoption of 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   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   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.


20




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. In March 2020, the federal financial institution regulatory agencies issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and provided information regarding loan modifications. 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 discussionIn response to the concerns related to the expiration of the loans modified underapplicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended in Note 24, Recent Events.late fourth quarter of 2020 to extend COVID-19 relief related to loan modifications to the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. As of June 30, 2021, the Company had 43 COVID-19 loan modifications outstanding in the amount of $134.5 million. Deferred interest on these loan modifications will be collected at the end of the note or once regular payments are resumed.

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 TDRs segregated by class of loans.
 Accruing TDR LoansNonaccrual TDR LoansTotal TDR Loans
(Dollars in thousands)NumberBalanceNumberBalanceNumberBalance
June 30, 2020      
Real estate:
Single-family residential12  $1,221   $680  19  $1,901  
Other commercial—  —   70   70  
Total real estate12  1,221   750  21  1,971  
Commercial:
Commercial 2,739   68   2,807  
Total commercial 2,739   68   2,807  
Total16  $3,960  12  $818  28  $4,778  
December 31, 2019
Real estate:
Construction and development—  $—   $72   $72  
Single-family residential 1,151  12  671  19  1,822  
Other commercial 476   80   556  
Total real estate 1,627  15  823  23  2,450  
Commercial:
Commercial 2,784   79   2,863  
Total commercial 2,784   79   2,863  
Total12  $4,411  18  $902  30  $5,313  

 Accruing TDR LoansNonaccrual TDR LoansTotal TDR Loans
(Dollars in thousands)NumberBalanceNumberBalanceNumberBalance
June 30, 2021      
Real estate:
Single-family residential29 $3,074 13 $1,242 42 $4,316 
Other commercial825 830 
Total real estate31 3,899 14 1,247 45 5,146 
Commercial:
Commercial537 1,413 1,950 
Total commercial537 1,413 1,950 
Total32 $4,436 17 $2,660 49 $7,096 
December 31, 2020
Real estate:
Single-family residential28 $2,463 18 $2,736 46 $5,199 
Other commercial49 12 61 
Total real estate29 2,512 19 2,748 48 5,260 
Commercial:
Commercial626 1,627 2,253 
Total commercial626 1,627 2,253 
Total32 $3,138 22 $4,375 54 $7,513 


21




The following table presents loans that were restructured as TDRs during the three and six months ended June 30, 2020. There were 0 loans restructured as TDRs during the three and six month periods ended June 30, 2019.2021 and 2020.
 
(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, 2021     
Real estate:
Other commercial$784 $778 $$778 $
Total real estate$784 $778 $$778 $
Three and Six Months Ended June 30, 2020
Real estate:
Single-family residential$147 $147 $147 $$
Total real estate$147 $147 $147 $$

 
(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 residential $147  $147  $147  $—  $—  
Total real estate $147  $147  $147  $—  $—  
During the three and six months ended June 30, 2021, the Company modified 1 loan with a recorded investment of $784,000 prior to modification which was deemed a TDR. The restructured loan was modified by deferring amortized principal payments and requiring interest only payments for a period of up to 12 months. A specific reserve of approximately $5,100 was recorded with respect to this TDR. Also, there was no immediate financial impact from the restructuring of this loan, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the three and six months ended June 30, 2020, the Company modified 1 loan with a recorded investment of $147,000 prior to modification which was deemed troubled debt restructuring. The restructured loan was modified by deferring amortized principal payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. A specific reserve of $7,200 was determined necessary for this loan. Also, there was no immediate financial impact from the restructuring of this loan, as it was not considered necessary to charge-off interest or principal on the date of restructure.

ThereAdditionally, there were 0 loans considered TDRs for which a payment default occurred during the six months ended June 30, 2021 or 2020. There was 1 commercial loan considered a TDR for which a payment default occurred during the six months ended June 30, 2019. A charge-off of approximately $138,000 was recorded for this loan. The Company defines a payment default as a payment received more than 90 days after its due date.

There were 0 TDRs with pre-modification loan balances for which OREOOther Real Estate Owned (“OREO”) was received in full or partial satisfaction of the loans during the three orand six month periods ended June 30, 20202021 or 2019.2020. At June 30, 20202021 and December 31, 2019,2020, the Company had $4,395,000$3,364,000 and $5,789,000,$7,182,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At June 30, 20202021 and December 31, 2019,2020, the Company had $2,321,000$1,752,000 and $4,458,000,$3,172,000, 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 of the 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”).
22




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.


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 delinquency credit quality indicators is as follows:

Current - Loans in this category are either current in payments or are under 30 days past due. These loans are considered to have a normal level of risk.
30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk.
90+ Days Past Due - Loans in this category are over 90 days or more past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced.

Effective April 2021, the Company implemented an expanded, dual risk rating scale that utilizes quantitative models and qualitative factors (“score cards”) to assist in determining the appropriate risk rating for its commercial loans. This dual risk rating methodology incorporates a “probability of default” analysis which utilizes quantified metrics such as loan terms and financial performance, as well as a “loss given default” analysis which utilizes collateral values and economics of the market, among other attributes. Model outputs are reviewed and analyzed to ensure the projected risk levels are commensurate with underwriting and credit leader expectations. The expanded risk rating scale includes Probability of Default levels of 1 – 16 and Loss Given Default levels of A – I. The expanded scale allows for more granular recognition of risk and diversification of grading among traditional Pass grades. Implementation of the expanded risk rating scale did not have a material impact on the results of the allowance for credit losses calculation.
23




The following table presentstables present a summary of loans by credit quality indicator, other than pass or current, as of June 30, 2021 and December 31, 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  

Term Loans Amortized Cost Basis by Origination Year
(In thousands)2021 (YTD)20202019201820172016 and PriorLines of Credit (“LOC”) Amortized Cost BasisLOC Converted to Term Loans Amortized Cost BasisTotal
June 30, 2021
Consumer - credit cards    
Delinquency:
30-89 days past due$$$$$$$644 $$644 
90+ days past due273 273 
Total consumer - credit cards917 917 
Consumer - other
Delinquency:
30-89 days past due44 193 81 174 178 208 66 944 
90+ days past due13 56 33 17 121 
Total consumer - other44 206 137 176 211 225 66 1,065 
Real estate - C&D
Risk rating:
Special mention292 1,360 1,652 
Substandard1,740 42 547 401 333 733 10,513 1,954 16,263 
Doubtful and loss
Total real estate - C&D1,740 42 839 401 1,693 733 10,513 1,954 17,915 
Real estate - SF residential
Delinquency:
30-89 days past due111 1,034 540 2,033 844 1,744 505 72 6,883 
90+ days past due69 1,203 2,177 1,870 2,197 545 8,061 
Total real estate - SF residential111 1,103 1,743 4,210 2,714 3,941 1,050 72 14,944 
Real estate - other commercial
Risk rating:
Special mention30,225 69,187 1,818 8,584 40,531 34,225 127,273 18,393 330,236 
Substandard25,532 25,865 6,477 15,304 33,640 23,723 50,734 20,480 201,755 
Doubtful and loss
Total real estate - other commercial55,757 95,052 8,295 23,888 74,171 57,948 178,007 38,873 531,991 
Commercial
Risk rating:
Special mention1,247 354 523 392 752 5,380 12,438 21,086 
Substandard3,627 21,024 3,616 2,035 796 799 25,859 6,601 64,357 
Doubtful and loss
Total commercial3,627 22,271 3,970 2,558 1,188 1,551 31,239 19,039 85,443 
Commercial - agriculture
Risk rating:
Special mention10 15 31 
Substandard105 65 121 294 64 20 229 72 970 
Doubtful and loss
Total commercial - agriculture105 65 127 304 79 20 229 72 1,001 
Other
Delinquency:
30-89 days past due
90+ days past due
Total other
Total$61,384 $118,739 $15,111 $31,537 $80,056 $64,418 $222,021 $60,010 $653,276 
2724




The following table presents a summary of loans by credit risk rating as of December 31, 2019 segregated by class of loans.
Term Loans Amortized Cost Basis by Origination Year
(In thousands)202020192018201720162015 and PriorLines of Credit (“LOC”) Amortized Cost BasisLOC Converted to Term Loans Amortized Cost BasisTotal
December 31, 2020
Consumer - credit cards    
Delinquency:
30-89 days past due$$$$$$$708 $$708 
90+ days past due256 256 
Total consumer - credit cards964 964 
Consumer - other
Delinquency:
30-89 days past due234 441 327 658 689 84 339 2,772 
90+ days past due79 58 25 80 40 12 302 
Total consumer - other313 499 352 738 729 96 347 3,074 
Real estate - C&D
Risk rating:
Special mention2,728 344 259 2,107 19 9,613 15,070 
Substandard294 2,069 404 449 342 320 17,914 14 21,806 
Doubtful and loss
Total real estate - C&D3,022 2,413 663 2,556 361 320 27,527 14 36,876 
Real estate - SF residential
Delinquency:
30-89 days past due6,300 2,258 2,593 2,610 2,058 6,050 1,782 76 23,727 
90+ days past due557 1,853 2,735 2,582 832 3,852 1,928 14,339 
Total real estate - SF residential6,857 4,111 5,328 5,192 2,890 9,902 3,710 76 38,066 
Real estate - other commercial
Risk rating:
Special mention100,085 4,346 10,738 19,943 26,245 10,608 63,305 23,435 258,705 
Substandard66,737 9,418 24,380 14,067 3,744 11,158 52,182 39,486 221,172 
Doubtful and loss
Total real estate - other commercial166,822 13,764 35,118 34,010 29,989 21,766 115,487 62,921 479,877 
Commercial
Risk rating:
Special mention5,707 342 465 972 54 12,318 22,546 42,404 
Substandard23,227 4,495 1,586 730 276 334 53,682 7,522 91,852 
Doubtful and loss
Total commercial28,934 4,837 2,051 1,702 330 334 66,000 30,068 134,256 
Commercial - agriculture
Risk rating:
Special mention79 13 299 34 431 
Substandard86 101 64 47 12 10 68 75 463 
Doubtful and loss
Total commercial - agriculture86 180 77 346 12 16 102 75 894 
Total$206,034 $25,804 $43,589 $44,544 $34,311 $32,434 $214,137 $93,154 $694,007 
25
(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 Credit Losses

Allowance for Credit Losses – 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 and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 326-20, 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 risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis.

The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:

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


26




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$74.8 million as of June 30, 2021, as further detailed in the table below. The collateral securing these loans consist of commercial real estate properties, residential properties, other business assets, and 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  

(In thousands)Real Estate CollateralEnergyOther CollateralTotal
Construction and development$2,788 $$$2,788 
Single family residential2,940 2,940 
Other commercial real estate34,431 34,431 
Commercial30,677 3,979 34,656 
Total$40,159 $30,677 $3,979 $74,815 

The following table details activity in the allowance for credit losses by portfolio segment for loans for the three and six months ended June 30, 2020.2021. 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)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)(In thousands)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total(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  
Allowance for credit losses:Allowance for credit losses:
Three Months Ended June 30, 2021Three Months Ended June 30, 2021
Beginning balance, April 1, 2021Beginning balance, April 1, 2021$34,633 $195,826 $2,172 $2,485 $235,116 
Provision for credit loss expenseProvision for credit loss expense49,307  (2,138) 6,693  (987) 52,875  Provision for credit loss expense(6,678)(8,522)4,072 1,117 (10,011)
Charge-offsCharge-offs(36,210) (2,220) (2,494) (1,971) (42,895) Charge-offs(309)(439)(1,046)(411)(2,205)
RecoveriesRecoveries445  354  497  746  2,042  Recoveries2,147 1,523 244 425 4,339 
Net charge-offsNet charge-offs(35,765) (1,866) (1,997) (1,225) (40,853) Net charge-offs1,838 1,084 (802)14 2,134 
Ending balance, June 30, 2020$59,138  $149,471  $10,979  $12,055  $231,643  
Ending balance, June 30, 2021Ending balance, June 30, 2021$29,793 $188,388 $5,442 $3,616 $227,239 
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Beginning balance, January 1, 2021Beginning balance, January 1, 2021$42,093 $182,868 $7,472 $5,617 $238,050 
Provision for credit loss expenseProvision for credit loss expense(13,599)5,720 (515)(1,617)(10,011)
Charge-offsCharge-offs(1,168)(2,126)(2,049)(1,113)(6,456)
RecoveriesRecoveries2,467 1,926 534 729 5,656 
Net charge-offsNet charge-offs1,299 (200)(1,515)(384)(800)
Ending balance, June 30, 2021Ending balance, June 30, 2021$29,793 $188,388 $5,442 $3,616 $227,239 

Activity in the allowance for credit losses for the three and six months ended June 30, 20192020 was as follows:

(In thousands)(In thousands)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total(In thousands)CommercialReal
Estate
Credit
Card
Other
Consumer
and Other
Total
Allowance for credit losses:Allowance for credit losses: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  
Three Months Ended June 30, 2020Three Months Ended June 30, 2020
Beginning balance, April 1, 2020Beginning balance, April 1, 2020$76,327 $141,022 $7,817 $18,029 $243,195 
Provision for credit lossesProvision for credit losses2,956  2,681  800  642  7,079  Provision for credit losses18,400 10,020 3,943 (5,685)26,678 
Charge-offsCharge-offs(1,963) (1,216) (1,039) (964) (5,182) Charge-offs(35,687)(1,824)(1,053)(592)(39,156)
RecoveriesRecoveries967  158  271  331  1,727  Recoveries98 253 272 303 926 
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  
Net (charge-offs) recoveriesNet (charge-offs) recoveries(35,589)(1,571)(781)(289)(38,230)
Ending balance, June 30, 2020Ending balance, June 30, 2020$59,138 $149,471 $10,979 $12,055 $231,643 
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  
27




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 

FourAs of June 30, 2021, the Company’s allowance for credit losses was considered sufficient based upon expected loan level cash flows that were supported by economic forecasts. Provision expense was recaptured for the three and six months ended June 30, 2021 based upon improved asset credit quality metrics combined with improved Moody’s economic modeling scenarios.

NaN energy credits within the Commercialcommercial segment were charged off during the second quarter of 2020 for a total of $32.6 million, of which $27.1 million was specifically reserved for at March 31, 2020. The primary driver forin the prior quarter. Additionally, during the second quarter of 2020, 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, while the downside scenarios of S-2 and S-3updates were weighted 22% and 10%, respectively, to capturereflect 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, 20202021 and December 31, 20192020 was $24.4 million and $8.4 million, respectively. The increase from year end was due to the adoption of CECL.$22.4 million. The adequacy of the reserve for unfunded commitments is determined monthlyquarterly based on methodology similar to the methodology for determining the allowance for credit losses. ForNaN adjustment was made to the reserve for unfunded commitments during the three and six months ended June 30, 20202021 as it was considered sufficient to cover any loss expectations. For the three and 2019,six month periods ended June 30, 2020, net adjustments to the reserve for unfunded commitments wereresulted in a benefit of $5.0 million and $8.0 million, and an expense of $950,000, respectively, and werewas included in other non-interest expense.the provision for credit losses in the statement of income.

Provision for Credit Losses

Provision for credit losses is determined by the Company as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.

The components of the provision for credit losses for the three and six month periods ended June 30, 2021 and 2020 were as follows:

Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)2021202020212020
Provision for credit losses related to:  
Loans$(10,011)$26,678 $(10,011)$52,875 
Unfunded commitments(5,001)(8,000)
Securities - HTM(486)(102)(1,183)(62)
Securities - AFS(2,454)340 (312)236 
Total$(12,951)$21,915 $(11,506)$45,049 

3028




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

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

The Company’s leases are classified as operating leases with a term, including expected renewal or termination options, greater than one year, and are related to certain office facilities and office equipment. Right-of-useThe following table presents information as of June 30, 2021 and December 31, 2020 related to the Company’s right-of-use lease assets, included in premises and equipment, were $34.7 million and $40.7 million at June 30, 2020 and December 31, 2019, respectively. Leaselease liabilities, included in accrued interest and other liabilities were $34.8 million and $40.9 million at June 30, 2020 and December 31, 2019, respectively.liabilities.

Other information related to the Company’s operating leases is presented in the table below:
June 30,December 31,
(Dollars in thousands)20212020
Right-of-use lease assets$34,748 $31,348 
Lease liabilities35,072 31,433 
Weighted average remaining lease term8.30 years6.55 years
Weighted average discount rate2.79 %3.09 %

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 %
Operating lease cost for the three and six month periods ended June 30, 2021 was $2.9 million and $5.7 million, respectively, as compared to $3.4 million and $6.6 million for the same periods in 2020.

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, 20202021 and December 31, 20192020 were as follows:
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  

June 30,December 31,
(In thousands)20212020
Right-of-use lease assets$34,748 $31,348 
Premises and equipment:
Land89,950 90,953 
Buildings and improvements289,934 293,338 
Furniture, fixtures and equipment101,962 100,863 
Software65,675 64,877 
Construction in progress3,698 763 
Accumulated depreciation and amortization(156,380)(140,450)
Total premises and equipment, net$429,587 $441,692 

3129




NOTE 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 $1.065$1.1 billion at June 30, 20202021 and $1.056 billion at December 31, 2019.

During 2019, the Company recorded $131.3 million and $78.5 million of goodwill as a result of its acquisitions of Landrum and Reliance, respectively. During the first half of 2020, goodwill increased $9.2 million related to the continued assessment of the fair value and assumed tax position of the Landrum acquisition.2020.

Goodwill impairment was neither indicated nor recorded during the six months ended June 30, 20202021 or the year ended December 31, 2019.2020. 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 qualitativeassessment during each quarter of 2020 and concluded 0 impairment existed during each period. While the goodwill impairment analyses indicated 0 impairment during 2020, the Company’s assessment depended on several assumptions which were dependent on market and economic conditions, and future changes in those conditions could impact the Company’s assessment in the future. Due to the improved market and economic conditions, and the related effects on the Company’s share price, the Company did not perform an interim goodwill impairment assessment during the first quarter and concluded no impairment existed.of 2021. During the second quarter of 2020,2021, the Company performed thean 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.0 impairment existed.
 
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. Other intangible assets represent the value of other 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, 20202021 and December 31, 20192020 were as follows: 
 
June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Core deposit premiums:Core deposit premiums:Core deposit premiums:
Balance, beginning of yearBalance, beginning of year$111,808  $79,807  Balance, beginning of year$97,363 $111,808 
Acquisitions(1)
—  42,695  
Disposition of intangible asset(2)
(2,324) —  
Disposition of intangible asset(1)
Disposition of intangible asset(1)
(674)(2,324)
AmortizationAmortization(6,094) (10,694) Amortization(5,990)(12,121)
Balance, end of periodBalance, end of period103,390  111,808  Balance, end of period90,699 97,363 
Books of business and other intangibles:Books of business and other intangibles:Books of business and other intangibles:
Balance, beginning of yearBalance, beginning of year15,532  11,527  Balance, beginning of year13,747 15,532 
Acquisitions(3)
—  5,116  
Disposition of intangible assetDisposition of intangible asset(413) —  Disposition of intangible asset(413)
AmortizationAmortization(686) (1,111) Amortization(687)(1,372)
Balance, end of periodBalance, end of period14,433  15,532  Balance, end of period13,060 13,747 
Total other intangible assets, netTotal other intangible assets, net$117,823  $127,340  Total other intangible assets, net$103,759 $111,110 
_________________________
(1) Core deposit premiums of $24.3 million and $18.4 million were recorded during 2019 as part of the Landrum and Reliance acquisitions, respectively. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019.
(2)    Adjustments recorded for the premiums on certain deposit liabilities associated with the sale of the Texas Branches and Colorado Branches.
(3) The Company recorded $5.1 million during 2019 primarily related to the wealth management operations acquired from Landrum. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019.banking operations.


3230




The carrying basis and accumulated amortization of the Company’s other intangible assets at June 30, 20202021 and December 31, 20192020 were as follows: 

June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Core deposit premiums:Core deposit premiums:Core deposit premiums:
Gross carrying amountGross carrying amount$146,355  $148,679  Gross carrying amount$144,202 $146,355 
Accumulated amortizationAccumulated amortization(42,965) (36,871) Accumulated amortization(53,503)(48,992)
Core deposit premiums, netCore deposit premiums, net103,390  111,808  Core deposit premiums, net90,699 97,363 
Books of business and other intangibles:Books of business and other intangibles:Books of business and other intangibles:
Gross carrying amountGross carrying amount19,938  20,350  Gross carrying amount19,937 19,937 
Accumulated amortizationAccumulated amortization(5,505) (4,818) Accumulated amortization(6,877)(6,190)
Books of business and other intangibles, netBooks of business and other intangibles, net14,433  15,532  Books of business and other intangibles, net13,060 13,747 
Total other intangible assets, netTotal other intangible assets, net$117,823  $127,340  Total other intangible assets, net$103,759 $111,110 

The Company’s estimated remaining amortization expense on other intangible assets as of June 30, 20202021 is as follows:
 
(In thousands)YearAmortization
Expense
 Remainder of 2020$6,714  
 202113,379  
 202213,327  
 202313,044  
 202412,141  
 Thereafter59,218  
 Total$117,823  
(In thousands)YearAmortization
Expense
 Remainder of 2021$6,663 
 202213,275 
 202312,992 
 202412,090 
 20259,505 
 Thereafter49,234 
 Total$103,759 

NOTE 9: TIME DEPOSITS
 
Time deposits included approximately $2.09$2.10 billion and $2.15$2.03 billion of certificates of deposit of $100,000 or more, at June 30, 2020,2021, and December 31, 2019,2020, respectively. Of this total approximately $1.1$1.00 billion and $837.3$889.8 million of certificates of deposit were over $250,000 at June 30, 20202021 and December 31, 2019,2020, respectively.
 
NOTE 10: INCOME TAXES
 
The provision for income taxes is comprised of the following components for the periods indicated below:
 
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Income taxes currently payableIncome taxes currently payable$9,391  $12,757  $31,671  $23,074  Income taxes currently payable$13,930 $9,391 $25,066 $31,671 
Deferred income taxesDeferred income taxes6,202  2,859  4,616  4,940  Deferred income taxes3,088 6,202 6,315 4,616 
Provision for income taxesProvision for income taxes$15,593  $15,616  $36,287  $28,014  Provision for income taxes$17,018 $15,593 $31,381 $36,287 
 

3331




The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows: 


June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Deferred tax assets:Deferred tax assets:  Deferred tax assets:  
Loans acquiredLoans acquired$13,756  $20,783  Loans acquired$7,084 $10,100 
Allowance for credit lossesAllowance for credit losses57,244  16,732  Allowance for credit losses55,064 58,028 
Valuation of foreclosed assetsValuation of foreclosed assets2,636  2,626  Valuation of foreclosed assets1,673 1,673 
Tax NOLs from acquisitionTax NOLs from acquisition16,816  18,118  Tax NOLs from acquisition14,720 16,028 
Deferred compensation payableDeferred compensation payable2,890  2,750  Deferred compensation payable3,267 3,060 
Accrued equity and other compensationAccrued equity and other compensation6,845  6,677  Accrued equity and other compensation5,081 5,905 
Acquired securitiesAcquired securities—  3,393  Acquired securities491 587 
Right-of-use lease liabilityRight-of-use lease liability8,738  10,221  Right-of-use lease liability8,742 7,835 
Allowance for unfunded commitmentsAllowance for unfunded commitments6,122  —  Allowance for unfunded commitments5,583 5,583 
OtherOther5,655  7,886  Other7,578 7,600 
Gross deferred tax assetsGross deferred tax assets120,702  89,186  Gross deferred tax assets109,283 116,399 
Deferred tax liabilities:Deferred tax liabilities:Deferred tax liabilities:
Goodwill and other intangible amortizationGoodwill and other intangible amortization(39,876) (41,221) Goodwill and other intangible amortization(37,914)(38,882)
Accumulated depreciationAccumulated depreciation(36,731) (36,554) Accumulated depreciation(33,670)(34,667)
Right-of-use lease assetRight-of-use lease asset(8,701) (10,176) Right-of-use lease asset(8,661)(7,813)
Unrealized gain on available-for-sale securities(16,183) (3,720) 
Deferred loan fees and costs(2,884) (3,018) 
Acquired securities(820) —  
Unrealized gain on AFS securitiesUnrealized gain on AFS securities(2,058)(17,521)
OtherOther(5,113) (4,633) Other(4,335)(4,021)
Gross deferred tax liabilitiesGross deferred tax liabilities(110,308) (99,322) Gross deferred tax liabilities(86,638)(102,904)
Net deferred tax asset (liability)$10,394  $(10,136) 
Net deferred tax assetNet deferred tax asset$22,645 $13,495 

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown for the periods indicated below:
 
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Computed at the statutory rate (21%)
Computed at the statutory rate (21%)
$15,620  $14,955  $36,180  $27,575  Computed at the statutory rate (21%)$19,305 $15,620 $36,477 $36,180 
Increase (decrease) in taxes resulting from:Increase (decrease) in taxes resulting from:Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefitState income taxes, net of federal tax benefit2,296  1,420  4,359  2,765  State income taxes, net of federal tax benefit1,488 2,296 3,378 4,359 
Discrete items related to ASU 2016-0943  (81) 69  (107) 
Stock-based compensationStock-based compensation(66)43 37 69 
Tax exempt interest incomeTax exempt interest income(1,421) (1,024) (2,842) (1,985) Tax exempt interest income(2,741)(1,421)(5,251)(2,842)
Tax exempt earnings on BOLITax exempt earnings on BOLI(212) (215) (531) (394) Tax exempt earnings on BOLI(319)(212)(560)(531)
Federal tax creditsFederal tax credits(1,034) (729) (2,068) (1,458) Federal tax credits(589)(1,034)(1,179)(2,068)
Other differences, netOther differences, net301  1,290  1,120  1,618  Other differences, net(60)301 (1,521)1,120 
Actual tax provisionActual tax provision$15,593  $15,616  $36,287  $28,014  Actual tax provision$17,018 $15,593 $31,381 $36,287 


3432




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 has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $77.8$65.2 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $46.8 million is related to the Reliance acquisition that closed during second quarter 2019.Company. All of the acquired Reliance net operating losses are expected to be fully utilized by 2027, with the remaining acquired net operating loss carryforwards are 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 20162017 tax year and forward. The Company’s various state income tax returns are generally open from the 20162017 and later tax return years based on individual state statute of limitations.

NOTE 11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
 
The Company utilizes securities sold under agreements to repurchase to facilitate the needs of its customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with the Company’s safekeeping agents.
 
The gross amount of recognized liabilities for repurchase agreements was $335.2$172.2 million and $133.2$248.9 million at June 30, 20202021 and December 31, 2019,2020, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 20202021 and December 31, 20192020 is presented in the following tables.
 
 Remaining Contractual Maturity of the Agreements
(In thousands)Overnight and
Continuous
Up to 30 Days30-90 DaysGreater than
90 Days
Total
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  

 Remaining Contractual Maturity of the Agreements
(In thousands)Overnight and
Continuous
Up to 30 Days30-90 DaysGreater than
90 Days
Total
June 30, 2021     
Repurchase agreements:
U.S. Government agencies$172,215 $$$$172,215 
December 31, 2020
Repurchase agreements:
U.S. Government agencies$248,861 $$$$248,861 

3533




NOTE 12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES
 
Debt at June 30, 20202021 and December 31, 20192020 consisted of the following components: 

June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Other BorrowingsOther Borrowings  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  
FHLB advances, net of discount, due 2022 to 2035, 0.23% to 7.37% secured by real estate loansFHLB advances, net of discount, due 2022 to 2035, 0.23% to 7.37% secured by real estate loans$1,306,576 $1,308,674 
Other long-term debtOther long-term debt34,157  34,908  Other long-term debt32,617 33,393 
Total other borrowingsTotal other borrowings1,393,689  1,297,599  Total other borrowings1,339,193 1,342,067 
Subordinated Notes and DebenturesSubordinated Notes and DebenturesSubordinated 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)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  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 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterlyTrust preferred securities, due 9/15/2037, floating rate of 1.37% above the three month LIBOR rate, reset quarterly10,310 10,310 
Trust preferred securities, due 6/6/2037, floating rate of 1.57% above the three month LIBOR rate, reset quarterly, callable without penaltyTrust preferred securities, 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 penaltyTrust 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, 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 penaltyTrust 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 6/15/2037, floating rate of 1.85% above the three month LIBOR rate, reset quarterly, callable without penalty25,250 25,172 
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 penaltyTrust 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  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 penalty3,032 3,023 
Other subordinated debentures, due 12/31/2036, floating rate of prime rate minus 1.1%, reset quarterly—  5,927  
Unamortized debt issuance costsUnamortized debt issuance costs(2,825) (3,008) Unamortized debt issuance costs(2,461)(2,643)
Total subordinated notes and debenturesTotal subordinated notes and debentures382,604  388,260  Total subordinated notes and debentures383,143 382,874 
Total other borrowings and subordinated debtTotal other borrowings and subordinated debt$1,776,293  $1,685,859  Total other borrowings and subordinated debt$1,722,336 $1,724,941 

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 debthad total FHLB advances 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$1.31 billion at June 30, 2020, the Company had $1.35 billion of FHLB advances outstanding with original or expected maturities of one year or less,2021, 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 the beginning of the term when FHLB cannot terminate the FOTO advance. If FHLB exercises its option to terminate the FOTO advance at one of the specified option exercise dates, there is no termination or prepayment fee, and replacement funding will be available at then-prevailing market rates, subject to FHLB’s credit and collateral requirements. The Company’s FOTO advances outstanding at June 30, 20202021 have original maturity dates of ten years to fifteen years with lockout periods that have expired and, as a result, are considered and monitored byexpired. The Company expects the Company as short-term advances.FHLB’s option to terminate the FOTO advances prior to stated maturity dates will not be exercised due to the current low interest rate environment. The possibility of the FHLB exercising the options is continually analyzed by the Company along with the market expected rate outcome. At June 30, 2021, the FHLB advances outstanding were secured by mortgage loans and investment securities totaling approximately $4.9 billion and the Company had approximately $3.5 billion of additional advances available from the FHLB.


3634




The Company had total FHLB advances of $1.36 billion at June 30, 2020, with approximately $2.8 billion of additional advances available from the FHLB. The FHLB advances are secured by mortgage loans and investment securities totaling approximately $6.1 billion at June 30, 2020.
The trust preferred securities are tax-advantaged issues that qualified for Tier 1 capital treatment until December 31, 2017, when the Company reached $15 billion in assets. They still qualify for inclusion as Tier 2 capital at June 30, 2020.2021. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payments on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust.

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 June 30, 2020,2021, are as follows:
YearYear(In thousands)Year(In thousands)
Remainder of 2020$1,193  
20212,860  
Remainder of 2021Remainder of 2021$923 
202220222,027  20221,727 
202320231,758  20231,686 
202420242,399  20242,327 
202520254,876 
ThereafterThereafter416,056  Thereafter1,710,797 
TotalTotal$426,293  Total$1,722,336 

NOTE 13: CONTINGENT LIABILITIES
 
TheIn the ordinary course of its operations, the Company and/orand its subsidiaries haveare parties to various unrelated legal proceedings incidental to the conduct of our business, including proceedings based on breach of contract claims, lender liability claims, and other ordinary-course claims, some of which seek substantial relief or damages.

On May 22, 2019, Danny Walkingstick and Whitnye Fort filed a putative class action complaint against Simmons Bank in the aggregate, areUnited States District Court for the Western District of Missouri. The operative complaint alleges that Simmons Bank improperly charges overdraft fees on transactions that did not actually overdraw customers’ accounts by utilizing the checking account’s “available balance” to assess overdraft fees instead of the “ledger balance.” Plaintiffs’ claims include breach of contract and unjust enrichment, and they seek to represent a proposed class of all Simmons Bank checking account customers who were assessed an overdraft fee on a transaction that purportedly did not overdraw the account. Plaintiffs seek unspecified damages, costs, attorneys’ fees, pre- and post-judgment interest, and other relief as the Court deems proper for themselves and the putative class. Simmons Bank denies the allegations but has reached a settlement in principle with the plaintiffs to resolve this matter, subject to the preparation and execution of a mutually acceptable settlement agreement and release, as well as the court’s approval. The settlement is not expected to have a material adverse effect on the Company’s business, consolidated results of operations, financial positioncondition, or cash flows.

On January 14, 2020, Susanne Pace filed a putative class action complaint against Landmark Bank, formerly a wholly-owned subsidiary of The Landrum Company, to which Simmons Bank is a successor by merger in connection with the Company’s acquisition of The Landrum Company which closed in October 2019 in the Circuit Court of Boone County, Missouri. The complaint alleges that Landmark Bank improperly charged overdraft fees where a transaction was initially authorized on sufficient funds but later settled negative due to intervening transactions. The complaint asserts a claim for breach of contract, which incorporates the implied duty of good faith and fair dealing. Plaintiff seeks to represent a proposed class of all Landmark Bank checking account customers from Missouri who were allegedly charged overdraft fees on transactions that did not overdraw their checking account. Plaintiff seeks unspecified actual, statutory, and punitive damages as well as costs, attorneys’ fees, prejudgment interest, an injunction, and other relief as the Court deems proper for herself and the putative class. Simmons Bank denies the allegations and is vigorously defending the matter.


35




On June 29, 2020, Shunda Wilkins, Diann Graham, and David Watson filed a putative class action complaint against Simmons Bank in the United States District Court for the Eastern District of Arkansas. The complaint alleges that Simmons Bank improperly charges multiple insufficient funds or overdraft fees when a merchant resubmits a rejected payment request. The complaint asserts claims for breach of contract and unjust enrichment. Plaintiffs seek to represent a proposed class of all Simmons Bank checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiffs seek unspecified damages, costs, attorney’s fees, pre-judgment interest, an injunction, and other relief as the Court deems proper for themselves and the purported class. Simmons Bank denies the allegations and is vigorously defending the matter.

On May 13, 2021, Susanne Pace filed a second putative class action complaint against Landmark Bank, to which Simmons Bank is a successor by merger, in the circuit court of Boone County, Missouri, which has been removed to the United States District Court for the Western District of Missouri, Central Division. The complaint alleges that Landmark Bank improperly charged multiple insufficient funds or overdraft fees when a merchant or other originator resubmits a rejected payment request. The complaint asserts claims for breach of contract, including breach of the Companycovenant of good faith and its subsidiaries.fair dealing. Plaintiff seeks to represent a proposed class of all Landmark Bank checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiff seeks unspecified damages, costs, attorney’s fees, pre- and post-judgment interest, an injunction, and other relief as the Court deems proper for herself and the purported class. Simmons Bank denies the allegations and is vigorously defending the matter.

We establish reserves for legal proceedings when potential losses become probable and can be reasonably estimated. While the ultimate resolution (including amounts thereof) of any legal proceedings, including the matters described above, cannot be determined at this time, based on information presently available and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, consolidated results of operations, financial condition, or cash flows. It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to our results of operations for a given fiscal period.
 
NOTE 14: 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




OnEffective July 23, 2012,2021, the CompanyCompany’s Board of Directors approved a stock repurchase program which authorizedan amendment to the repurchase of up to 1,700,000 shares of common stock. On October 22, 2019, the Company announced a newCompany’s current stock repurchase program (“Program”) that replacedincreases the stock repurchase program approved on July 23, 2012, under whichamount of the Company may repurchase up to $60,000,000 of its Class ACompany’s common stock currently issued and outstanding. On March 5, 2020, the Company announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $60,000,000a maximum of $180 million to $180,000,000. Thea maximum of $276.5 million and extends the term of the Program will terminate onfrom October 31, 2021, to October 31, 2022 (unless terminated sooner). The Program was originally approved on October 17, 2019 and first amended in March 2020; and as of June 30, 2021, the Company has repurchased approximately $126.5 million of its common stock under the Program.

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

During the six monthsmonth period ended June 30, 2020,2021, the Company repurchased 4,922,336130,916 shares at an average price of $18.96$23.53 per share under the Program. NaN shares have beenwere repurchased during the second quarter of 2021 under the Program since March 31, 2020.Program. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock repurchases. The Company had 0 repurchasesrepurchased 4,922,336 shares at an average price of its common stock$18.96 per share under the Program during the three and six month periodsmonths ended June 30, 2019.2020.
 
36




NOTE 15: UNDIVIDED PROFITS
 
Simmons Bank, the Company’s subsidiary bank, is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent (75%) of the total of its net profits, as defined, for that year combined with seventy-five percent (75%) of its retained net profits of the preceding year. At June 30, 2020,2021, Simmons Bank had approximately $165.1$99.3 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, theThe criteria for a well-capitalized institution are: a 5% “Tier l leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, 10% “total risk-based capital” ratio; and a 6.5% “common equity Tier 1 (CET1)” ratio.
 
The Company and Simmons Bank, must hold a capital conservation buffer of 2.5% composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and was phased in over a four year period (increasing by that amount on each subsequent January 1 until it reached 2.5% on January 1, 2019). Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. As of June 30, 2020,2021, the Company and Simmons Bank met all capital adequacy requirements, including the capital conservation buffer, under the Basel III Capital Rules. The Company’s CET1 ratio was 11.85%14.20% at June 30, 2020. 2021. 


38




NOTE 16: STOCK-BASED COMPENSATION
 
The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awards of restricted stock, appreciation rights,restricted stock awards or units, or performance sharesstock units granted to directors, officers and other key employees.

The table below summarizes the transactions under the Company’s active stock-based compensation plans for the six months ended June 30, 2020: 
 Stock Options
Outstanding
Non-vested
Stock Awards
Outstanding
Non-vested
Stock Units
Outstanding
 (Shares in thousands)Number
of Shares
Weighted
Average
Exercise
Price
Number
of Shares
Weighted
Average
Grant-Date
Fair Value
Number
of Shares
Weighted
Average
Grant-Date
Fair Value
Balance, January 1, 2020692  $22.46  21  $23.19  1,152  $26.79  
Granted—  —  —  —  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  
2021: 

 Stock Options
Outstanding
Non-vested Stock Awards OutstandingNon-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
Beginning balance, January 1, 2021658 $22.48 $22.35 1,032 $24.53 
Granted— — 474 29.18 
Stock options exercised(183)22.50 — — — — 
Stock awards/units vested (earned)— — (3)22.48 (302)25.77 
Forfeited/expired(60)26.02 
Balance, June 30, 2021475 $22.47 $22.20 1,144 $26.02 
Exercisable, June 30, 2021475 $22.47 


37




The following table summarizes information about stock options under the plans outstanding at June 30, 2020:2021:
 
 Options OutstandingOptions Exercisable  Options OutstandingOptions Exercisable
Range of
Exercise Prices
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
Range of Exercise PricesNumber
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$9.469.46 $9.46 10.55$9.461$9.46
10.65 10.65  10.65  32.5810.65310.6510.65 10.65 31.5810.65310.65
20.29 20.29  20.29  663.7020.296620.2920.29 20.29 473.5020.294720.29
20.36 20.36  20.36  24.3820.36220.3620.36 20.36 13.3820.36120.36
22.20 22.20  22.20  743.6322.207422.2022.20 22.20 513.7322.205122.20
22.75 22.75  22.75  4124.3922.7541222.7522.75 22.75 2934.1122.7529322.75
23.51 23.51  23.51  934.8023.519323.5123.51 23.51 724.5623.517223.51
24.07 24.07  24.07  75.2124.07724.0724.07 24.07 74.2124.07724.07
$9.46  $24.07  6584.29$22.48658$22.489.46 $24.07 4754.05$22.47475$22.47

39




The table below summarizes the Company’s performance stock unit activity for the six months ended June 30, 2020:2021:

(In thousands)Performance Stock Units
Non-vested, January 1, 20202021199222 
Granted11696 
Vested (earned)(80)(57)
Forfeited(18)(5)
Non-vested, June 30, 20202021217256 

Stock-based compensation expense was $7,577,000 and $6,249,000 during$7.6 million for both of the six monthsmonth periods ended June 30, 20202021 and 2019, respectively.2020. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was 0 unrecognized stock-based compensation expense related to stock options at June 30, 2020.2021. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $21,925,000$19.6 million at June 30, 2020.2021. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.9 years.
 
The intrinsic value of stock options outstanding and stock options exercisable at June 30, 20202021 was $28,000.$3.3 million. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $17.11$29.34 as of June 30, 2020,2021, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020, was $1.3 million and June 30, 2019, was $6,000, and $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 0 stock options granted during the six months ended June 30, 20202021 and 2019.2020.
 
38




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 computation 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  

Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands, except per share data)2021202020212020
Net income available to common stockholders$74,911 $58,789 $142,318 $136,012 
Average common shares outstanding108,362 108,982 108,286 110,936 
Average potential dilutive common shares460 148 460 148 
Average diluted common shares108,822 109,130 108,746 111,084 
Basic earnings per share$0.69 $0.54 $1.31 $1.23 
Diluted earnings per share$0.69 $0.54 $1.31 $1.22 

There were approximately 653,718 stock options excluded from the three and six months ended June 30, 2020 earnings per share 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 of the Company’s stock exceeding the related stock option exercise price. There were 0 stock options excluded from the earnings per share calculation for the three and six months ended June 30, 20192021 due to the average market price exceeding the related stock option exercise price. There were approximately 653,718 stock options excluded from the earnings per share calculation for the three and six months ended June 30, 2020 due to the related stock option exercise price exceeding the average market price.


40




NOTE 18: ADDITIONAL CASH FLOW INFORMATION
 
The following is a summary of the Company’s additional cash flow information:
 
Six Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)20202019(In thousands)20212020
Interest paidInterest paid$72,146  $87,841  Interest paid$44,281 $72,146 
Income taxes paid (refunded)3,196  28,253  
Income taxes (refunded) paidIncome taxes (refunded) paid(32,980)3,196 
Transfers of loans to foreclosed assets held for saleTransfers of loans to foreclosed assets held for sale1,147  1,506  Transfers of loans to foreclosed assets held for sale3,289 1,147 
Transfers of premises to foreclosed assets and other real estate ownedTransfers of premises to foreclosed assets and other real estate owned3,120  444  Transfers of premises to foreclosed assets and other real estate owned3,120 
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 premises held for sale to other real estate ownedTransfers of premises held for sale to other real estate owned4,368 
Transfers of loans to other assets held for saleTransfers of loans to other assets held for sale114,925  —  Transfers of loans to other assets held for sale114,925 
Transfers of deposits to other liabilities held for saleTransfers of deposits to other liabilities held for sale58,405  —  Transfers of deposits to other liabilities held for sale58,405 
 
39




NOTE 19: OTHER INCOME AND OTHER OPERATING EXPENSES
 
Other income for the three and six months ended June 30, 2021 was $8.1 million and $18.4 million, respectively. Other income for the same periods in 2020 was $9.8 million and $22.6 million, respectively, which includedrespectively. During the $8.1 millionsix month periods in 2021 and 2020, the Company recognized 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$5.9 million and $10.2$8.1 million, respectively.respectively, related to the sale of banking operations and bank branches.

Other operating expenses consisted of the following:
 
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Professional servicesProfessional services$3,921  $3,492  $9,750  $7,815  Professional services$4,561 $3,921 $9,808 $9,750 
PostagePostage1,769  1,445  4,005  3,171  Postage1,943 1,769 4,313 4,005 
TelephoneTelephone2,450  1,480  4,635  3,099  Telephone1,610 2,450 3,242 4,635 
Credit card expense(1)Credit card expense(1)4,582  3,762  8,964  7,622  Credit card expense(1)3,339 3,161 6,461 6,194 
MarketingMarketing3,528  2,436  7,913  5,493  Marketing4,740 3,528 7,893 7,913 
Software and technologySoftware and technology10,024  5,580  19,469  10,076  Software and technology9,857 10,024 20,108 19,469 
Operating suppliesOperating supplies828  560  1,764  1,178  Operating supplies838 828 1,408 1,764 
Amortization of intangiblesAmortization of intangibles3,369  2,947  6,782  5,588  Amortization of intangibles3,332 3,369 6,676 6,782 
Branch right sizing expenseBranch right sizing expense1,721  2,887  1,959  2,932  Branch right sizing expense468 1,721 1,093 1,959 
Other expenseOther expense2,459  8,278  8,198  15,955  Other expense7,319 7,459 13,859 16,198 
Total other operating expensesTotal other operating expenses$34,651  $32,867  $73,439  $62,929  Total other operating expenses$38,007 $38,230 $74,861 $78,669 
_________________________
(1)    During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. Prior periods have been adjusted to reflect this reclassification.
 
NOTE 20: CERTAIN TRANSACTIONS
 
From time to time, the Company and its subsidiaries have made loans, other extensions of credit, and vendor contracts to directors, officers, their associates and members of their immediate families. Additionally, some directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary bank, Simmons Bank. Such loans and other extensions of credit, deposits and vendor contracts (which were not material) were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons or through a competitive bid process. Further, in management’s opinion, these extensions of credit did not involve more than normal risk of collectability or present other unfavorable features.
 

41




NOTE 21: COMMITMENTS AND CREDIT RISK
 
The Company grants agri-business,agribusiness, commercial and residential loans to customers primarily throughout Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas, along with credit card loans to customers throughout the United States. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.
 
At June 30, 2020,2021, the Company had outstanding commitments to extend credit aggregating approximately $670,546,000$682.8 million and $2,933,075,000$2.45 billion for credit card commitments and other loan commitments, respectively. At December 31, 2019,2020, the Company had outstanding commitments to extend credit aggregating approximately $634,788,000$671.5 million and $3,991,931,000$2.36 billion for credit card commitments and other loan commitments, respectively.

As of June 30, 2021, the Company had outstanding commitments to originate fixed rate-rate mortgage loans of approximately $122.0 million. At December 31, 2020, the Company had outstanding commitments to originate fixed-rate mortgage loans of approximately $214.0 million. 
40




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 $63,279,000$41.9 million and $71,074,000$49.0 million at June 30, 2020,2021, and December 31, 2019,2020, respectively, with terms ranging from 9 months to 15 years. At June 30, 20202021 and December 31, 2019,2020, the Company had 0 deferred revenue under standby letter of credit agreements.

The Company has purchased letters of credit from the FHLB as security for certain public deposits. The amount of the letters of credit was $97.6 million and $1.5 billion at June 30, 2021 and December 31, 2020, respectively, and they expire in less than one year from issuance.

NOTE 22: FAIR VALUE MEASUREMENTS
 
ASC Topic 820, Fair Value Measurements defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
 
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value: 

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

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, the Company periodically checks the fair values by comparing them to another pricing source, such as Bloomberg. The availability of pricing confirms Level 2 classification in the fair value hierarchy. The third-party pricing service is subject to an annual review of internal controls (SSAE 16), which is made available for the Company’s review.controls. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company’s investment in U.S. Treasury securities, if any, is reported at fair value utilizing Level 1 inputs. The remainder of the Company’s available-for-sale securities are reported at fair value utilizing Level 2 inputs.
41




Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value on an aggregate basis. Adjustments to fair value are recognized monthly and reflected in earnings. In determining the fair value of loans held for sale, 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 June 30, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale exceeded their cost.
 
Derivative instruments – The Company’s derivative instruments are reported at fair value utilizing Level 2 inputs. The Company obtains fair value measurements from dealer quotes.

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

The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis as of June 30, 20202021 and December 31, 2019.2020.
 
 Fair Value Measurements Using  Fair Value Measurements Using
(In thousands)(In thousands)Fair ValueQuoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
(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    
June 30, 2021June 30, 2021    
Available-for-sale securitiesAvailable-for-sale securities    Available-for-sale securities    
U.S. TreasuryU.S. Treasury$600 $600 $$
U.S. Government agenciesU.S. Government agencies$210,921  $—  $210,921  $—  U.S. Government agencies554,937 554,937 
Mortgage-backed securitiesMortgage-backed securities1,154,086  —  1,154,086  —  Mortgage-backed securities3,987,209 3,987,209 
State and political subdivisionsState and political subdivisions1,054,068  —  1,054,068  —  State and political subdivisions1,557,497 1,557,497 
Other securitiesOther securities77,821  —  77,821  —  Other securities456,338 456,338 
Other assets held for sale399  —  —  399  
Mortgage loans held for saleMortgage loans held for sale36,011 36,011 
Derivative assetDerivative asset44,702  —  44,702  —  Derivative asset20,475 20,475 
Derivative liabilityDerivative liability(45,080) —  (45,080) —  Derivative liability(20,659)(20,659)
December 31, 2019
December 31, 2020December 31, 2020
Available-for-sale securitiesAvailable-for-sale securitiesAvailable-for-sale securities
U.S. Treasury$449,729  $449,729  $—  $—  
U.S. Government agenciesU.S. Government agencies194,249  —  194,249  —  U.S. Government agencies$477,237 $$477,237 $
Mortgage-backed securitiesMortgage-backed securities1,742,945  —  1,742,945  —  Mortgage-backed securities1,394,936 1,394,936 
States and political subdivisionsStates and political subdivisions880,524  —  880,524  —  States and political subdivisions1,470,723 1,470,723 
Other securitiesOther securities20,896  —  20,896  —  Other securities130,702 130,702 
Other assets held for sale260,332  —  —  260,332  
Mortgage loans held for saleMortgage loans held for sale137,378 137,378 
Derivative assetDerivative asset14,903  —  14,903  —  Derivative asset35,846 35,846 
Other liabilities held for saleOther liabilities held for sale(159,853) —  —  (159,853) Other liabilities held for sale(154,620)(154,620)
Derivative liabilityDerivative liability(12,650) —  (12,650) —  Derivative liability(36,141)(36,141)


4342




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. Financial assets and liabilities measured at fair value on a nonrecurring basis include the following:

Individually assessed loans (collateral-dependent) – When the Company has a specific expectation to initiate, or has initiated, foreclosure proceedings, and when the repayment of a loan is expected to be substantially dependent on the liquidation of underlying collateral, the relationship is deemed collateral-dependent. Fair value of the loan is determined by establishing an allowance for credit loss for any exposure based on the valuation of the underlying collateral. The valuation of the collateral is determined by either an independent third-party appraisal or other collateral analysis. Discounts can be made by the Company based upon the overall evaluation of the independent appraisal. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy. Collateral values supporting the individually assessed loans are evaluated quarterly for updates to appraised values or adjustments due to 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 credit losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets and other real estate owned is estimated using Level 3 inputs based on unobservable market data.

The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent 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.
 
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 June 30, 2020 and December 31, 2019, the aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, 0 mortgage loans held for sale were marked down and reported at fair value.
The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a nonrecurring basis as of June 30, 20202021 and December 31, 2019.2020. 
  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  

  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, 2021    
Individually assessed loans (1) (2) (collateral-dependent)
$31,232 $$$31,232 
Foreclosed assets and other real estate owned (1)
1,889 1,889 
December 31, 2020
Individually assessed loans (1) (2) (collateral-dependent)
$66,209 $$$66,209 
Foreclosed assets and other real estate owned (1)
17,074 17,074 
________________________
(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$8,340,000 and $1,297,000$13,725,000 were related to collateral-dependent loans for which fair value re-measurements took place during the periods ended June 30, 20202021 and December 31, 2019,2020, respectively.


44
43




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

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

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

Loans – The fair value of loans is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Additional factors considered include the type of loan and related collateral, variable or fixed rate, classification status, remaining term, interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans. The fair value of loans is estimated on an exit price basis incorporating the above factors (Level 3).
 
Deposits – The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities (Level 3).
 
Federal Funds purchased, securities sold under agreement to repurchase and short-term debt – The carrying amount for Federal funds purchased, securities sold under agreement to repurchase and short-term debt are a reasonable estimate of fair value (Level 2).
 
Other borrowings – For short-term instruments, the carrying amount is a reasonable estimate of fair value. For long-term debt, rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value (Level 2).
 
Subordinated debentures – The fair value of subordinated debentures is estimated using the rates that would be charged for subordinated debentures of similar remaining maturities (Level 2).
 
Accrued interest receivable/payable – The carrying amounts of accrued interest approximated fair value (Level 2).
 
Commitments to extend credit, letters of credit and lines of credit – The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
 
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.


45
44




The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:
 
CarryingFair Value Measurements CarryingFair Value Measurements
(In thousands)(In thousands)AmountLevel 1Level 2Level 3Total(In thousands)AmountLevel 1Level 2Level 3Total
June 30, 2020     
June 30, 2021June 30, 2021     
Financial assets:Financial assets:     Financial assets:     
Cash and cash equivalentsCash and cash equivalents$2,545,160  $2,545,160  $—  $—  $2,545,160  Cash and cash equivalents$2,339,124 $2,339,124 $$$2,339,124 
Interest bearing balances due from banks - timeInterest bearing balances due from banks - time4,561  —  4,561  —  4,561  Interest bearing balances due from banks - time1,335 1,335 1,335 
Held-to-maturity securitiesHeld-to-maturity securities51,720  —  53,751  —  53,751  Held-to-maturity securities931,352 935,596 935,596 
Mortgage loans held for sale120,034  —  —  120,034  120,034  
Interest receivableInterest receivable79,772  —  79,772  —  79,772  Interest receivable67,916 67,916 67,916 
Loans, netLoans, net14,375,257  —  —  14,420,889  14,420,889  Loans, net11,159,113 11,270,332 11,270,332 
Financial liabilities:Financial liabilities:Financial liabilities:
Non-interest bearing transaction accountsNon-interest bearing transaction accounts4,608,098  —  4,608,098  —  4,608,098  Non-interest bearing transaction accounts4,893,959 4,893,959 4,893,959 
Interest bearing transaction accounts and savings depositsInterest bearing transaction accounts and savings deposits8,978,045  —  8,978,045  —  8,978,045  Interest bearing transaction accounts and savings deposits10,569,602 10,569,602 10,569,602 
Time depositsTime deposits3,029,975  —  —  3,046,955  3,046,955  Time deposits2,841,052 2,849,515 2,849,515 
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase387,025  —  387,025  —  387,025  Federal funds purchased and securities sold under agreements to repurchase187,215 187,215 187,215 
Other borrowingsOther borrowings1,393,689  —  1,504,732  —  1,504,732  Other borrowings1,339,193 1,417,544 1,417,544 
Subordinated notes and debenturesSubordinated notes and debentures382,604  —  402,716  —  402,716  Subordinated notes and debentures383,143 397,691 397,691 
Interest payableInterest payable10,473  —  10,473  —  10,473  Interest payable7,795 7,795 7,795 
December 31, 2019
December 31, 2020December 31, 2020
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$996,623  $996,623  $—  $—  $996,623  Cash and cash equivalents$3,472,152 $3,472,152 $$$3,472,152 
Interest bearing balances due from banks - timeInterest bearing balances due from banks - time4,554  —  4,554  —  4,554  Interest bearing balances due from banks - time1,579 1,579 1,579 
Held-to-maturity securitiesHeld-to-maturity securities40,927  —  41,855  —  41,855  Held-to-maturity securities333,031 341,925 341,925 
Mortgage loans held for sale58,102  —  —  58,102  58,102  
Interest receivableInterest receivable62,707  —  62,707  —  62,707  Interest receivable72,597 72,597 72,597 
Loans, netLoans, net14,357,460  —  —  14,290,188  14,290,188  Loans, net12,662,847 12,736,991 12,736,991 
Financial liabilities:Financial liabilities:Financial liabilities:
Non-interest bearing transaction accountsNon-interest bearing transaction accounts3,741,093  —  3,741,093  —  3,741,093  Non-interest bearing transaction accounts4,482,091 4,482,091 4,482,091 
Interest bearing transaction accounts and savings depositsInterest bearing transaction accounts and savings deposits9,090,878  —  9,090,878  —  9,090,878  Interest bearing transaction accounts and savings deposits9,672,608 9,672,608 9,672,608 
Time depositsTime deposits3,276,969  —  —  3,270,333  3,270,333  Time deposits2,832,327 2,848,621 2,848,621 
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase150,145  —  150,145  —  150,145  Federal funds purchased and securities sold under agreements to repurchase299,111 299,111 299,111 
Other borrowingsOther borrowings1,297,599  —  1,298,011  —  1,298,011  Other borrowings1,342,067 1,448,625 1,448,625 
Subordinated debentures388,260  —  397,088  —  397,088  
Subordinated notes and debenturesSubordinated notes and debentures382,874 398,827 398,827 
Interest payableInterest payable12,898  —  12,898  —  12,898  Interest payable8,887 8,887 8,887 

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 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.

45




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

Hedge Structures

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

Customer Risk Management Interest Rate Swaps

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

The 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, 2019June 30, 2021December 31, 2020
(In thousands)(In thousands)NotionalFair ValueNotionalFair Value(In thousands)NotionalFair ValueNotionalFair Value
Derivative assetsDerivative assets$445,660  $44,702  $401,969  $14,903  Derivative assets$343,900 $20,475 $408,881 $35,846 
Derivative liabilitiesDerivative liabilities455,010  45,080  387,075  12,650  Derivative liabilities347,630 20,659 417,941 36,141 

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$31.8 million as of June 30, 2020.2021.

Energy Hedging

During 2019, theThe Company began providingprovides 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, 20202021 for energy hedging Customer Sell to Company swaps were $12.6$18.1 million and the corresponding Company Sell to Dealer swaps were $12.6$18.1 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 employees, customers and shareholders that continue through the date of filing this report. Some of the implemented procedures include:

Addressing the safety of the Company’s 226 branches, following local, state, and federal 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 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 originated over 7,800 PPP loans with a balance of $963.7 million at June 30, 2020.

The Company continues to closely monitor this pandemic and expects to make future changes to respond to the pandemic as this situation continues to evolve. Further economic downturns accompanying this pandemic, or a delayed economic recovery from this pandemic, could result in increased deterioration in credit quality, past due loans, loans charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.$346,800.

4846




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
Audit Committee,To the Stockholders, Board of Directors and StockholdersAudit Committee
Simmons First National Corporation
Pine Bluff, Arkansas
 
Results of Review of Interim Financial Statements
 
We have reviewed the condensed consolidated balance sheet of Simmons First National Corporation and subsidiaries (“the Company”) as of June 30, 2020,2021, and the related condensed consolidated statements of income, comprehensive income (loss) and stockholders’ equity for the three-month and six-month periods ended June 30, 20202021 and 2019,2020, and cash flows for the six-month periods ended June 30, 20202021 and 2019,2020, 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 consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2019,2020, 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, 2020,25, 2021, 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, 2019,2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
Basis for Review Results
 
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Emphasis of Matter

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

 


 /s/ BKD, LLP
 
Little Rock, Arkansas
August 6, 20202021

4947




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

OVERVIEW

Our net income for the three months ended June 30, 20202021 was $58.8$74.9 million, or $0.54$0.69 diluted earnings per share, an increaseincreases of $3.2$16.1 million and a decrease of $0.04,$0.15, respectively, compared to the second quarter of 2019.2020. Included in both second quarter 20202021 and 20192020 results were non-core items related to our acquisitions early retirement programs and branch right sizing initiatives. Also included in our 2020 results were non-core items related to early retirement programs. Included in both period results are the gains associated with the Texas Branch Sale and Colorado Branch Sale.sale of branch operations. Excluding all non-core items, core earnings for the three months ended June 30, 20202021 were $60.1$75.4 million, or $0.55$0.69 core diluted earnings per share, compared to $65.5$60.1 million, or $0.68$0.55 core diluted earnings 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.2020.

Net income for the first six months of 20202021 was $136.0$142.3 million, or $1.22$1.31 diluted earnings per share, compared to $103.3$136.0 million, or $1.09$1.22 diluted earnings per share, for the same period in 2019.2020. Excluding the same non-core items referenced above, year-to-date core earnings were $134.0$139.4 million, an increase of $19.5$5.4 million compared to the same period in the prior year. Core diluted earnings per share for the first half of 20202021 were $1.28 compared to $1.21 equal tofor the same period in 2019. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.2020.

We completedIn June 2021, we announced the acquisition of The Landrum Company, including its wholly-owned bank subsidiary, Landmark Bank, in October 2019. The systems conversionacquisitions of Landmark, Bank was completed during February 2020. See Note 2, Acquisitions,based in Collierville, TN, and Triumph, based in Memphis, TN. Completion of 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 AntonioLandmark 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 recognized a combined gain on sale of $8.1 million on the Texas Branches and Colorado Branches.

Early in 2020, we offered qualifying associates an early retirement option resulting in $493,000 of non-core expenseTriumph transactions is expected during the second quarter. We expect ongoing net annualized savingsfourth quarter of approximately $2.9 million from this program.2021 and is subject to certain closing conditions, including approval by the shareholders of Landmark and Triumph, as well as customary regulatory approvals.

We continuously evaluate our branch network asto ensure it reflects our core footprint and changes in customer behavior which allows us to efficiently serve our customers’ evolving needs. As part of our analysisongoing branch right sizing initiative, during the second quarter of our profitability of our operations and the efficiency with which2021, we deliver banking services to our markets. As a result of this ongoing evaluation, we closed 11 branch locations during June 2020, with estimated net annual cost savings of approximately $2.4 million related to these locations. In addition, we expectannounced plans to close an additional 23 branch locations and one loan production office12 branches during the fourththird quarter of 2020, with2021.

Simmons Bank was named to Forbes magazine’s list of “World’s Best Banks” for the second consecutive year and ranked among the top 30 banks in Forbes’ list of “America’s Best Banks” for 2021. We continue to introduce new and innovative products and services using digital channels to provide an expected net annual cost savingsenhanced customer experience to “bank when you want, where you want”.

On March 12, 2021, we completed the sale of approximately $6.8 million.four Simmons Bank locations in the Metro East area of Southern Illinois, near St. Louis. We recognized a gain of $5.3 million on the sale of the Illinois branches.

We have added over 38,000 new digital banking users sincedelivered solid performance in multiple areas while continuing to navigate the endchallenging environment. We are still feeling the effects of February 2020. In March 2020, for the first time, we had more weekly transactions using digital channels than atCOVID-19 pandemic in the branches,economy and some industries are still struggling to return to pre-COVID levels of performance; however, our mobile deposit usage has seen an increaseasset quality continued to show marked improvement during the second quarter of 75% since the end of February. During 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 mobile platforms, including acquired institutions.2021.

Stockholders’ equity as of June 30, 20202021 was $2.9$3.0 billion, book value per share was $26.64$28.03 and tangible book value per share was $15.79.$17.16. Our ratio of common stockholders’ equity to total assets was 13.26%12.97% and the ratio of tangible common stockholders’ equity to tangible assets was 8.31%8.36% at June 30, 2020. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.2021. The Company’s Tier 1 leverage ratio of 8.78%8.99%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levelsguidelines (see Table 12 in the Capital section of this Item).

Total loansdeposits were $14.61$18.3 billion at June 30, 2020,2021, compared to $14.37$17.0 billion at MarchDecember 31, 2020 and $13.13$16.6 billion at June 30, 2019.2020. The increase fromin total deposits is, in significant part, a reflection of the multiple rounds of economic stimulus legislation in response to the COVID-19 pandemic that have created a rapid rise in liquidity and have led to changes in customer spending habits. Trends affected by the increase in customer cash balances are pay downs on loans, decreased loan demand, reduced credit card balances and fewer overdraft activities.
Total loans were $11.4 billion at June 30, 2021, compared to $12.9 billion at December 31, 2020 and $14.6 billion at June 30, 2020. Total loan production (loan originations and advances) during the first half of 2021 totaled $1.8 billion, which positions us to exceed loan production volume reported for the full year of 2020. While loan originations and advances are outpacing prior year is primarily due toproduction, 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 milliondecline in loan originations underbalances reflects, in significant part, the Paycheck Protection Program (“PPP”)substantial government stimulus to support the economy during the COVID-19 pandemic which contributed to an increase in the level of loan paydowns, payoffs and corresponding sluggish loan demand throughout the CARES Act. See the COVID-19 Impact section below for additional information.financial services industry.

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.

5048




Simmons First National Corporation is an Arkansas-based financial holding company that, as of June 30, 2020, has approximately $21.9 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, 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, 2020,2021, we had $441.4 million in loans outstanding under the Company has approximately $2.5 billionPPP. The change in cash and cash equivalents and is well capitalized, which management believes has allowed us to continue to approachtotal PPP loan balances during the crisis from a positionsecond quarter of strength.2021 was as follows:

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 million478%355,415  37 %
PPP loan balance $2 million to $10 million62%215,968  22 %
Total7,826100 %$963,712  100 %
PPPPPPTotal
(Dollars in thousands)Round 1Round 2PPP Loans
Beginning balance, January 1, 2021$904,673 $— $904,673 
PPP loan originations— 318,906 318,906 
PPP loan forgiveness and repayments(763,902)(18,324)(782,226)
Ending balance, June 30, 2021$140,771 $300,582 $441,353 

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%13.22% and tangible common equity to tangible assets was 8.7%8.53% as of June 30, 2020. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.2021.

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,closely monitor the COVID-19 pandemic and we expect to continuemake future changes to adjustrespond as necessary. We have consolidated various operationsthis situation continues to provide capacity for continued service to our customers and communities.

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

In our discussion and analysis of our financial condition and results of operation in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we provide certain financial information determined by methods other than in accordance with US GAAP. We believe the presentation of non-GAAP financial measures provides a meaningful basis for period-to-period and company-to-company comparisons, which we believe will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. See the GAAP Reconciliation of Non-GAAP Measures section below for additional discussion and reconciliations of non-GAAP measures.

51Simmons First National Corporation is a Mid-South based financial holding company that, as of June 30, 2021, has approximately $23.4 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas.




CRITICAL ACCOUNTING POLICIES
 
Overview
 
We follow accounting and reporting policies that conform, in all material respects, to US GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principlesUS GAAP 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 credit losses, (b) acquisition accounting and valuation of loans, (c) the valuation of goodwill and the useful lives applied to intangible assets, (d) the valuation of stock-based compensation plans and (e) income taxes.

Allowance for Credit Losses
 
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 loancredit losses and risks inherent in the loan portfolio. Our allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses. Accordingly, the methodology is
49




based on our reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. For further information see the section Allowance for Credit Losses below.

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

We account for our 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. Our historical acquisitions all occurred under previous US GAAP prior to our adoption of CECL. NoIn accordance with ASC 326, we record both a discount and an allowance for loancredit losses related to theon acquired loans was recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk.loans. 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 included estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

We evaluate loans acquired in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method.


52




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

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

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 restricted stock, restricted stock units or performance or bonus sharesstock units 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 16, Stock-Based Compensation, in the accompanying Condensed Notes to Consolidated Financial Statements included elsewhere in this report.

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

50




NET INTEREST INCOME
 
Overview
 
Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 26.135%.
 
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. In the last several years, on average, approximately 40%41% of our loan portfolio and approximately 80%74% of our time deposits have repriced in one year or less. Our current interest rate sensitivity shows that approximately 51%44% of our loans and 76%86% of our time deposits will reprice in the next year.

53




Net Interest Income Quarter-to-Date Analysis

For the three month period ended June 30, 2020,2021, net interest income on a fully taxable equivalent basis was $166.0$151.1 million, an increasea decrease of $14.9$15.0 million, or 9.9%9.0%, over the same period in 2019.2020. The increasedecrease in net interest income was primarily the result of a $17.8$22.5 million decrease in fully tax equivalent interest income partially offset by a $7.5 million decrease in interest expense partially offset by a reduction in interest income of $2.9 million.expense.

The reduction in interest income primarily resulted from decreasesa $38.2 million decrease in interest income on loans partially offset by an increase of $1.1 million and $1.7$15.9 million in interest income on investment securities. The decrease in interest income on loans and investment securities, respectively. Duringduring the second quarter of 2020, we generated $24.8 million of additional interest income due to2021, reflects a lower average loan balance combined with an increase in loan volume, primarily from our Landrum acquisition completed during the fourth quarter 2019, while a 7411 basis point decline in yield resulted in a $25.8 million decrease in interest income.loan yield. The loan yield for the second quarter of 20202021 was 4.84%4.73% compared to 5.58% for4.84% from the same period in 2019. The PPP loan yield was approximately 2.33% (including accretion2020. We generated additional interest income on investment securities by redeploying a portion of net fees), which decreased the loan yield by 10 basis points. Excluding the PPP loans, loan yield forexcess cash to purchase $2.5 billion of investment securities during the second quarter 2020 was 4.94%. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion2021, which included $1.1 billion of non-GAAP measures.

Included in interest income is the additional yield accretion recognized as a result of updated estimates of the cash flows of our loans acquired. Each quarter, we estimate the cash flows expected to be collected from the loans acquired, and adjustments may or may not be required. The cash flows estimate 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 June 30, 2020 and 2019, interest income included $11.7 million and $10.2 million, respectively, for the yield accretion recognized on loans acquired.short-term, variable rate securities.

The $17.8$7.5 million decrease in interest expense is mostly due to the decline in our deposit account rates and our FHLB borrowing rates. Interest expense decreased $21.2$7.7 million due to the decrease in yield of 7827 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 of $4.4 million in deposit growth primarily due to the Landrum acquisition.accounts.

Net Interest Income Year-to-Date Analysis

For the six month period ended June 30, 2020,2021, net interest income on a fully taxable equivalent basis was $335.8$301.9 million, an increasea decrease of $47.1$33.9 million, or 16.3%10.1%, over the same period in 2019.2020. The increasedecrease in net interest income was the result of a $28.9$60.4 million increasedecrease in fully tax equivalent interest income coupled withpartially offset by a $18.2$26.5 million decrease in interest expense.

The increasedecrease in interest income during the first half of 2021 primarily resulted from a $27.2$79.3 million decrease in interest income on loans, that reflects a decrease in loan volume of $59.4 million coupled with a 27 basis point decline in yield that resulted in a $19.9 million decrease, partially offset by an increase in interest income on loans and an increaseinvestment securities of $1.6 million$20.4 million. The decrease in interest income on investment securities. The increase inour loan volume during the first six months of 2021 was primarily due to weak loan demand throughout 2020 generated $61.2 millionand into the first half of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, while2021 as a 54 basis pointresult of the COVID-19 pandemic. Furthermore, the decline in yield resultedloan volume also reflects the substantial governmental stimulus to support the economy during the COVID-19 pandemic which contributed to an increase in a $34.0 million decrease in interest income.the level of loan paydowns and payoffs.

ForWe sold approximately $249.5 million of investment securities during the six months ended June 30,first half of 2021 compared to $1.2 billion of investment securities during the same period in 2020. During the second quarter of 2020, in response to the unfolding events of the COVID-19 pandemic, we focused on the creation of additional liquidity and strengthening our balance sheet. We began to re-invest in our investment security portfolio during the fourth quarter of 2020 and 2019, interest income included $23.6 million and $16.8 million, respectively, forcontinued into the yield accretion recognized on loans acquired.first half of 2021.

The $18.2$26.5 million decrease in interest expense is mostly due to the decrease in our deposit account rates and our FHLB borrowing rates. Interest expense decreased $27.4 million due to the decrease in yield of 5344 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$2.0 million related to approximately $1.1 billion in average deposit growth primarily due to the Landrum and Reliance acquisitions completed in 2019.growth.

51




Net Interest Margin
 
Our net interest margin on a fully tax equivalent basis decreased 5253 basis points to 3.42%2.89% for the three month period ended June 30, 2020,2021, when compared to 3.94%3.42% for the same period in 2019.2020. Normalized for all accretion, our core net interest margin for the three months ended June 30, 2021 and 2020 was 2.78% and 2019 was 3.18% and 3.67%, respectively. For the six month period ended June 30, 2020,2021, our net interest margin decreased 3561 basis points to 3.55%2.94% when compared to 3.90%3.55% for the same period in 2019.2020.

The decreases in the net interest margin during the three and six months ended June 30, 2021 compared to the same periods in 2020, were primarily due to the aforementioned decline in net interest income coupled with a $1.6 billion increase in average cash and equivalents driven by the lower interest rate environment and additional liquidity created in response to the COVID-19 pandemic, and the lower yielding PPP loans originatedpandemic. We purchased investment securities which added approximately $2.5 billion to our average investment securities portfolio during the second quarterfirst half of 2020.2021. The impact of these items on the second quarter 2020 core net interest margin for the six months ended June 30, 2021 was 2527 basis points, bringing the core net interest margin adjusted for PPP loans and additional liquidity to 3.43%3.21%. See “GAAP Reconciliation of Non-GAAP Measures” 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 responsepandemic and rates have continued to remain at historically low levels through the substantial interest rate cuts in March 2020 than we can manage the rate decrease insecond quarter of 2021. As such, our variable rate loan portfolio also caused by such cuts,has repriced to a lower yield and, in response to offset the decline, we expect continued pressure on thehave worked to lower our cost of deposits. In addition, our decreased net interest margin foris being driven by the remainderdecrease in our non-PPP loan portfolio as a result of 2020.COVID-19 but our loan pipeline has started to rebuild and we expect modest organic loan growth during the second half of 2021.

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 six months ended June 30, 2021 and 2020, and 2019, respectively, as well as changes in fully taxable equivalent net interest margin for the three and six months ended June 30, 2020 versus June 30, 2019.

respectively.

Table 1: Analysis of Net Interest Margin
(FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%)



Three Months Ended
June 30,
Six Months Ended
June 30,

Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Interest incomeInterest income$191,654  $195,241  $400,885  $373,326  Interest income$166,969 $191,654 $336,403 $400,885 
FTE adjustmentFTE adjustment2,350  1,706  4,655  3,307  FTE adjustment4,548 2,350 8,711 4,655 
Interest income – FTEInterest income – FTE194,004  196,947  405,540  376,633  Interest income – FTE171,517 194,004 345,114 405,540 
Interest expenseInterest expense27,973  45,813  69,721  87,903  Interest expense20,436 27,973 43,189 69,721 
Net interest income – FTENet interest income – FTE$166,031  $151,134  $335,819  $288,730  Net interest income – FTE$151,081 $166,031 $301,925 $335,819 
Yield on earning assets – FTEYield on earning assets – FTE4.00 %5.13 %4.28 %5.09 %Yield on earning assets – FTE3.28 %4.00 %3.36 %4.28 %
Cost of interest bearing liabilitiesCost of interest bearing liabilities0.78 %1.53 %0.98 %1.53 %Cost of interest bearing liabilities0.54 %0.78 %0.57 %0.98 %
Net interest spread – FTENet interest spread – FTE3.22 %3.60 %3.30 %3.56 %Net interest spread – FTE2.74 %3.22 %2.79 %3.30 %
Net interest margin – FTENet interest margin – FTE3.42 %3.94 %3.55 %3.90 %Net interest margin – FTE2.89 %3.42 %2.94 %3.55 %

Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)2021 vs. 20202021 vs. 2020
Decrease due to change in earning assets$(15,336)$(27,555)
Decrease due to change in earning asset yields(7,151)(32,871)
Decrease due to change in interest bearing liabilities(89)(1,566)
Increase due to change in interest rates paid on interest bearing liabilities7,626 28,098 
Decrease in net interest income$(14,950)$(33,894)
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  


52




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 six months ended June 30, 20202021 and 2019.2020. 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
(FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%)

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  


Three Months Ended June 30,
20212020
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
ASSETS
Earning assets:
Interest bearing balances due from banks and federal funds sold$2,703,920 $651 0.10 $2,190,878 $603 0.11 
Investment securities - taxable4,265,545 14,594 1.37 1,642,083 7,131 1.75 
Investment securities - non-taxable2,157,076 16,899 3.14 866,944 8,434 3.91 
Mortgage loans held for sale49,262 386 3.14 86,264 668 3.11 
Loans11,783,839 138,987 4.73 14,731,306 177,168 4.84 
Total interest earning assets20,959,642 171,517 3.28 19,517,475 194,004 4.00 
Non-earning assets2,298,279 2,304,798 
Total assets$23,257,921 $21,822,273 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:      
Interest bearing liabilities:      
Interest bearing transaction and savings deposits$10,403,932 $4,721 0.18 $9,138,563 $7,203 0.32 
Time deposits2,930,025 6,061 0.83 3,057,153 10,803 1.42 
Total interest bearing deposits13,333,957 10,782 0.32 12,195,716 18,006 0.59 
Federal funds purchased and securities sold under agreements to repurchase240,876 192 0.32 392,633 337 0.35 
Other borrowings1,340,008 4,897 1.47 1,395,109 4,963 1.43 
Subordinated debt and debentures383,078 4,565 4.78 387,422 4,667 4.84 
Total interest bearing liabilities15,297,919 20,436 0.54 14,370,880 27,973 0.78 
Non-interest bearing liabilities:
Non-interest bearing deposits4,826,927 4,354,781 
Other liabilities151,699 216,508 
Total liabilities20,276,545 18,942,169 
Stockholders’ equity2,981,376 2,880,104 
Total liabilities and stockholders’ equity$23,257,921 $21,822,273 
Net interest spread – FTE2.74 3.22 
Net interest margin – FTE$151,081 2.89 $166,031 3.42 
5653




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  


Six Months Ended June 30,
20212020
AverageIncome/Yield/AverageIncome/Yield/
(In thousands)BalanceExpenseRate (%)BalanceExpenseRate (%)
ASSETS
Earning assets:
Interest bearing balances due from banks and federal funds sold$3,088,816 $1,449 0.09 $1,477,759 $3,044 0.41 
Investment securities - taxable3,373,375 24,714 1.48 1,983,134 19,883 2.02 
Investment securities - non-taxable2,039,153 32,338 3.20 883,585 16,749 3.81 
Mortgage loans held for sale73,202 1,025 2.82 64,927 949 2.94 
Loans12,149,041 285,588 4.74 14,640,082 364,915 5.01 
Total interest earning assets20,723,587 345,114 3.36 19,049,487 405,540 4.28 
Non-earning assets2,276,218 2,321,761 
Total assets$22,999,805 $21,371,248 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:      
Interest bearing liabilities:      
Interest bearing transaction and savings deposits$10,249,756 $10,809 0.21 $9,072,133 $25,157 0.56 
Time deposits2,986,201 13,152 0.89 3,104,030 24,126 1.56 
Total interest bearing deposits13,235,957 23,961 0.37 12,176,163 49,283 0.81 
Federal funds purchased and securities sold under agreements to repurchase274,024 437 0.32 361,768 1,096 0.61 
Other borrowings1,340,531 9,699 1.46 1,357,677 9,840 1.46 
Subordinated debt and debentures383,011 9,092 4.79 387,876 9,502 4.93 
Total interest bearing liabilities15,233,523 43,189 0.57 14,283,484 69,721 0.98 
Non-interest bearing liabilities:
Non-interest bearing deposits4,624,158 3,978,728 
Other liabilities164,686 213,918 
Total liabilities20,022,367 18,476,130 
Stockholders’ equity2,977,438 2,895,118 
Total liabilities and stockholders’ equity$22,999,805 $21,371,248 
Net interest spread – FTE2.79 3.30 
Net interest margin – FTE$301,925 2.94 $335,819 3.55 

5754




Table 4 shows changes in interest income and interest expense resulting from changes in both volume and changes in interest rates for the three and six month periods ended June 30, 2020,2021, 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
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 vs. 20192020 vs. 20192021 vs. 20202021 vs. 2020
(In thousands, on a fully taxable equivalent basis)(In thousands, on a fully taxable equivalent basis)VolumeYield/
Rate
TotalVolumeYield/
Rate
Total(In thousands, on a fully taxable equivalent basis)VolumeYield/
Rate
TotalVolumeYield/
Rate
Total
Increase (decrease) in:Increase (decrease) in:   Increase (decrease) in:   
Interest income:Interest income:   Interest income:   
Interest bearing balances due from banks and federal funds soldInterest bearing balances due from banks and federal funds sold$1,386  $(1,904) $(518) $4,011  $(4,242) $(231) Interest bearing balances due from banks and federal funds sold$129 $(81)$48 $1,819 $(3,414)$(1,595)
Investment securities - taxableInvestment securities - taxable (3,936) (3,935) 3,659  (6,800) (3,141) Investment securities - taxable9,259 (1,796)7,463 11,228 (6,397)4,831 
Investment securities - non-taxableInvestment securities - non-taxable2,358  (133) 2,225  5,243  (537) 4,706  Investment securities - non-taxable10,390 (1,925)8,465 18,724 (3,135)15,589 
Mortgage loans held for saleMortgage loans held for sale438  (102) 336  633  (226) 407  Mortgage loans held for sale(290)(282)117 (41)76 
LoansLoans24,766  (25,817) (1,051) 61,214  (34,048) 27,166  Loans(34,824)(3,357)(38,181)(59,443)(19,884)(79,327)
TotalTotal28,949  (31,892) (2,943) 74,760  (45,853) 28,907  Total(15,336)(7,151)(22,487)(27,555)(32,871)(60,426)
Interest expense:Interest expense:Interest expense:
Interest bearing transaction and savings accountsInterest bearing transaction and savings accounts4,514  (17,501) (12,987) 9,579  (23,042) (13,463) Interest bearing transaction and savings accounts893 (3,375)(2,482)2,915 (17,263)(14,348)
Time depositsTime deposits(72) (3,731) (3,803) 1,551  (4,351) (2,800) Time deposits(432)(4,310)(4,742)(884)(10,090)(10,974)
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase283  (203) 80  731  (28) 703  Federal funds purchased and securities sold under agreements to repurchase(122)(23)(145)(223)(436)(659)
Other borrowingsOther borrowings534  (1,790) (1,256) 1,036  (4,208) (3,172) Other borrowings(199)133 (66)(124)(17)(141)
Subordinated notes and debenturesSubordinated notes and debentures411  (285) 126  835  (285) 550  Subordinated notes and debentures(51)(51)(102)(118)(292)(410)
TotalTotal5,670  (23,510) (17,840) 13,732  (31,914) (18,182) Total89 (7,626)(7,537)1,566 (28,098)(26,532)
Increase (decrease) in net interest income$23,279  $(8,382) $14,897  $61,028  $(13,939) $47,089  
Decrease in net interest incomeDecrease in net interest income$(15,425)$475 $(14,950)$(29,121)$(4,773)$(33,894)

PROVISION FOR CREDIT LOSSES
 
The provision for credit losses represents management’s determination of the amount necessary to be charged against the current period’s earnings in order to maintain the allowance for credit losses at a level considered appropriate in relation to the estimated lifetime risk inherent in the loan portfolio. The level of provision to the allowance is based on management’s judgment, with consideration given to the composition, maturity and other qualitative characteristics of the portfolio, assessment of current economic conditions, reasonable and supportable forecasts, past due and non-performing loans and historical net credit loss experience. It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance.
 
The provision for credit losses for the three and six month periodsmonths ended June 30, 2020,2021 was $26.9a recapture of $13.0 million and $53.0$11.5 million, respectively, compared to $7.1an expense of $21.9 million and $16.4$45.0 million for the same periods ended June 30, 2019, increases2020. The recapture of $19.8 millioncredit losses was driven by improved credit quality metrics 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 problemimproved macroeconomic factors. Two energy credits subsequently charged-off during second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing. The remainderpricing during the first quarter of 2020, resulting in incremental provision expense of $22.0 million during that quarter and combined with uncertain economic forecasts during the increase was relatedfirst six months of 2020 to the economic impact of the COVID-19 pandemic that is incorporated in the Company’s allowancedrive higher provisions for credit losses.

losses during that period.

5855




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

Total non-interest income was $50.2$47.9 million for the three month period ended June 30, 2020, an increase2021, a decrease of approximately $10.3 million,$882,000, or 25.8%1.8%, compared to the same period in 2019,2020, primarily driven by increasesdecreases in trustmortgage lending income and mortgage lending income.the difference in gains on sale of branches recognized during the periods. Conversely, we had decreasesincreases in total service charges on deposit accounts and fees of $1.8$2.0 million, or 15.2%20.3%, primarily attributable to a reduction inadditional customer transactions related to the impact of the COVID-19 pandemicchanges in customer spending habits and lowerincremental gains on the sale of securities during the second quarter of 2020.2021.

For the six month period ended June 30, 2020,2021, total non-interest income was $132.6$98.3 million, an increasea decrease of approximately $57.9$31.6 million, or 77.5%24.3%, compared to the same period in 2019.2020, primarily due to decreases in the gains on sale of securities and mortgage lending income. During the first halfsix months of 2020,2021, we sold approximately $1.2 billion$249.5 million of investment securities resulting in a net gain of $32.5 million. The majority$10.6 million, compared to $1.2 billion of the investment securities were sold for a net gain of $32.5 million in March 2020, in response to the unfolding events of the COVID-19 pandemic, as we focused on the creation of additional liquidity and strengthening our balance sheet. We used a portion of the liquidity generated by these investment security sales to fund PPP loans originated during second quarterfirst six months of 2020. We plan to reinvest back into our investment portfolio when the PPP loans are repaid, subject to economic conditions and other concerns at such time. Additionally, the gainsgain on sale from the Texas Branch Sale and Colorado Branch Sales of $8.1branches decreased approximately $2.2 million, which we consider a non-core item, contributedcompared to the same period in 2020. An increase of $2.1 million in debit and credit fees partially offset the overall decrease in non-interest income during 2020.the first six months of 2021 as a result of additional transactions due to the changes in customer spending habits.

The increaseDecreases of $8.0 million and $6.6 million in mortgage lending income in bothfor the three and six month periods ended June 30, 2020 was2021 were largely a result of decreases in the currentvalue of derivative contracts related to the mortgage banking operations partially offset by gains on the sale of mortgage loans that were driven by an increase in volume of loans sold during the first half of 2021 compared to the same period in 2020. Beginning in 2020 and continuing into 2021, we experienced an increase in mortgage lending transactions as a result of the low mortgage interest rate environment as well as increased business relateddue to our Landrum and Reliance acquisitions.the COVID-19 pandemic. However, we expect mortgage lending volume to continue to decline throughout 2021 given the current environment.

Table 5 shows non-interest income for the three and six month periods ended June 30, 20202021 and 2019,2020, respectively, as well as changes in 20202021 from 2019.2020.
 
Table 5: Non-Interest Income

Three Months Ended
June 30,
2021
Change from
Six Months Ended
June 30,
2021
Change from
(Dollars in thousands)202120202020202120202020
Trust income$7,238 $7,253 $(15)(0.2)%$13,904 $14,404 $(500)(3.5)%
Service charges on deposit accounts10,050 8,570 1,480 17.319,765 21,898 (2,133)(9.7)
Other service charges and fees2,048 1,489 559 37.53,970 3,077 893 29.0
Mortgage lending income4,490 12,459 (7,969)(64.0)10,937 17,505 (6,568)(37.5)
SBA lending income287 245 42 17.1527 541 (14)(2.6)
Investment banking income654 571 83 14.51,349 1,448 (99)(6.8)
Debit and credit card fees (1)
7,882 6,575 1,307 19.915,283 13,140 2,143 16.3
Bank owned life insurance income2,038 1,445 593 41.03,561 2,743 818 29.8
Gain on sale of securities, net5,127 390 4,737 *10,598 32,485 (21,887)(67.4)
Gain on sale of branches445 2,204 (1,759)(79.8)5,922 8,093 (2,171)(26.8)
Other income7,665 7,605 60 0.812,448 14,517 (2,069)(14.3)
Total non-interest income$47,924 $48,806 $(882)(1.8)%$98,264 $129,851 $(31,587)(24.3)%
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 %
_________________________
_____________________________(1)    During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. Prior periods have been adjusted to reflect this reclassification.
*    Not meaningful

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended June 30, 20202021 was $25.3$27.2 million, an increase of $433,000$3.3 million from the same period in 2019.2020. Recurring fee income for the six month period ended June 30, 2020,2021, was $55.3$52.9 million, an increase of $7.3 million$403,000 from the six month period ended June 30, 2019,2020. The increases in the periods presented are primarily the result of the Landrumchanges in total service charges and Reliance acquisitions completed during 2019.

debit and credit card fees, previously discussed.
5956




NON-INTEREST EXPENSE
 
Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for our operations. Management remains committed to controlling the level of non-interest expense through the continued use of expense control measures. We utilize an extensive profit planning and reporting system involving all subsidiaries. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management monthly. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements.
 
Non-interest expense forFor the three monthsmonth period ended June 30, 20202021, non-interest expense was $112.6$115.5 million, an increasea decrease of $1.9 million,$711,000, or 1.7%0.6%, from the samethree month period in 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 these non-core costs, core non-interest expense for the three months ended June 30, 20202020. Salaries and employee benefits expense increased $11.2$3.1 million or 11.4%, fromduring the samethree month period of 2021 due to associates being hired in 2019.lending, wealth and mortgage as we continue to actively recruit new producers.

Non-interest expense for the six months ended June 30, 20202021 was $238.4$229.3 million, an increasea decrease of $26.3$14.4 million, or 12.4%5.9%, from the same period in 2019.2020. Normalizing for the non-core costs, core non-interest expense for the six months ended June 30, 2020 increased $36.12021 decreased $11.0 million, or 18.3%4.6%, from the same period in 2019. See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.2020.

The increases during both periods were primarily due to the incremental operating expenses from the Landrum and Reliance acquisitions completed during 2019. Also, our Next Generation Banking (“NGB”) technology initiative is well underway and the incremental software and technology expenditures of $9.4 million during the first six months of 2020decreases in non-interest expense were primarily related to this initiative.the realization of expected synergies from the continuous evaluation of our branch network and the branch sales and closures that began in 2020 and have continued in 2021. Additionally, salaries and employee benefits expense during the six month period June 30, 2021 was impacted by savings resulting from the early retirement program offered in the prior year.

Table 6 below shows non-interest expense for the three and six month periods ended June 30, 20202021 and 2019,2020, respectively, as well as changes in 20202021 from 2019.2020.
 
Table 6: Non-Interest Expense 
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 %

_____________________________
Three Months Ended
June 30,
2021
Change from
Six Months Ended
June 30,
2021
Change from
(Dollars in thousands)202120202020202120202020
Salaries and employee benefits$60,261 $57,151 $3,110 5.4%$120,601 $125,075 $(4,474)(3.6)%
Early retirement expense— 493 (493)(100.0)— 493 (493)(100.0)
Occupancy expense, net9,103 9,217 (114)(1.2)18,403 18,727 (324)(1.7)
Furniture and equipment expense4,859 6,144 (1,285)(20.9)10,274 11,867 (1,593)(13.4)
Other real estate and foreclosure expense863 274 589 *1,206 599 607 101.3
Deposit insurance1,687 2,838 (1,151)(41.0)2,995 5,313 (2,318)(43.6)
Merger related costs686 1,830 (1,144)(62.5)919 2,898 (1,979)(68.3)
Other operating expenses:
Professional services4,561 3,921 640 16.39,808 9,750 58 0.6
Postage1,943 1,769 174 9.84,313 4,005 308 7.7
Telephone1,610 2,450 (840)(34.3)3,242 4,635 (1,393)(30.1)
Credit card (1)
3,339 3,161 178 5.66,461 6,194 267 4.3
Marketing4,740 3,528 1,212 34.47,893 7,913 (20)(0.3)
Software and technology9,857 10,024 (167)(1.7)20,108 19,469 639 3.3
Operating supplies838 828 10 1.21,408 1,764 (356)(20.2)
Amortization of intangibles3,332 3,369 (37)(1.1)6,676 6,782 (106)(1.6)
Branch right sizing468 1,721 (1,253)(72.8)1,093 1,959 (866)(44.2)
Other7,319 7,459 (140)(1.9)13,859 16,198 (2,339)(14.4)
Total non-interest expense$115,466 $116,177 $(711)(0.6)%$229,259 $243,641 $(14,382)(5.9)%
_________________________
(1)    During the second quarter of 2021, certain debit and credit card transaction fees were reclassified from non-interest expense to non-interest income. Prior periods have been adjusted to reflect this reclassification.
*    Not meaningful

6057




INVESTMENTS AND SECURITIES

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as either HTM or AFS. Our philosophy regarding investments is conservative based on investment type and maturity. Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, MBS and municipal securities. Our general policy is not to invest in derivative type investments or high-risk securities, except for collateralized MBS for which collection of principal and interest is not subordinated to significant superior rights held by others.

HTM and AFS investment securities were $931.4 million and $6.6 billion, respectively, at June 30, 2021, compared to the HTM amount of $333.0 million and AFS amount of $3.5 billion at December 31, 2020. As anticipated, our security portfolio increased during the first six months of 2021 as we reinvested PPP loan repayments and utilized additional liquidity held in cash and cash equivalents. During the second quarter of 2021, we purchased $2.5 billion of investment securities, including strategically redeploying $1.1 billion of excess cash into short-term, variable rate securities, as previously discussed. We will continue to look for opportunities to maximize the value of the investment portfolio.

Management has the ability and intent to hold the securities classified as HTM until they mature, at which time we expect to receive full value for the securities. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Furthermore, as of June 30, 2021, management also had the ability and intent to hold the securities classified as AFS for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality.

LOAN PORTFOLIO
 
Our loan portfolio averaged $14.64$12.15 billion and $12.27$14.64 billion during the first six months of 20202021 and 2019,2020, respectively. As of June 30, 2020,2021, total loans were $14.61$11.39 billion, an increasea decrease of $181.2 million$1.5 billion from December 31, 2019.2020. The decline in the average loan balance during the first half of 2021 when compared to the same period in 2020 was due to the tepid loan demand that began in late first quarter of 2020 and has continued through 2021 largely as a result of the economic uncertainty stemming from the COVID-19 pandemic. 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).

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


58




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

Table 7: Loan Portfolio
June 30,December 31,June 30,December 31,
(In thousands)(In thousands)20202019(In thousands)20212020
Consumer:Consumer:  Consumer:  
Credit cardsCredit cards$184,348  $204,802  Credit cards$177,634 $188,845 
Other consumerOther consumer214,024  249,195  Other consumer181,712 202,379 
Total consumerTotal consumer398,372  453,997  Total consumer359,346 391,224 
Real estate:Real estate:Real estate:
Construction and developmentConstruction and development2,010,256  2,248,673  Construction and development1,428,165 1,596,255 
Single family residentialSingle family residential2,207,087  2,414,753  Single family residential1,608,028 1,880,673 
Other commercialOther commercial6,316,444  6,358,514  Other commercial5,332,655 5,746,863 
Total real estateTotal real estate10,533,787  11,021,940  Total real estate8,368,848 9,223,791 
Commercial:Commercial:Commercial:
CommercialCommercial3,038,216  2,451,119  Commercial2,074,729 2,574,386 
AgriculturalAgricultural217,715  191,525  Agricultural193,462 175,905 
Total commercialTotal commercial3,255,931  2,642,644  Total commercial2,268,191 2,750,291 
OtherOther418,810  307,123  Other389,967 535,591 
Total loans before allowance for credit lossesTotal loans before allowance for credit losses$14,606,900  $14,425,704  Total loans before allowance for credit losses$11,386,352 $12,900,897 

Consumer loans consist of credit card loans and other consumer loans. Consumer loans were $398.4$359.3 million at June 30, 2020,2021, or 2.7%3.2% of total loans, compared to $454.0$391.2 million, or 3.1%3.0% of total loans at December 31, 2019.2020. The decrease in consumer loans from December 31, 2019,2020, to June 30, 2020,2021, was primarily due to the expected seasonal decline in our credit card portfolio.portfolio as well as loan payoffs and pay downs due to additional customer liquidity driven by the government economic stimulus programs in response to the COVID-19 pandemic.

Real estate loans consist of construction and development (“C&D”)&D loans, single-family residential loans and commercial real estate (“CRE”)CRE loans. Real estate loans were $10.53$8.37 billion at June 30, 2020,2021, or 72.1%73.5% of total loans, compared to $11.02$9.22 billion, or 76.4%71.5%, of total loans at December 31, 2019,2020, a decrease of $488.2$854.9 million, or 4.4%9.3%. Our C&D loans decreased by $238.4$168.1 million, or 10.6%10.5%, single family residential loans decreased by $207.7$272.6 million, or 8.6%14.5%, and CRE loans decreased by $42.1$414.2 million, or 0.7%7.2%. Real estate loans declined approximately $104.6 million due to the Colorado Branch Sale. The remaining decrease wasdecreases were largely 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. Total commercial loans were $3.26$2.27 billion at June 30, 2020,2021, or 22.3%19.9% of total loans, compared to $2.64$2.75 billion, or 18.3%21.3% of total loans at December 31, 2019, an increase2020, a decrease of $613.3$482.1 million, or 23.2%, that is mostly in our non-agricultural commercial loan portfolio. The $963.7 million in17.5%. PPP loan originations drove the increase in commercial loansbalances declined by $782.2 million during the first halfsix months of 2020.
612021 as a result of expected reimbursements from the SBA related to PPP loan forgiveness, partially offset by PPP Round 2 loan originations of $318.9 million during 2021. We expect PPP balances to continue to decline through the remainder of the year. Agricultural loans increased $17.6 million, or 10.0%, primarily due to seasonality of the portfolio, which normally peaks in the third quarter. In addition, we are continuing with our planned exit of the energy portfolio.




Other loans mainly consists of mortgage warehouse lending. Mortgage volume, surgedwhile still strong, declined during second quarterthe first six months of 2020 due2021 when compared to the low interest rate environment2020, leading to an increasea decrease of $111.7$145.6 million in other loans primarily from mortgage warehouse lines of credit.

Loan demand appears to be returning to more normalized levels. For the third consecutive quarter, we have experienced an increase in commercial loan demand. Our loan pipeline consisting of all loan opportunities was $1.3 billion at June 30, 2021 compared to $673.7 million at December 31, 2020. Loans approved and ready to close at the end of the quarter totaled $467.1 million.

59




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. The subsidiary bankSimmons 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 credit losses.

When credit card loans 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 increased $34.9decreased $46.6 million from December 31, 20192020 to June 30, 2020.2021. Nonaccrual loans increaseddecreased by $40.2$42.6 million during the period and foreclosed assets held for sale and other real estate owned decreased by $5.0$3.2 million. The increasedecrease in nonaccrual loans was relatedprimarily due to several energy portfolio loansan overall improvement in economic conditions while the decrease in foreclosed assets held for sale and other real estate owned is mainly the result of the disposition of one commercial building in the St. Louis area partially offset by $4.4 million in closed bank branch facilities that became reportable as non-performing loans since year-end. We are actively pursuing an exitwere reclassified from premises held for sale during the second quarter of our energy lending portfolio, except for our customers who have a diversified relationship with us. 2021.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.70%0.43% at June 30, 2020,2021, compared to 0.56%0.66% at December 31, 2019.
2020. From time to time, certain borrowers are experiencingexperience declines in income and cash flow. As a result, these borrowers are seekingseek 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 tofor a borrower that is experiencing financial difficulty and grant a concession that we would not otherwise consider, a “troubled debt restructuring” resultsoccurs and the Company classifies the loan is classified 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.
 
Once an obligation has been restructured because ofdue to such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. Our TDR balance decreased to $4.8remained relatively flat at $7.1 million atas of June 30, 20202021, decreasing $417,000 from $5.3 million at December 31, 2019. The majority of our TDR balance remains in the commercial portfolio with the largest balance comprised of four relationships.2020.

TDRs are individually evaluated for expected credit losses. We assess the exposure for each modification, using 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.

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

The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act and is following the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by regulatory agencies.In response to the concerns related to the expiration of the applicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended late in the fourth quarter of 2020 to extend COVID-19 relief related to loan modifications to the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration.


6260




Through June 30,During 2020 and the Company has modified more than 4,600 loans totaling approximately $3.3 billion to loan customers affected by COVID-19. Of thesefirst half of 2021, we processed over 3,700 COVID-19 loan modifications approximately $3.1 billion are commercialin excess of $3.0 billion. At June 30, 2021, the Company had 43 COVID-19 loan modifications comprisedoutstanding in the amount of $134.5 million. The COVID-19 pandemic has had an unprecedented impact on the hotel, restaurant and retail industries, causing our borrowers in those industries to require loan modifications. At June 30, 2021, the majority of these balances have returned to regular payments and we expect most 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 %

Weremaining COVID-19 loan modifications to 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 accordanceregular payments with the contract for a sustained period, typically at least six months.no credit downgrade or long-term restructure.

We continue to maintain good asset quality compared to the industry. Strongindustry and strong asset quality remains a primary focus of our strategy. The allowance for credit losses as a percent of total loans was 1.59%2.00% as of June 30, 2020.2021. Non-performing loans equaled 0.91%0.71% of total loans. Non-performing assets were 0.68%0.42% of total assets, a 1522 basis point increasedecrease from December 31, 2019.2020. The allowance for credit losses was 175%281% of non-performing loans. Our annualized net charge-offs to average total loans for the first six months of 20202021 was 0.56%(0.07)%. Excluding credit cards, the annualized net charge-offs to average total loans for the same period was 0.54%(0.10)%. Annualized net credit card charge-offs to average total credit card loans were 1.98%1.78%, compared to 1.86%1.60% during the full year 2019,2020, and 193117 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 at amortized cost and foreclosed assets held for sale.

Table 9: Non-performing Assets 
June 30,December 31,June 30,December 31,
(Dollars in thousands)(Dollars in thousands)20202019(Dollars in thousands)20212020
Nonaccrual loans (1)
Nonaccrual loans (1)
$131,888  $91,723  
Nonaccrual loans (1)
$80,282 $122,879 
Loans past due 90 days or more (principal or interest payments)Loans past due 90 days or more (principal or interest payments)537  855  Loans past due 90 days or more (principal or interest payments)653 578 
Total non-performing loansTotal non-performing loans132,425  92,578  Total non-performing loans80,935 123,457 
Other non-performing assets:Other non-performing assets:Other non-performing assets:
Foreclosed assets held for sale and other real estate ownedForeclosed assets held for sale and other real estate owned14,111  19,121  Foreclosed assets held for sale and other real estate owned15,239 18,393 
Other non-performing assetsOther non-performing assets2,008  1,964  Other non-performing assets1,062 2,016 
Total other non-performing assetsTotal other non-performing assets16,119  21,085  Total other non-performing assets16,301 20,409 
Total non-performing assetsTotal non-performing assets$148,544  $113,663  Total non-performing assets$97,236 $143,866 
Performing TDRsPerforming TDRs$3,960  $4,411  Performing TDRs$4,436 $3,138 
Allowance for credit losses to non-performing loansAllowance for credit losses to non-performing loans175 %74 %Allowance for credit losses to non-performing loans281 %193 %
Non-performing loans to total loansNon-performing loans to total loans0.91 %0.64 %Non-performing loans to total loans0.71 %0.96 %
Non-performing assets (including performing TDRs) to total assetsNon-performing assets (including performing TDRs) to total assets0.70 %0.56 %Non-performing assets (including performing TDRs) to total assets0.43 %0.66 %
Non-performing assets to total assetsNon-performing assets to total assets0.68 %0.53 %Non-performing assets to total assets0.42 %0.64 %

(1)Includes nonaccrual TDRs of approximately $818,000$2,660,000 at June 30, 20202021 and $902,000$4,375,000 at December 31, 2019.2020.

There was noThe interest income on nonaccrual loans recordedis not considered material for the three and six month periods ended June 30, 20202021 and 2019. 

2020. 

6361




ALLOWANCE FOR CREDIT LOSSES
 
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.

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 fully accounted for. Qualitative adjustments include, but are not limited to:

Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperformingnon-performing loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor.
Changes in the nature 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.
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 our reasonable and supportable forecast.
Data imprecisionsimprecision 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 that are classified as a TDR. The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows.


6462




An analysis of the allowance for credit losses foron loans is shown in Table 10.
 
Table 10: Allowance for Credit Losses 
(In thousands)(In thousands)20202019(In thousands)20212020
Balance, beginning of yearBalance, beginning of year$68,244  $56,694  Balance, beginning of year$238,050 $68,244 
Impact of CECL adoptionImpact of CECL adoption151,377  —  Impact of CECL adoption— 151,377 
Loans charged off:Loans charged off:Loans charged off:
Credit cardCredit card2,494  2,181  Credit card2,049 2,494 
Other consumerOther consumer1,971  2,517  Other consumer1,113 1,971 
Real estateReal estate2,220  1,633  Real estate2,126 2,220 
CommercialCommercial36,210  5,115  Commercial1,168 36,210 
Total loans charged offTotal loans charged off42,895  11,446  Total loans charged off6,456 42,895 
Recoveries of loans previously charged off:Recoveries of loans previously charged off:Recoveries of loans previously charged off:
Credit cardCredit card497  511  Credit card534 497 
Other consumerOther consumer746  631  Other consumer729 746 
Real estateReal estate354  300  Real estate1,926 354 
CommercialCommercial445  1,125  Commercial2,467 445 
Total recoveriesTotal recoveries2,042  2,567  Total recoveries5,656 2,042 
Net loans charged offNet loans charged off40,853  8,879  Net loans charged off800 40,853 
Provision for credit lossesProvision for credit losses52,875  16,364  Provision for credit losses(10,011)52,875 
Balance, June 30$231,643  $64,179  
Balance, June 30,Balance, June 30,$227,239 $231,643 
Loans charged off:Loans charged off:Loans charged off:
Credit cardCredit card2,404  Credit card1,619 
Other consumerOther consumer2,490  Other consumer2,051 
Real estateReal estate2,259  Real estate11,568 
CommercialCommercial18,237  Commercial12,526 
Total loans charged offTotal loans charged off25,390  Total loans charged off27,764 
Recoveries of loans previously charged off:Recoveries of loans previously charged off:Recoveries of loans previously charged off:
Credit cardCredit card510  Credit card517 
Other consumerOther consumer1,726  Other consumer719 
Real estateReal estate201  Real estate551 
CommercialCommercial142  Commercial2,771 
Total recoveriesTotal recoveries2,579  Total recoveries4,558 
Net loans charged offNet loans charged off22,811  Net loans charged off23,206 
Provision for credit lossesProvision for credit losses26,876  Provision for credit losses29,613 
Balance, end of yearBalance, end of year$68,244  Balance, end of year$238,050 

Provision for Credit Losses
 
The amount of provision added to or released from the allowance during the three and six months ended June 30, 20202021 and 2019,2020, and for the year ended December 31, 2019,2020, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience. It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance. 

6563




Allowance for Credit Losses Allocation
 
As of June 30, 2020,2021, the allowance for credit losses reflected an increasea decrease of approximately $163.4$10.8 million from December 31, 20192020 while total loans increased $181.2 milliondecreased $1.5 billion over the same six month period. The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix. During the first quarter of 2020, we recorded an additional allowance for credit losses for loans of approximately $151.4 million due to the adoption of CECL.

The significant impact to the allowance for credit losses at the date of CECL 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 increasedecrease in the allowance for credit losses during the first six months of 20202021 was predominately related to updatedeconomic recovery from the effects of the COVID-19 pandemic and the decline in our loan portfolio. While the economic conditions appear to be improving, certain industries continue to be more adversely impacted than others by this pandemic, such as the restaurant, retail and hotel industries, and there remains uncertainty regarding how borrowers in these industries will recover. Our allowance for credit loss forecast models using multiple Moody’slosses at June 30, 2021 was considered appropriate given the considerable amount of uncertainty as to the structure and timing of potential economic scenarios previously discussed in Provision for Credit Losses.recovery, the impact of new COVID-19 variants, future of government assistance related to COVID-19 recovery efforts and other related factors.

The following table sets forth the sum of the amounts of the allowance for credit losses attributable to individual loans within each category, or loan categories in general. The table also reflects the percentage of loans in each category to the total loan portfolio for each of the periods indicated. The allowance for credit losses by loan category is determined by i) our estimated reserve factors by category including applicable qualitative adjustments and ii) any specific 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 Credit Losses
 
June 30, 2020December 31, 2019 June 30, 2021December 31, 2020
(Dollars in thousands)(Dollars in thousands)Allowance
Amount
% of
loans (1)
Allowance
Amount
% of
loans (1)
(Dollars in thousands)Allowance
Amount
% of
loans (1)
Allowance
Amount
% of
loans (1)
Credit cardsCredit cards$10,979  1.3 %$4,051  1.4 %Credit cards$5,442 1.7 %$7,472 1.4 %
Other consumerOther consumer10,802  1.4 %1,998  1.7 %Other consumer1,160 1.6 %4,100 1.6 %
Real estateReal estate149,471  72.1 %39,161  76.5 %Real estate188,388 73.5 %182,868 71.5 %
CommercialCommercial59,138  22.3 %22,863  18.3 %Commercial29,793 19.9 %42,093 21.3 %
OtherOther1,253  2.9 %171  2.1 %Other2,456 3.4 %1,517 4.2 %
TotalTotal$231,643  100.0 %$68,244  100.0 %Total$227,239 100.0 %$238,050 100.0 %

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

64




DEPOSITS
 
Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 226198 financial centers.centers as of June 30, 2021. 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 June 30, 2020,2021, core deposits comprised 84.1%86.4% 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 Chief Deposit Officer, 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. 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.


66




Our total deposits as of June 30, 2020,2021, were $16.62$18.30 billion, an increase of $507.2 million$1.32 billion from December 31, 2019.2020, primarily driven by the government economic stimulus programs and changes in customer spending resulting from the COVID-19 pandemic. Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $13.6$15.46 billion at June 30, 2020,2021, compared to $12.8$14.15 billion at December 31, 2019,2020, an increase of $754.2 million.$1.31 billion. Total time deposits decreased $247.0increased $8.7 million to $3.0$2.84 billion at June 30, 2020,2021, from $3.3$2.83 billion at December 31, 2019.2020. We had $552.2$388.5 million and $1.1 billion$512.3 million of brokered deposits at June 30, 2020,2021, and December 31, 2019,2020, respectively. Both consumer and commercial deposit balances have grown since the COVID-19 related economic stimulus legislation, including legislation that established the PPP program, was implemented in mid-2020. We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits.

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES
 
Our total debt was $1.78 billion and $1.69$1.72 billion at June 30, 20202021 and December 31, 2019, respectively.2020. The outstanding balance for June 30, 20202021 includes $1.4$1.3 billion in FHLB short-term advances; $9.5 million in FHLB long-term advances; $330.0 million in subordinated notes; $52.6$53.1 million of trust preferred securities and unamortized debt issuance costs; and $34.2$32.6 million of other long-term debt.

Most of theThe FHLB short-termlong-term advances outstanding at the end of the second quarter 20202021 are FHLB Owns the Option (“FOTO”)primarily FOTO advances thatwhich are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date. Our FOTO advances outstanding at June 30, 2020 have2021 had original maturity dates of 10 years to 15 year maturity datesyears with lockout periods that have expired and, as a result, are considered and monitored as short-term advances.expired. We expect the FHLB to not exercise the options to terminate the FOTO advances prior to their stated maturity dates due to the current low interest rate environment. We continually analyze the possibility of the FHLB exercising the options along with the market expected rate outcome. As of June 30, 2021, there were no FHLB short-term advances outstanding.

We assumed trust preferred securities and other subordinated debt in an aggregate principal amount, net of discounts, of $33.9 million related to the Landrum acquisition during 2019. During the second quarter of 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.
In March 2018, we issued $330 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The Company incurred $3.6 million in debt issuance costs related to the offering. The Notes will mature on April 1, 2028 and are subordinated in right of payment to the payment of our other existing and future senior indebtedness, including all our general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries.

65




CAPITAL
 
Overview
 
At June 30, 2020,2021, total capital was $2.90$3.04 billion. Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities. At June 30, 2020,2021, our common equity to asset ratio was 13.26%12.97% compared to 14.06%13.31% at year-end 2019.2020.

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 12, 2019, we filed 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 our 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, we filed our Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series D Preferred Stock, Par Value $0.01 Per Share, out of our authorized preferred stock. The October Amended Articles also canceled our 7% Perpetual Convertible Preferred Stock, Par Value $0.01 Per Share, Series C Preferred Stock, of which no shares were ever issued or outstanding.


67




Stock Repurchase Program

OnEffective July 23, 2012,2021, our Board of Directors approved a stock repurchase program which authorizedan amendment to the repurchase of up to 1,700,000 shares of common stock (“2012 Program”). On October 22, 2019, we announced a newCompany’s current stock repurchase program (“Program”) that replacedincreases the 2012 Program, under which we may repurchase up to $60,000,000amount 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 $60,000,000a maximum of $180 million to $180,000,000. Thea maximum of $276.5 million and extends the term of the Program will terminate onfrom October 31, 2021, to October 31, 2022 (unless terminated sooner). The Program was originally approved on October 17, 2019 and first amended in March 2020.

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

During the six month periodperiods ended June 30, 2021 and 2020, we repurchased 130,916 shares at an average price per share of $23.53 and 4,922,336 shares at an average price per share of $18.96, respectively, under the Program. No shares have beenwere repurchased since March 31, 2020. Market conditions and our capital needs will drive decisions regarding additional future stock repurchases. We had no stock repurchasesunder the Program during the first sixthree months of 2019.ended June 30, 2021 and 2020.

Cash Dividends
 
We declared cash dividends on our common stock of $0.36 per share for the first six months of 2021 compared to $0.34 per share for the first six months of 2020, compared to $0.32 per share for the first six months of 2019, an increase of $0.02, or 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 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 Simmons Bank is subject to various regulatory limitations. See the Liquidity and Market Risk Management discussions of Item 3 – Quantitative and Qualitative Disclosures About Market Risk for additional information regarding the parent company’s liquidity. The Company continually assesses its capital and liquidity needs and the best way to meet them, including, without limitation, through capital raising in the market via among other things, equitystock or debt offerings.
 
66




Risk Based Capital
 
Our bank subsidiary isThe Company and Simmons Bank are 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. The Company and Simmons Bank, must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses.

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 June 30, 2020,2021, we meet all capital adequacy requirements to which we are subject.


68




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

Our risk-based capital ratios at June 30, 20202021 and December 31, 20192020 are presented in Table 12 below:
 
Table 12: Risk-Based Capital

June 30,December 31,June 30,December 31,
(Dollars in thousands)(Dollars in thousands)20202019(Dollars in thousands)20212020
Tier 1 capital:Tier 1 capital:  Tier 1 capital:  
Stockholders’ equityStockholders’ equity$2,904,703  $2,988,924  Stockholders’ equity$3,039,366 $2,976,656 
CECL transition provisionCECL transition provision130,480  —  CECL transition provision128,933 131,430 
Goodwill and other intangible assetsGoodwill and other intangible assets(1,160,385) (1,160,079) Goodwill and other intangible assets(1,156,203)(1,163,797)
Unrealized gain on available-for-sale securities, net of income taxes(54,310) (20,891) 
Unrealized loss (gain) on available-for-sale securities, net of income taxesUnrealized loss (gain) on available-for-sale securities, net of income taxes(12,073)(59,726)
Total Tier 1 capitalTotal Tier 1 capital1,820,488  1,807,954  Total Tier 1 capital2,000,023 1,884,563 
Tier 2 capital:Tier 2 capital:Tier 2 capital:
Trust preferred securities and subordinated debtTrust preferred securities and subordinated debt382,604  388,260  Trust preferred securities and subordinated debt383,143 382,874 
Qualifying allowance for credit losses and reserve for unfunded commitmentsQualifying allowance for credit losses and reserve for unfunded commitments83,780  76,644  Qualifying allowance for credit losses and reserve for unfunded commitments79,138 89,546 
Total Tier 2 capitalTotal Tier 2 capital466,384  464,904  Total Tier 2 capital462,281 472,420 
Total risk-based capitalTotal risk-based capital$2,286,872  $2,272,858  Total risk-based capital$2,462,304 $2,356,983 
Risk weighted assetsRisk weighted assets$15,362,175  $16,554,081  Risk weighted assets$14,076,975 $14,048,608 
Assets for leverage ratioAssets for leverage ratio$20,742,824  $18,852,798  Assets for leverage ratio$22,244,118 $20,765,127 
Ratios at end of period:Ratios at end of period:Ratios at end of period:
Common equity Tier 1 ratio (CET1)Common equity Tier 1 ratio (CET1)11.85 %10.92 %Common equity Tier 1 ratio (CET1)14.20 %13.41 %
Tier 1 leverage ratioTier 1 leverage ratio8.78 %9.59 %Tier 1 leverage ratio8.99 %9.08 %
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)
9.06 %N/A
Tier 1 leverage ratio, excluding average PPP loans (non-GAAP)(1)
9.29 %9.50 %
Tier 1 risk-based capital ratioTier 1 risk-based capital ratio11.85 %10.92 %Tier 1 risk-based capital ratio14.21 %13.41 %
Total risk-based capital ratioTotal risk-based capital ratio14.89 %13.73 %Total risk-based capital ratio17.49 %16.78 %
Minimum guidelines:Minimum guidelines:Minimum guidelines:
Common equity Tier 1 ratio (CET1)Common equity Tier 1 ratio (CET1)4.50 %4.50 %Common equity Tier 1 ratio (CET1)4.50 %4.50 %
Tier 1 leverage ratioTier 1 leverage ratio4.00 %4.00 %Tier 1 leverage ratio4.00 %4.00 %
Tier 1 risk-based capital ratioTier 1 risk-based capital ratio6.00 %6.00 %Tier 1 risk-based capital ratio6.00 %6.00 %
Total risk-based capital ratioTotal risk-based capital ratio8.00 %8.00 %Total risk-based capital ratio8.00 %8.00 %

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

6967




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

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

In July 2013, the Company’s primary federal regulator, the Federal Reserve, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banks. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards. The Basel III Capital Rules introduced substantial revisions to the risk-based capital requirements applicable to bank holding companies and depository institutions.
 
The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach.
 
The Basel III Capital Rules expanded the risk-weighting categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories, including many residential mortgages and certain commercial real estate.
 
The final rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The rules also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The Basel III Capital Rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance with all of the final rule’s requirements on January 1, 2019.

Prior to December 31, 2017, Tier 1 capital included common equity Tier 1 capital and certain additional Tier 1 items as provided under the Basel III Capital Rules. The Tier 1 capital for the Company consisted of common equity Tier 1 capital and trust preferred securities. The Basel III Capital Rules include certain provisions that require trust preferred securities to be phased out of qualifying Tier 1 capital when assets surpass $15 billion. As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital. Trust preferred securities and qualifying subordinated debt of $382.6$383.1 million is included as Tier 2 and total capital as of June 30, 2020.2021.

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

7068




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this quarterly report may not be based on historical facts and should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “estimate,” “expect,” “foresee,” “anticipate,” “intend,” “indicate,” “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,positions,” “prospects,” “project,” “predict,” or “potential,” by future conditional verbs such as “will,“could,“would,“may,” “might,” “should,” “could,“will,“might” or “may,“would,” or by variations of such words or by similar expressions. These forward-looking statements include, without limitation, those relating to the Company’s future growth, pending acquisitions, revenue, expenses, assets, asset quality, profitability, andearnings, accretion, customer service, lending capacity and lending activity, investment in digital channels, critical accounting policies, net interest margin, non-interest revenue, market conditions related to and the impact of the Company’s stock repurchase program, acquisition strategy, balance sheetconsumer behavior 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 credit losses, the impacts of the COVID-19 pandemic and the ability of the Company to manage the impactimpacts of the COVID-19 pandemic, the effectimpacts of certain new accounting standards on the Company’s financial statements (including, without limitation, the CECL methodology and its anticipated effect oncustomers’ participation in the provision and allowance for credit losses),Paycheck Protection Program, the expected performance of COVID-19 loan modifications, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, the Company’s expectations regarding actions by the FHLB including with respect to the FHLB’s option to terminate FOTO advances, capital resources, market risk, earnings,plans for investments in securities, effect of future litigation, including the results of the overdraft fee litigation against the Company that is described in this quarterly report, acquisition strategy and activity, 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, including in response to the COVID-19 pandemic; the impacts of the COVID-19 pandemic on the Company’s operations and performance; the ultimate effect of measures the Company takes or has taken in response to the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic, including the effectiveness of vaccination efforts and developments with respect to COVID-19 variants; the pace of recovery when the COVID-19 pandemic subsides and the heightened impact it has on many of the risks described herein; changes in real estate values; the risks of changes in interest rates and their effects onrates; changes in 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 the provision of key services; further changes in accounting principles relating to loan loss recognition; uncertainty and disruption associated with the assumptions, forecasts, models,discontinued use of the London Inter-Bank Offered Rate; the costs of evaluating possible acquisitions and methodology used to calculate the impactrisks inherent in integrating acquisitions; possible adverse rulings, judgements, settlements, and other outcomes of CECL on the Company’s financial statements; claims, damages, and fines related topending or future litigation, or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things,others, the CARES Act)PPP); the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; the failure of assumptions underlying the establishment of reserves for possible credit 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 this quarterly report and the Company’s annual report on Form 10-K for the year ended December 31, 2019,2020, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. Many of these factors are beyond our ability to predict or control, and actual results could differ materially from those in the forward-looking statements due to these factors and others. In addition, as a result of these and other factors, our past financial performance should not be relied upon as an indication of future performance.
 
We believe the assumptions and expectations that underlie or are 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 or whether our future performance will differ materially from the performance reflected in or implied by our forward-looking statements, and you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date hereof, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this section.


7169




GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
The tables below present computations of core earnings (net income excluding non-core items {gain on sale of branches, merger related costs, early retirement program costs and the one-time costs ofnet branch right sizing}sizing costs}) (non-GAAP) and core diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP) and, the core net interest margin (non-GAAP), core other income (non-GAAP) and core non-interest expense (non-GAAP). Non-core items are included in financial results presented in accordance with generally accepted accounting principles (US GAAP). The tables below also present computations of certain figures that are exclusive of the impact of PPP loans: the ratios of common equity to total assets and tangible common equity to tangible assets, each adjusted for PPP loans (each non-GAAP), Tier 1 leverage ratio excluding average PPP loans (non-GAAP), coreand net interest income and core net interest margin, each adjusted for PPP loans and excessadditional liquidity (each non-GAAP), and loan yield excluding PPP loans (non-GAAP).
 
We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business because management does not consider these non-core items to be relevant to ongoing financial performance. Management and the Board of Directors utilize “core earnings” (non-GAAP) for the following purposes:
 
•   Preparation of the Company’s operating budgets
•   Monthly financial performance reporting
•   Monthly “flash” reporting of consolidated results (management only)
•   Investor presentations of Company performance
 
We believe the presentation of “core earnings” on a diluted per share basis, “core diluted earnings per share” (non-GAAP) and core net interest margin (non-GAAP), provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of the Company’s business, because management does not consider these non-core items to be relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize “core diluted earnings per share” (non-GAAP) for the following purposes:
 
•   Calculation of annual performance-based incentives for certain executives
•   Calculation of long-term performance-based incentives for certain executives
•   Investor presentations of Company performance
 
We have $1.183$1.179 billion and $1.186 billion total goodwill and other intangible assets for the periods ended June 30, 20202021 and December 31, 2019.2020, respectively. Because 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 meaningful basis for period-to-period and company-to-company comparisons because PPP loans are 100% federally guaranteed and have very low interest rates. The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “common equity to total assets” and “tangible common equity to tangible assets,” each adjusted for PPP loans (each non-GAAP), “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “core net“net interest margin,” each adjusted for PPP loans and excessadditional liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP). Additional liquidity is defined as average interest-bearing balances due from banks greater than normal liquidity levels. Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, including the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance. Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance.

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

7270




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


See Table 13 below for the reconciliation of non-GAAP financial measures, which exclude non-core items for the periods presented.
 
Table 13: Reconciliation of Core Earnings (non-GAAP) 
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands, except per share data)(In thousands, except per share data)2020201920202019(In thousands, except per share data)2021202020212020
Net income available to common stockholdersNet income available to common stockholders$58,789  $55,598  $136,012  $103,293  Net income available to common stockholders$74,911 $58,789 $142,318 $136,012 
Non-core items:Non-core items:Non-core items:
Gain on sale of branchesGain on sale of branches(2,204) —  (8,093) —  Gain on sale of branches(445)(2,204)(5,922)(8,093)
Merger related costsMerger related costs1,830  7,522  2,898  8,992  Merger related costs686 1,830 919 2,898 
Early retirement programEarly retirement program493  2,932  493  3,287  Early retirement program— 493 — 493 
Branch right sizingBranch right sizing1,721  2,887  1,959  2,932  Branch right sizing468 1,721 1,093 1,959 
Tax effect (1)
Tax effect (1)
(482) (3,486) 716  (3,975) 
Tax effect (1)
(185)(482)1,022 716 
Net non-core itemsNet non-core items1,358  9,855  (2,027) 11,236  Net non-core items524 1,358 (2,888)(2,027)
Core earnings (non-GAAP)Core earnings (non-GAAP)$60,147  $65,453  $133,985  $114,529  Core earnings (non-GAAP)$75,435 $60,147 $139,430 $133,985 
Diluted earnings per share(2)
Diluted earnings per share(2)
$0.54  $0.58  $1.22  $1.09  
Diluted earnings per share(2)
$0.69 $0.54 $1.31 $1.22 
Non-core items:Non-core items:Non-core items:
Gain on sale of branchesGain on sale of branches(0.02) —  (0.07) —  Gain on sale of branches(0.01)(0.02)(0.06)(0.07)
Merger related costsMerger related costs0.02  0.08  0.03  0.10  Merger related costs0.01 0.02 0.01 0.03 
Early retirement program—  0.03  —  0.03  
Branch right sizingBranch right sizing0.02  0.03  0.02  0.03  Branch right sizing— 0.02 0.01 0.02 
Tax effect (1)
Tax effect (1)
(0.01) (0.04) 0.01  (0.04) 
Tax effect (1)
— (0.01)0.01 0.01 
Net non-core itemsNet non-core items0.01  0.10  (0.01) 0.12  Net non-core items— 0.01 (0.03)(0.01)
Core diluted earnings per share (non-GAAP)Core diluted earnings per share (non-GAAP)$0.55  $0.68  $1.21  $1.21  Core diluted earnings per share (non-GAAP)$0.69 $0.55 $1.28 $1.21 

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


7371




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,
Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Other incomeOther income$9,809  $6,065  $22,610  $10,221  Other income$8,110 $9,809 $18,370 $22,610 
Gain on sale of banking operations(2,204) —  (8,093) —  
Gain on sale of branchesGain on sale of branches(445)(2,204)(5,922)(8,093)
Core other income (non-GAAP)Core other income (non-GAAP)$7,605  $6,065  $14,517  $10,221  Core other income (non-GAAP)$7,665 $7,605 $12,448 $14,517 
Non-interest expenseNon-interest expense$112,598  $110,743  $238,411  $212,152  Non-interest expense$115,466 $116,177 $229,259 $243,641 
Non-core items:Non-core items:Non-core items:
Merger related costsMerger related costs1,830  7,522  2,898  8,992  Merger related costs(686)(1,830)(919)(2,898)
Early retirement programEarly retirement program493  2,932  493  3,287  Early retirement program— (493)— (493)
Branch right sizingBranch right sizing1,721  2,887  1,959  2,932  Branch right sizing(468)(1,721)(1,093)(1,959)
Total non-core itemsTotal non-core items4,044  13,341  5,350  15,211  Total non-core items(1,154)(4,044)(2,012)(5,350)
Core non-interest expense (non-GAAP)Core non-interest expense (non-GAAP)$116,642  $124,084  $243,761  $227,363  Core non-interest expense (non-GAAP)$114,312 $112,133 $227,247 $238,291 


See Table 15 below for the reconciliation of tangible book value per common share.
 
Table 15: Reconciliation of Tangible Book Value per Common Share (non-GAAP) 
June 30,December 31,June 30,December 31,
(In thousands, except per share data)(In thousands, except per share data)20202019(In thousands, except per share data)20212020
Total stockholders’ equityTotal stockholders’ equity$2,904,703  $2,988,924  Total stockholders’ equity$3,039,366 $2,976,656 
Preferred stockPreferred stock(767) (767) Preferred stock(767)(767)
Total common stockholders’ equityTotal common stockholders’ equity2,903,936  2,988,157  Total common stockholders’ equity3,038,599 2,975,889 
Intangible assets:Intangible assets:Intangible assets:
GoodwillGoodwill(1,064,765) (1,055,520) Goodwill(1,075,305)(1,075,305)
Other intangible assetsOther intangible assets(117,823) (127,340) Other intangible assets(103,759)(111,110)
Total intangiblesTotal intangibles(1,182,588) (1,182,860) Total intangibles(1,179,064)(1,186,415)
Tangible common stockholders’ equityTangible common stockholders’ equity$1,721,348  $1,805,297  Tangible common stockholders’ equity$1,859,535 $1,789,474 
Shares of common stock outstandingShares of common stock outstanding108,994,389  113,628,601  Shares of common stock outstanding108,386,669 108,077,662 
Book value per common shareBook value per common share$26.64  $26.30  Book value per common share$28.03 $27.53 
Tangible book value per common share (non-GAAP)Tangible book value per common share (non-GAAP)$15.79  $15.89  Tangible book value per common share (non-GAAP)$17.16 $16.56 


7472




See Table 16 below for the calculation of tangible common equity and the reconciliation of tangible common equity to tangible assets.
 
Table 16: Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)
 
June 30,December 31,June 30,December 31,
(Dollars in thousands)(Dollars in thousands)20202019(Dollars in thousands)20212020
Total common stockholders’ equityTotal common stockholders’ equity$2,903,936  $2,988,157  Total common stockholders’ equity$3,038,599 $2,975,889 
Intangible assets:Intangible assets:Intangible assets:
GoodwillGoodwill(1,064,765) (1,055,520) Goodwill(1,075,305)(1,075,305)
Other intangible assetsOther intangible assets(117,823) (127,340) Other intangible assets(103,759)(111,110)
Total intangiblesTotal intangibles(1,182,588) (1,182,860) Total intangibles(1,179,064)(1,186,415)
Tangible common stockholders’ equityTangible common stockholders’ equity$1,721,348  $1,805,297  Tangible common stockholders’ equity$1,859,535 $1,789,474 
Total assetsTotal assets$21,903,684  $21,259,143  Total assets$23,423,159 $22,359,752 
Intangible assets:Intangible assets:Intangible assets:
GoodwillGoodwill(1,064,765) (1,055,520) Goodwill(1,075,305)(1,075,305)
Other intangible assetsOther intangible assets(117,823) (127,340) Other intangible assets(103,759)(111,110)
Total intangiblesTotal intangibles(1,182,588) (1,182,860) Total intangibles(1,179,064)(1,186,415)
Tangible assetsTangible assets$20,721,096  $20,076,283  Tangible assets$22,244,095 $21,173,337 
Paycheck Protection Program (“PPP”) loansPaycheck Protection Program (“PPP”) loans(963,712) Paycheck Protection Program (“PPP”) loans(441,353)(904,673)
Total assets less PPP loans$20,939,972  
Tangible assets less PPP loans$19,757,384  
Total assets excluding PPP loansTotal assets excluding PPP loans$22,981,806 $21,455,079 
Tangible assets excluding PPP loansTangible assets excluding PPP loans$21,802,742 $20,268,664 
Ratio of common equity to assetsRatio of common equity to assets13.26 %14.06 %Ratio of common equity to assets12.97 %13.31 %
Ratio of tangible common equity to tangible assets (non-GAAP)Ratio of tangible common equity to tangible assets (non-GAAP)8.31 %8.99 %Ratio of tangible common equity to tangible assets (non-GAAP)8.36 %8.45 %
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 %
Ratio of common equity to assets excluding PPP loans (non-GAAP)Ratio of common equity to assets excluding PPP loans (non-GAAP)13.22 %13.87 %
Ratio of tangible common equity to tangible assets excluding PPP loans (non-GAAP)Ratio of tangible common equity to tangible assets excluding PPP loans (non-GAAP)8.53 %8.83 %


See Table 17 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, 20202021
Total Tier 1 capital$1,820,4882,000,023 
Adjusted average assets for leverage ratio$20,742,82422,244,118 
Average PPP loans(645,172)(707,296)
Adjusted average assets lessexcluding average PPP loans$20,097,65221,536,822 
Tier 1 leverage ratio8.788.99 %
Tier 1 leverage ratio excluding average PPP loans (non-GAAP)9.069.29 %


7573




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 18: Reconciliation of Core Net Interest Margin (non-GAAP)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in thousands)(Dollars in thousands)2020201920202019(Dollars in thousands)2021202020212020
Net interest incomeNet interest income$163,681  $149,428  $331,164  $285,423  Net interest income$146,533 $163,681 $293,214 $331,164 
FTE adjustmentFTE adjustment2,350  1,706  4,655  3,307  FTE adjustment4,548 2,350 8,711 4,655 
Fully tax equivalent net interest incomeFully tax equivalent net interest income166,031  151,134  335,819  288,730  Fully tax equivalent net interest income151,081 166,031 301,925 335,819 
Total accretable yieldTotal accretable yield(11,723) (10,162) (23,560) (16,822) Total accretable yield(5,619)(11,723)(12,249)(23,560)
Core net interest incomeCore net interest income$154,308  $140,972  $312,259  $271,908  Core net interest income$145,462 $154,308 $289,676 $312,259 
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  
PPP loan and additional liquidity (1) interest income
PPP loan and additional liquidity (1) interest income
(9,445)(5,623)(21,694)
Net interest income adjusted for PPP loans and additional liquidity (1)
Net interest income adjusted for PPP loans and additional liquidity (1)
$141,636 $160,408 $280,231 
Average earning assetsAverage earning assets$20,959,642 $19,517,475 $20,723,587 $19,049,487 
Average PPP loan balance and additional liquidity (1)
Average PPP loan balance and additional liquidity (1)
(2,659,831)(2,071,411)3,139,749 
Average earning assets adjusted for PPP loans and additional liquidity (1)
Average earning assets adjusted for PPP loans and additional liquidity (1)
$18,299,811 $17,446,064 $23,863,336 
Net interest marginNet interest margin3.42 %3.94 %3.55 %3.90 %Net interest margin2.89 %3.42 %2.94 %3.55 %
Core net interest margin (non-GAAP)Core net interest margin (non-GAAP)3.18 %3.67 %3.30 %3.68 %Core net interest margin (non-GAAP)2.78 %3.18 %2.82 %3.30 %
Core net interest margin adjusted for PPP loans and additional liquidity (non-GAAP)3.43 %
Net interest margin adjusted for PPP loans and additional liquidity (1) (non-GAAP)
Net interest margin adjusted for PPP loans and additional liquidity (1) (non-GAAP)
3.10 %3.70 %3.21 %

(1)Additional liquidity is estimated as the average interest bearing balances due from banks and federal funds sold greater than $750.0 million.


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 %

7674




Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
The Company has leveraged its investment in its subsidiary bank and depends upon the dividends paid to it, as the sole shareholder of the subsidiary bank, as a principal source of funds for dividends to shareholders, stock repurchases and debt service requirements. At June 30, 2020,2021, undivided profits of Simmons Bank were approximately $466.8$462.9 million, of which approximately $165.1$99.3 million was available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds.
 
Subsidiary Bank
 
Generally speaking, the Company’s subsidiary bank relies upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in investing activities. Typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The subsidiary bank’s primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment cash flows and maturities.
 
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors and borrowers by either converting assets into cash or accessing new or existing sources of incremental funds. A major responsibility of management is to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. The management and Board of Directors of the subsidiary bank monitors these same indicators and makes adjustments as needed.
 
Liquidity Management
 
The objective of our liquidity management is to access adequate sources of funding to ensure that cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of liquidity are managed so that reliance on any one funding source is kept to a minimum. Our liquidity sources are prioritized for both availability and time to activation.
 
Our liquidity is a primary consideration in determining funding needs and is an integral part of asset/liability management. Pricing of the liability side is a major component of interest margin and spread management. Adequate liquidity is a necessity in addressing this critical task. There are seven primary and secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine the use of these sources.
 
The first source of liquidity available to the Company is federal funds. Federal funds are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. The Bank has approximately $415 million in federal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure availability of these upstream funds we test these borrowing lines at least annually. Historical monitoring of these funds has made it possible for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis.

Second, Simmons Bank has lines of credit available with the Federal Home Loan Bank. While we use portions of those lines to match off longer-term mortgage loans, we also use those lines to meet liquidity needs. Approximately $2.8$3.5 billion of these lines of credit are currently available, if needed, for liquidity.
 
A third source of liquidity is that we have the ability to access large wholesale deposits from both the public and private sector to fund short-term liquidity needs.
 
A fourth source of liquidity is the retail deposits available through our network of financial centers throughout Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas. Although this method can be a somewhat more expensive alternative to supplying liquidity, this source can be used to meet intermediate term liquidity needs.
 
Fifth, we use a laddered investment portfolio that ensures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. Approximately 98.0%87.6% of the investment portfolio is classified as available-for-sale. We also use securities held in the securities portfolio to pledge when obtaining public funds.

Sixth, we have a network of downstream correspondent banks from which we can access debt to meet liquidity needs.
 
Finally, we have the ability to access funds through the Federal Reserve Bank Discount Window.

7775




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.purchases, or enter into derivative contracts such as interest rate swaps.
 
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 June 30, 2020,2021, 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 3.90%4.53% and 8.09%9.52%, respectively, relative to the base case over the next 12 months, while decreases in interest rates of 25 basis points would result in a negative variance in net interest income of (0.44)(0.67)% relative to the base case over the next 12 months. The likelihood of a decrease in interest rates in excess of 25 basis points as of June 30, 2020,2021, is considered remote given current interest rate levels. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each period-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.
 
The table below presents our sensitivity to net interest income at June 30, 2020:2021: 
 
Table 20:19: Net Interest Income Sensitivity
 
Interest Rate Scenario% Change from Base
Up 200 basis points8.09%9.52%
Up 100 basis points3.90%4.53%
Down 25 basis points(0.44)(0.67)%

7876




Item 4.    Controls and Procedures
 
Management, under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer have concluded that the Company’s current disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting 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 June 30, 2020,2021, which materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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 theThe information presently available, and after consultation with legal counsel, management believes that the ultimate outcomecontained in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operationsNote 13, Contingent Liabilities, of the Company.Condensed Notes to Consolidated Financial Statements in Part I, Item 1 of this report is incorporated herein by reference.

Item 1A.     Risk Factors

The disclosures below supplementThere have been no material changes in the risk factors previouslyfaced by the Company from those disclosed under Item 1A. ofin the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 (“20192020 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 dependent 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
79




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. 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.     Unregistered Sales of Equity Securities and Use of Proceeds

On October 22, 2019, we announced thatEffective July 23, 2021, our Board of Directors authorized a newapproved an amendment to the Company’s current stock repurchase program (“Program”) under which we may repurchase up to $60,000,000that increases the amount 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 $60,000,000a maximum of $180 million to $180,000,000. Thea maximum of $276.5 million and extends the term of the Program will terminate onfrom October 31, 2021, to October 31, 2022 (unless terminated sooner). The Program was originally approved on October 17, 2019 and replaced the previous stock repurchase program, which was announced on July 23, 2012, that authorized us to repurchase up to 1,700,000 sharesfirst amended in March 2020. The timing, pricing, and amount of common stock. No shares have been repurchasedany repurchases under the Program since March 31, 2020. Marketwill be determined by management at its discretion based on a variety of factors, including but not limited to, trading volume and market price of our common stock, corporate considerations, our working capital and investment requirements, general market and economic conditions, and our capital needs will drive decisions regarding future, additional stock repurchases.legal requirements.

During the quarter ended June 30, 2020,2021, we repurchased restricted stock in connection with employee tax withholding obligations under employee compensation plans. Information concerning our purchases of common stock is as follows:

Period
Total Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
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  —  
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, 2021 - April 30, 2021— $— — $53,463,000 
May 1, 2021 - May 31, 2021143 29.99 — $53,463,000 
June 1, 2021 - June 30, 2021— — — $53,463,000 
Total143 $29.99 — 

(1)Total number of shares purchased consists of 147143 shares with an average price $29.99 of restricted stock repurchasedpurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.
77




Item 6.     Exhibits
Exhibit No.Description
Agreement and Plan of Merger, dated as of November 13, 2018, by and between Simmons First National Corporation and Reliance Bancshares, Inc., as amended on February 11, 2019 (incorporated by reference to Annex A to the Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) by Simmons First National Corporation for March 4, 2019 (File No. 333-229378)).
Agreement and Plan of Merger, dated as of July 30, 2019, by and between Simmons First National Corporation and The Landrum Company (incorporated by reference to Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K for July 30, 2019 (File No. 000-06253)).
Amended and Restated Articles of Incorporation of Simmons First National Corporation, as amended on July 14, 2021 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed under the Securities Act of 1933 by Simmons First National Corporation on July 21, 2021 (File No. 333-258059)).
As Amended By-Laws of Simmons First National Corporation, as amended on October 29, 201921, 2020 (incorporated by reference to Exhibit 3.1 to Simmons First National Corporation’s Current Report on Form 8-K filed November 1, 2019October 22, 2020 (File No. 000-06253)).
80




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.
Second Amended and Restated Simmons First National Corporation 2015 Incentive Plan, effective as of July 1, 2020 (incorporated by reference to 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 (as amended and restated on July 23, 2020) (incorporated by reference to Exhibit 14.1 to Simmons First National Corporation’s Current Report on Form 8-K filed July 28, 2020 (File No. 000-06253)).
Awareness Letter of BKD, LLP.*
Rule 13a-15(e) and 15d-15(e) Certification – George A. Makris, Jr., Chairman and Chief Executive Officer.*
Rule 13a-15(e) and 15d-15(e) Certification – Robert A. Fehlman, SeniorJames M. Brogdon, 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, Executive 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, SeniorJames M. Brogdon, 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, Executive 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.DEFInlineXBRLInline XBRL 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).**

* 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.
8178




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:August 6, 20202021/s/ George A. Makris, Jr.
 George A. Makris, Jr.
 Chairman and Chief Executive Officer
  
  
Date:August 6, 20202021/s/ Robert A. FehlmanJames M. Brogdon
 Robert A. FehlmanJames M. Brogdon
 Senior Executive Vice President, Chief Financial Officer,
Chief Operating Officer, and Treasurer
Date:August 6, 20202021/s/ David W. Garner
David W. Garner
Executive Vice President, Executive Director of Finance and
Accounting and Chief Accounting Officer

8279