~~0001331520 us-gaap:ResidentialRealEstateMember us-gaap:StockholdersEquityTotalMember us-gaap:CreditConcentrationRiskMember 2021-01-01 2021-09-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM ~~10-Q/A~~

~~(Amendment No. 1)~~

10-Q

(Mark One)


☑			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2021~~

2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from ______ to

______

Commission File Number: ~~000-51904~~

001-41093

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

(501) 339-2929
(Registrant's telephone number, including area code)

Not Applicable
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

HOMB

~~NASDAQ Global Select Market~~

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

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

~~Large accelerated filer~~	☑	~~Accelerated filer~~	☐
Large Accelerated Filer			☑	Accelerated filer	☐
Non-accelerated filer			☐	Smaller reporting company	☐
				Emerging growth company	☐

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

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

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

Common Stock Issued and Outstanding: 205,065,089~~163,845,498~~shares as of ~~November 4, 2021.~~

August 8, 2022.

~~EXPLANATORY NOTE~~

Home BancShares, Inc. (the “Company”) is filing this amendment (the “Form 10-Q/A”) to its Form 10-Q for the quarter ended September 30, 2021, originally filed with the Securities and Exchange Commission (“SEC”) on November 4, 2021 (the “Original 10-Q”). This Amendment is being filed solely for the purpose

Table of correcting an incorrect date in the Awareness of Independent Registered Public Accounting Firm pursuant to Rule 436(c) under the Securities Act of 1933 filed as Exhibit 15 to the Original 10-Q. In accordance with Compliance and Disclosure Interpretations published by the SEC Staff, the entire periodic report for the quarter ended September 30, 2021 is included in this Form 10-Q/A. Other than the correction described above, no other statement or amount has been changed from those presented in the Original 10-Q.

Contents


HOME BANCSHARES, INC. FORM 10-Q June 30, 2022

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

~~INDEX~~				Page No.
Part I:			Financial Information
				~~Page No.~~
~~Part I:~~ Item 1:			Financial ~~Information~~Statements

~~Item 1:~~			~~Financial Statements~~

	Consolidated Balance Sheets –
	~~September 30, 2021~~June 3 0 , 2022 (Unaudited) and December 31, ~~2020~~2021	4

			Consolidated Statements of Income (Unaudited) – Three and six months ended June 30, 2022 and 2021	5
			~~Three and nine months ended September 30, 2021 and 2020~~	5

	Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Three and six months ended June 30, 2022 and 2021	6
			~~Three and nine months ended September 30, 2021 and 2020~~	6

	Consolidated Statements of Stockholders’ Equity (Unaudited) – Three and six months ended June 30, 2022 and 2021	7-8
			~~Three and nine months ended September 30, 2021 and 2020~~	~~7-8~~

	Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2022 and 2021	9
			~~Nine months ended September 30, 2021 and 2020~~	9

	Condensed Notes to Consolidated Financial Statements (Unaudited)	~~10-49~~ 10-53

			Report of Independent Registered Public Accounting Firm	50 54

Item 2:			Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~51-93~~ 55-94

Item 3:			Quantitative and Qualitative Disclosures About Market Risk	~~93-96~~ 94-95

Item 4:			Controls and Procedures	96

Part II:			Other Information

Item 1:			Legal Proceedings	97 96

Item 1A:			Risk Factors	97 96

Item 2:			Unregistered Sales of Equity Securities and Use of Proceeds	97 96

Item 3:			Defaults Upon Senior Securities	97 96

Item 4:			Mine Safety Disclosures	97 96

Item 5:			Other Information	97 96

Item 6:			Exhibits	~~98-99~~ 97-98

Signatures				~~100~~
		99

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

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

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

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

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

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

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

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

•disruptions, uncertainties and related effects on credit quality, liquidity, other aspects of our business and our operations as a result of the ongoing COVID-19 pandemic and measures that have been or may be implemented or imposed in response to the pandemic;•

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

•the effect of any mergers, acquisitions or other transactions to which we or our bank subsidiary may from time to time be a party, including our ability to successfully integrate our recent acquisition of Happy Bancshares, Inc. and its bank subsidiary, as well as any other businesses that we may acquire;•

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

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

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

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

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

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

~~diversion of management time on acquisition-related issues;~~

•diversion of management time on acquisition-related issues;•

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

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

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

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

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

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

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

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

~~changes in governmental monetary and fiscal policies;~~

•changes in governmental monetary and fiscal policies;•

~~the effects of terrorism and efforts to combat it;~~

•the effects of terrorism and efforts to combat it;•

~~political instability;~~

•political instability, war, military conflicts (including the ongoing military conflict between Russia and Ukraine) and other major domestic or international events;•

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

•

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

•

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

•

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

•

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

Table of Contents

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

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

•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;•

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

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

~~higher defaults on our loan portfolio than we expect; and~~

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

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

•higher defaults on our loan portfolio than we expect; and

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

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

24, 2022.

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PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets


(In thousands, except share data)	September 30, 2021			December 31, 2020			(In thousands, except share data)	June 30, 2022		December 31, 2021
	(Unaudited)							(Unaudited)
Assets							Assets
Cash and due from banks	$	146,378		$	242,173		Cash and due from banks	$	287,451	$	119,908
Interest-bearing deposits with other banks		3,133,878			1,021,615		Interest-bearing deposits with other banks	2,528,925		3,530,407
Cash and cash equivalents		3,280,256			1,263,788		Cash and cash equivalents	2,816,376		3,650,315
Investment securities – available-for-sale, net of allowance for credit losses		3,150,608			2,473,781		Investment securities – available-for-sale, net of allowance for credit losses	3,791,509		3,119,807
Investment securities — held-to-maturity, net of allowance for credit losses							Investment securities — held-to-maturity, net of allowance for credit losses	1,366,781		—
Total investment securities							Total investment securities	5,158,290		3,119,807
Loans receivable		9,901,100			11,220,721		Loans receivable	13,923,873		9,836,089
Allowance for credit losses		(238,673	)		(245,473	)	Allowance for credit losses	(294,267)		(236,714)
Loans receivable, net		9,662,427			10,975,248		Loans receivable, net	13,629,606		9,599,375
Bank premises and equipment, net		276,972			278,614		Bank premises and equipment, net	415,056		275,760
Foreclosed assets held for sale		1,171			4,420		Foreclosed assets held for sale	373		1,630
Cash value of life insurance		104,638			103,519		Cash value of life insurance	211,811		105,135
Accrued interest receivable		48,577			60,528		Accrued interest receivable	80,274		46,736
Deferred tax asset, net		69,724			70,249		Deferred tax asset, net	208,585		78,290
Goodwill		973,025			973,025		Goodwill	1,398,400		973,025
Core deposit and other intangibles		26,466			30,728		Core deposit and other intangibles	63,410		25,045
Other assets		171,192			164,904		Other assets	270,987		177,020
Total assets	$	17,765,056		$	16,398,804		Total assets	$	24,253,168	$	18,052,138
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Deposits:							Deposits:
Demand and non-interest-bearing	$	4,139,149		$	3,266,753		Demand and non-interest-bearing	$	6,036,583	$	4,127,878
Savings and interest-bearing transaction accounts		8,813,326			8,212,240		Savings and interest-bearing transaction accounts	12,424,192		9,251,805
Time deposits		1,050,896			1,246,797		Time deposits	1,119,297		880,887
Total deposits		14,003,371			12,725,790		Total deposits	19,580,072		14,260,570
Securities sold under agreements to repurchase		141,002			168,931		Securities sold under agreements to repurchase	118,573		140,886
FHLB and other borrowed funds		400,000			400,000		FHLB and other borrowed funds	400,000		400,000
Accrued interest payable and other liabilities		113,721			127,999		Accrued interest payable and other liabilities	197,503		113,868
Subordinated debentures		370,900			370,326		Subordinated debentures	458,455		371,093
Total liabilities		15,028,994			13,793,046		Total liabilities	20,754,603		15,286,417
Stockholders’ equity:							Stockholders’ equity:
Common stock, par value $0.01; shares authorized 300,000,000 in 2021 and 2020; shares issued and outstanding 164,007,998 in 2021 and 165,095,252 in 2020		1,640			1,651
Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 205,290,527 in 2022 and 163,699,282 in 2021							Common stock, par value $0.01; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 205,290,527 in 2022 and 163,699,282 in 2021	2,053		1,637
Capital surplus		1,492,588			1,520,617		Capital surplus	2,426,271		1,487,373
Retained earnings		1,215,831			1,039,370		Retained earnings	1,286,146		1,266,249
Accumulated other comprehensive income		26,003			44,120
Accumulated other comprehensive (loss) income							Accumulated other comprehensive (loss) income	(215,905)		10,462
Total stockholders’ equity		2,736,062			2,605,758		Total stockholders’ equity	3,498,565		2,765,721
Total liabilities and stockholders’ equity	$	17,765,056		$	16,398,804		Total liabilities and stockholders’ equity	$	24,253,168	$	18,052,138

See Condensed Notes to Consolidated Financial Statements.

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Home BancShares, Inc.

Consolidated Statements of Income


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2021			2020			2021			2020			(In thousands, except per share data)	2022		2021		2022		2021
	(Unaudited)													(Unaudited)
Interest income:													Interest income:
Loans	$	142,609		$	154,787		$	435,210		$	471,931		Loans	$	181,779	$	141,684	$	311,221	$	292,601
Investment securities													Investment securities
Taxable		8,495			7,227			21,933			25,696		Taxable	20,941		7,185		30,021		13,438
Tax-exempt		4,839			4,367			14,815			11,179		Tax-exempt	7,725		4,905		12,432		9,976
Deposits – other banks		1,117			252			2,234			1,579		Deposits – other banks	6,565		707		8,238		1,117
Federal funds sold		—			—			—			21		Federal funds sold	3		—		4		—
Total interest income		157,060			166,633			474,192			510,406		Total interest income	217,013		154,481		361,916		317,132
Interest expense:													Interest expense:
Interest on deposits		5,642			13,200			19,781			52,514		Interest on deposits	10,729		6,434		15,623		14,139
Federal funds purchased		—			—			—			13		Federal funds purchased	2		—		2		—
FHLB and other borrowed funds		1,917			2,235			5,688			7,589		FHLB and other borrowed funds	1,896		1,896		3,771		3,771
Securities sold under agreements to repurchase		102			237			399			959		Securities sold under agreements to repurchase	187		107		295		297
Subordinated debentures		4,788			4,823			14,373			14,801		Subordinated debentures	5,441		4,792		12,319		9,585
Total interest expense		12,449			20,495			40,241			75,876		Total interest expense	18,255		13,229		32,010		27,792
Net interest income		144,611			146,138			433,951			434,530		Net interest income	198,758		141,252		329,906		289,340
Provision for credit losses		—			14,000			—			112,264
Provision for credit losses - unfunded commitments		—			—			(4,752	)		16,989
Total credit loss (benefit) expense		—			14,000			(4,752	)		129,253
Net interest income after provision for credit losses		144,611			132,138			438,703			305,277
Provision for credit losses on acquired loans													Provision for credit losses on acquired loans	45,170		—		45,170		—
Provision for credit losses on acquired unfunded commitments													Provision for credit losses on acquired unfunded commitments	11,410		—		11,410		—
Provision for credit losses on unfunded commitments													Provision for credit losses on unfunded commitments	—		(4,752)		—		(4,752)
Provision for credit losses on acquired held-to-maturity investment securities													Provision for credit losses on acquired held-to-maturity investment securities	2,005		—		2,005		—
Total credit loss expense (benefit)													Total credit loss expense (benefit)	58,585		(4,752)		58,585		(4,752)
Net interest income after credit loss expense (benefit)													Net interest income after credit loss expense (benefit)	140,173		146,004		271,321		294,092
Non-interest income:													Non-interest income:
Service charges on deposit accounts		5,941			4,910			16,059			15,837		Service charges on deposit accounts	10,084		5,116		16,224		10,118
Other service charges and fees		8,051			8,539			25,318			22,261		Other service charges and fees	12,541		9,659		20,274		17,267
Trust fees		479			378			1,445			1,213		Trust fees	4,320		444		4,894		966
Mortgage lending income		5,948			10,177			20,317			18,994		Mortgage lending income	5,996		6,202		9,912		14,369
Insurance commissions		586			271			1,556			1,482		Insurance commissions	658		478		1,138		970
Increase in cash value of life insurance		509			548			1,548			1,666		Increase in cash value of life insurance	1,140		537		1,632		1,039
Dividends from FHLB, FRB, FNBB & other		2,661			3,433			13,916			11,505		Dividends from FHLB, FRB, FNBB & other	3,945		2,646		4,643		11,255
Gain on sale of SBA loans		439			—			1,588			341		Gain on sale of SBA loans	—		1,149		95		1,149
(Loss) gain on sale of branches, equipment and other assets, net		(34	)		(27	)		(86	)		109
Gain (loss) on sale of branches, equipment and other assets, net													Gain (loss) on sale of branches, equipment and other assets, net	2		(23)		18		(52)
Gain on OREO, net		246			470			1,266			982		Gain on OREO, net	9		619		487		1,020
Gain on securities, net		—			—			219			—		Gain on securities, net	—		—		—		219
Fair value adjustment for marketable securities		61			(1,350	)		7,093			(6,249	)	Fair value adjustment for marketable securities	(1,801)		1,250		324		7,032
Other income		4,322			2,602			15,366			9,760		Other income	7,687		3,043		15,609		11,044
Total non-interest income		29,209			29,951			105,605			77,901		Total non-interest income	44,581		31,120		75,250		76,396
Non-interest expense:													Non-interest expense:
Salaries and employee benefits		42,469			41,511			126,990			120,928		Salaries and employee benefits	65,795		42,462		109,346		84,521
Occupancy and equipment		9,305			9,566			27,584			28,611		Occupancy and equipment	14,256		9,042		23,400		18,279
Data processing expense		6,024			4,921			17,787			13,861		Data processing expense	10,094		5,893		17,133		11,763
Merger and acquisition expenses		1,006			—			1,006			711		Merger and acquisition expenses	48,731		—		49,594		—
Other operating expenses		16,815			15,714			48,100			49,033		Other operating expenses	26,606		15,585		42,905		31,285
Total non-interest expense		75,619			71,712			221,467			213,144		Total non-interest expense	165,482		72,982		242,378		145,848
Income before income taxes		98,201			90,377			322,841			170,034		Income before income taxes	19,272		104,142		104,193		224,640
Income tax expense		23,209			21,057			77,177			37,380		Income tax expense	3,294		25,072		23,323		53,968
Net income	$	74,992		$	69,320		$	245,664		$	132,654		Net income	$	15,978	$	79,070	$	80,870	$	170,672
Basic earnings per share	$	0.46		$	0.42		$	1.49		$	0.80		Basic earnings per share	$	0.08	$	0.48	$	0.44	$	1.03
Diluted earnings per share	$	0.46		$	0.42		$	1.49		$	0.80		Diluted earnings per share	$	0.08	$	0.48	$	0.44	$	1.03

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

Home BancShares, Inc.

Consolidated Statements of Comprehensive (Loss) Income


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021			2020			2021			2020			(In thousands)	2022		2021		2022		2021
	(Unaudited)													(Unaudited)
Net income	$	74,992		$	69,320		$	245,664		$	132,654		Net income	$	15,978	$	79,070	$	80,870	$	170,672
Net unrealized (loss) gain on available-for-sale securities		(4,218	)		(896	)		(24,527	)		29,952		Net unrealized (loss) gain on available-for-sale securities	(146,888)		13,091		(302,603)		(20,309)
Other comprehensive (loss) income. before tax effect		(4,218	)		(896	)		(24,527	)		29,952
Tax effect on other comprehensive (loss) income		1,102			234			6,410			(7,828	)
Other comprehensive (loss) income before tax effect													Other comprehensive (loss) income before tax effect	(146,888)		13,091		(302,603)		(20,309)
Tax effect on other comprehensive loss (income)													Tax effect on other comprehensive loss (income)	35,540		(3,421)		76,236		5,308
Other comprehensive (loss) income		(3,116	)		(662	)		(18,117	)		22,124		Other comprehensive (loss) income	(111,348)		9,670		(226,367)		(15,001)
Comprehensive income	$	71,876		$	68,658		$	227,547		$	154,778
Comprehensive (loss) income													Comprehensive (loss) income	$	(95,370)	$	88,740	$	(145,497)	$	155,671

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2021

(In thousands, except share data)

Common
Stock

Capital
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balances at January 1, 2021

$
1,651

$
1,520,617

$
1,039,370

$
44,120

$
2,605,758

Comprehensive income:

Net income

—

—

91,602

—

91,602

Other comprehensive income

—

—

—

(24,671
)

(24,671
)
Net issuance of 161,434 shares of common
   stock from exercise of stock options

1

2,321

—

—

2,322

Repurchase of 330,000 shares of common
   stock

(3
)

(8,767
)

—

—

(8,770
)
Share-based compensation net issuance of
   214,684 shares of restricted common stock

2

2,115

—

—

2,117

Cash dividends – Common Stock, $0.14
   per share

—

—

(23,154
)

—

(23,154
)
Balances at March 31, 2021 (unaudited)

$
1,651

$
1,516,286

$
1,107,818

$
19,449

$
2,645,204

Comprehensive income:

Net Income

—

—

79,070

—

79,070

Other comprehensive income

—

—

—

9,670

9,670

Net issuance of 3,628 shares of common
   stock from exercise of stock options

—

—

—

—

—

Repurchase of 635,000 shares of common
   stock

(6
)

(16,947
)

—

—

(16,953
)
Share-based compensation net forfeiture of
   21,500 shares of restricted common stock

—

2,276

—

—

2,276

Cash dividends – Common Stock, $0.14
   per share

—

—

(23,078
)

—

(23,078
)
Balances at June 30, 2021 (unaudited)

$
1,645

$
1,501,615

$
1,163,810

$
29,119

$
2,696,189

Comprehensive income:

Net Income

—

—

74,992

—

74,992

Other comprehensive loss

—

—

—

(3,116
)

(3,116
)
Repurchase of 476,500 shares of common stock

(5
)

(11,274
)

(11,279
)
Share-based compensation net forfeiture of
   4,000 shares of restricted stock

—

2,247

—

—

2,247

Cash dividends – Common Stock, $0.14
   per share

—

—

(22,971
)

—

(22,971
)
Balances at September 30, 2021 (unaudited)

$
1,640

$
1,492,588

$
1,215,831

$
26,003

$
2,736,062


Three and Six Months Ended June 30, 2022
(In thousands, except share data)	Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances at January 1, 2022	$	1,637	$	1,487,373	$	1,266,249	$	10,462	$	2,765,721
Comprehensive income:
Net income	—		—		64,892		—		64,892
Other comprehensive loss	—		—		—		(115,019)		(115,019)
Net issuance of 15,909 shares of common stock from exercise of stock options	1		129		—		—		130
Repurchase of 180,000 shares of common stock	(2)		(4,087)		—		—		(4,089)
Share-based compensation net issuance of 222,717 shares of restricted common stock	2		2,109		—		—		2,111
Cash dividends – Common Stock, $0.165 per share	—		—		(27,043)		—		(27,043)
Balances at March 31, 2022 (unaudited)	$	1,638	$	1,485,524	$	1,304,098	$	(104,557)	$	2,686,703
Comprehensive income:
Net Income	—		—		15,978		—		15,978
Other comprehensive loss	—		—		—		(111,348)		(111,348)
Net issuance of 1,500 shares of common stock from exercise of stock options	—		26		—		—		26
Issuance of 42,425,352 shares of common stock including approximately $2.5 million in certain stock award settlements and stock issuance costs - Happy Bancshares acquisition	424		960,866		—		—		961,290
Repurchase of 1,032,732 shares of common stock	(10)		(22,482)		—		—		(22,492)
Share-based compensation net issuance of 138,499 shares of restricted common stock	1		2,337		—		—		2,338
Cash dividends – Common Stock, $0.165 per share	—		—		(33,930)		—		(33,930)
Balances at June 30, 2022 (unaudited)	$	2,053	$	2,426,271	$	1,286,146	$	(215,905)	$	3,498,565

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020

(In thousands, except share data)

Common
Stock

Capital
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balances at January 1, 2020

$
1,664

$
1,537,091

$
956,555

$
16,221

$
2,511,531

Cumulative change in accounting principle
   (adoption of ASC 326)

—

—

(43,956
)

—

(43,956
)
Balance at January 1, 2020 (as adjusted for
   change in accounting principle)

$
1,664

$
1,537,091

$
912,599

$
16,221

$
2,467,575

Comprehensive income:

Net income

—

—

507

—

507

Other comprehensive income

—

—

—

4,750

4,750

Net issuance of 22,864 shares of common
   stock from exercise of stock options

—

422

—

—

422

Repurchase of 1,423,560 shares of common
   stock

(14
)

(23,843
)

—

—

(23,857
)
Share-based compensation net issuance of
   175,249 shares of restricted common stock

1

2,481

—

—

2,482

Cash dividends – Common Stock, $0.13 per
   share

—

—

(21,608
)

—

(21,608
)
Balances at March 31, 2020 (unaudited)

$
1,651

$
1,516,151

$
891,498

$
20,971

$
2,430,271

Comprehensive income:

Net income

—

—

62,827

—

62,827

Other comprehensive income

—

—

—

18,036

18,036

Share-based compensation net issuance of
  58,140 shares of restricted common stock

1

2,480

—

—

2,481

Cash dividends – Common Stock, $0.13 per
   share

—

—

(21,469
)

—

(21,469
)
Balances at June 30, 2020 (unaudited)

$
1,652

$
1,518,631

$
932,856

$
39,007

$
2,492,146

Comprehensive income:

Net income

—

—

69,320

—

69,320

Other comprehensive loss

—

—

—

(662
)

(662
)
Share-based compensation net forfeiture of
   43,500 shares of restricted stock

—

1,472

—

—

1,472

Cash dividends – Common Stock, $0.13 per
   share

—

—

(21,477
)

—

(21,477
)
Balances at September 30, 2020 (unaudited)

$
1,652

$
1,520,103

$
980,699

$
38,345

$
2,540,799


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

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

Home BancShares, Inc.

Consolidated Statements of Cash Flows


	Six Months Ended June 30, 2022
(In thousands)	2022		2021
	(Unaudited)
Operating Activities
Net income	$	80,870	$	170,672
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization	15,480		9,535
Increase in value of equity securities	(324)		(7,032)
Amortization of securities, net	12,874		13,693
Accretion of purchased loans	(8,266)		(11,282)
Share-based compensation	4,449		4,393
Gain on assets	(600)		(2,336)
Provision for credit losses - acquired loans	45,170		—
Provision for credit losses - acquired unfunded commitments	11,410		—
Provision for credit losses - unfunded commitments	—		(4,752)
Provision for credit losses - acquired held-to-maturity investment securities	2,005		—
Deferred income tax effect	(18,645)		3,311
Increase in cash value of life insurance	(1,632)		(1,039)
Originations of mortgage loans held for sale	(308,850)		(393,886)
Proceeds from sales of mortgage loans held for sale	243,823		419,052
Changes in assets and liabilities:
Accrued interest receivable	(1,548)		11,803
Other assets	(1,067)		5,116
Accrued interest payable and other liabilities	27,466		(4,832)
Net cash provided by operating activities	102,615		212,416
Investing Activities
Net (increase) decrease in loans, excluding purchased loans	(126,794)		989,477
Purchases of investment securities – available-for-sale	(655,393)		(968,660)
Purchases of investment securities - held-to-maturity	(501,882)		—
Proceeds from maturities of investment securities – available-for-sale	333,315		336,834
Proceeds from maturities of investment securities – held-to-maturity	250,020		—
Proceeds from sales of investment securities – available-for-sale	—		18,112
Purchases of equity securities	(29,975)		(10,460)
Proceeds from sales of equity securities	13,778		15,354
Purchase of other investments	(27,867)		(5,084)
Proceeds from foreclosed assets held for sale	1,874		5,422
Proceeds from sale of SBA loans	2,859		12,361
Purchases of premises and equipment, net	(6,596)		(6,252)
Return of investment on cash value of life insurance	—		418
Purchase of marine loan portfolio	(242,617)		—
Net cash received - market acquisition	858,898		—
Net cash (used in) provided by investing activities	(130,380)		387,522
Financing Activities
Net (decrease) increase in deposits	(535,708)		1,165,551
Net decrease in securities sold under agreements to repurchase	(22,313)		(18,391)

Net decrease in FHLB and other borrowed funds	(78,330)		—
Retirement of subordinated debentures	(300,000)		—
Proceeds from issuance of subordinated debentures	296,444		—
Redemption of trust preferred securities	(78,869)		—
Proceeds from exercise of stock options	156		2,322
Repurchase of common stock	(26,581)		(25,723)

Dividends paid on common stock	(60,973)		(46,232)
Net cash (used in) provided by financing activities	(806,174)		1,077,527
Net change in cash and cash equivalents	(833,939)		1,677,465
Cash and cash equivalents – beginning of year	3,650,315		1,263,788
Cash and cash equivalents – end of period	$	2,816,376	$	2,941,253

Nine Months Ended
September 30,

(In thousands)

2021

2020

(Unaudited)

Operating Activities

Net income

$
245,664

$
132,654

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation & amortization

14,457

15,236

(Increase) decrease in value of equity securities

(7,093
)

6,249

Amortization of securities, net

21,018

14,292

Accretion of purchased loans

(16,150
)

(21,640
)
Share-based compensation

6,640

6,435

Gain on assets

(2,987
)

(1,432
)
Provision for credit losses

—

112,264

Provision for credit losses - unfunded commitments

(4,752
)

16,989

Deferred income tax effect

6,936

(38,695
)
Increase in cash value of life insurance

(1,548
)

(1,666
)
Originations of mortgage loans held for sale

(599,787
)

(607,494
)
Proceeds from sales of mortgage loans held for sale

632,721

571,623

Changes in assets and liabilities:

Accrued interest receivable

11,951

(27,283
)
Other assets

3,891

2,552

Accrued interest payable and other liabilities

(9,526
)

20,086

Net cash provided by operating activities

301,435

200,170

Investing Activities

Net decrease (increase) in loans, excluding purchased loans

1,278,846

(372,691
)
Purchases of investment securities – available-for-sale

(1,227,507
)

(819,629
)
Proceeds from maturities of investment securities – available-for-sale

487,242

556,386

Proceeds from sales of investment securities – available-for-sale

18,112

—

Purchases of equity securities

(10,460
)

(15,015
)
Proceeds from sales of equity securities

15,354

—

(Purchase) redemption of other investments

(7,970
)

13,414

Proceeds from foreclosed assets held for sale

6,572

7,476

Proceeds from sale of SBA loans

16,722

4,057

Purchases of premises and equipment, net

(8,065
)

(10,282
)
Return of investment on cash value of life insurance

418

47,258

Net cash paid – market acquisitions

—

(421,211
)
Net cash provided by (used in) investing activities

569,264

(1,010,237
)
Financing Activities

Net increase in deposits

1,277,581

1,659,083

Net (decrease) increase in securities sold under agreements to repurchase

(27,929
)

14,720

Net decrease in federal funds purchased

—

(5,000
)
Net decrease in FHLB and other borrowed funds

—

(218,011
)
Proceeds from exercise of stock options

2,322

422

Repurchase of common stock

(37,002
)

(23,857
)
Dividends paid on common stock

(69,203
)

(64,554
)
Net cash provided by financing activities

1,145,769

1,362,803

Net change in cash and cash equivalents

2,016,468

552,736

Cash and cash equivalents – beginning of year

1,263,788

490,601

Cash and cash equivalents – end of period

$
3,280,256

$
1,043,337

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

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

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

Operating Segments

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

Use of Estimates

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

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

Principles of Consolidation

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

Reclassifications

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

Interim financial information

The accompanying unaudited consolidated financial statements as of ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

Table of Contents

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2020~~2021 Form 10-K, filed with the Securities and Exchange Commission.

~~New Accounting Pronouncements~~

~~The Company adopted ASU 2016-13,~~ ~~Financial Instruments –~~Loans Receivable and Allowance for Credit Losses ~~(Topic 326): Measurement~~

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, deferred fees or costs on originated loans. Interest income on loans is accrued over the term of ~~Credit Losses~~the loans based on ~~Financial Instruments~~ ~~(“ASC 326”), effective January 1, 2020.~~ the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.

The ~~guidance replaces~~allowance for credit losses on loans receivable is a valuation account that is deducted from the ~~incurred~~loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss ~~methodology~~experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, commercial real estate price index, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:

•1-4 family construction

•All other construction

•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

•1-4 family senior liens

•Multifamily

•Owner occupied commercial real estate

•Non-owner occupied commercial real estate

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other

•Consumer auto

•Other consumer

•Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an ~~expected loss methodology~~individual borrower.

•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Table of Contents

Management qualitatively adjusts model results for risk factors that ~~is referred to as~~are not considered within our modeling processes but are nonetheless relevant in assessing the ~~current~~ expected credit ~~loss (“CECL”~~losses within our loan pools. These qualitative factors ("Q-Factors") ~~methodology. The measurement~~and other qualitative adjustments may increase or decrease management's estimate of expected credit losses ~~under~~by a calculated percentage or amount based upon the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby lettersestimated level of ~~credits, financial guarantees,~~risk. The various risks that may be considered in making Q-Factor and other ~~similar instruments)~~qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and ~~net investments~~strategies; (ii) changes in ~~leases recognized by a lessor~~nature and volume of the portfolio; (iii) staff experience; (iv) changes in ~~accordance with Topic 842 on leases.~~volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Loans considered impaired, according to ASC 326, ~~requires enhanced disclosures related~~are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the ~~significant estimates and judgments used~~contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in ~~estimating credit losses as well as~~evaluating the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $44.0 million which was recognized through a $32.5 million adjustment to retained earnings, net of tax. This adjustment brought the beginning balanceadequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to ~~$146.1 million as~~the extent cash payments are received in excess of ~~January 1, 2020.~~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.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

Acquisition Accounting and Acquired Loans

The Company accounts for its acquisitions under FASB ASC Topic 805, Business Combinations, which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. In ~~addition,~~accordance with ASC 326, the Company ~~recorded~~records both a ~~$15.5 million reserve~~discount or premium and an allowance for credit losses on ~~unfunded commitments which was recognized through an $11.5 million adjustment to retained earnings, net of tax.~~

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In 2019, the Company reevaluated its loan pools ofacquired loans. All purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from the Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate and Shore Premier Finance acquisitions. At acquisition, a portion of these loans wasare recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools. The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools. The projected losses for these loans were less than the total credit mark. As such, the remaining $107.6 million of loansat fair value in ~~these pools along~~accordance with the ~~$29.3 million~~fair value methodology prescribed in ~~accretable yield was deemed~~FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to ~~be immaterial~~expected prepayments and ~~was reclassified out~~the amount and timing of ~~the purchased credit impaired~~undiscounted expected principal, interest and other cash flows.

Purchased loans category. As of December 31, 2019, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

~~The Company has purchased loans, some of which~~that have experienced more than insignificant credit deterioration since ~~origination. PCD loans~~origination are ~~recorded at the amount paid.~~purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. These models utilize a peer group benchmark in order to determine the probability of default and loss given default to be used in the calculation. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a ~~noncredit~~non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit ~~loss.~~

losses.

For further discussion of the Company’s acquisitions, see Note 2 to the Condensed Notes to Consolidated Financial Statements.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company ~~adopted ASC 326 using~~estimates expected credit losses over the ~~prospective transition approach for debt securities for~~contractual period in which ~~other-than-temporary impairment had been recognized prior to January 1, 2020. As of December 31, 2019,~~ the Company ~~did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326,~~is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the ~~Company determined than an~~Company. The allowance for credit losses on ~~available-for-sale securities was not~~ ~~deemed material. However, the Company evaluated the investment portfolio during the first quarter of 2020 and determined that an $842,000~~off-balance sheet credit exposures is adjusted as a provision for credit ~~losses was necessary. NaN additional provision was deemed necessary during the remaining quarters of 2020 or the first three quarters of 2021.~~ ~~See Note 3 for further discussion.~~

loss expense. The ~~following table illustrates the impact~~estimate includes consideration of the ~~adoption~~likelihood that funding will occur and an estimate of ~~ASC 326~~expected credit losses on ~~the Company’s 2020 consolidated balance sheet.~~

commitments expected to be funded over its estimated life.

January 1, 2020

As Reported Under ASC 326

Pre-ASC 326 Adoption

Impact of ASC 326 Adoption

(In thousands)

Assets:

    Allowance for credit losses on loans

$
146,110

$
102,122

$
43,988

Liabilities:

    Allowance for credit losses on OBS
       credit exposures
       (included in other liabilities)

15,521

—

15,521

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Revenue Recognition

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

•

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

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

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

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

Earnings per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020			2022		2021		2022		2021
	(In thousands)									(In thousands)
Net income	$	74,992	$	69,320	$	245,664	$	132,654	Net income	$	15,978	$	79,070	$	80,870	$	170,672
Average shares outstanding		164,126		165,200		164,717		165,458	Average shares outstanding	205,683		164,781		184,851		165,018
Effect of common stock options		477		—		333		—	Effect of common stock options	332		445		372		296
Average diluted shares outstanding		164,603		165,200		165,050		165,458	Average diluted shares outstanding	206,015		165,226		185,223		165,314
Basic earnings per share	$	0.46	$	0.42	$	1.49	$	0.80	Basic earnings per share	$	0.08	$	0.48	$	0.44	$	1.03
Diluted earnings per share	$	0.46	$	0.42	$	1.49	$	0.80	Diluted earnings per share	$	0.08	$	0.48	$	0.44	$	1.03

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

2. Business Combinations

Acquisition of ~~LH-Finance~~

Happy Bancshares, Inc.

On ~~February 29, 2020,~~April 1, 2022, the Company completed the acquisition of ~~LH-Finance, the marine lending division of People’s United~~Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank ~~N.A.~~into Centennial Bank. The Company ~~paid~~issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a ~~purchase price~~total transaction value of approximately ~~$421.2 million in cash. LH-Finance provides direct consumer financing~~$962.5 million. The acquisition added new markets for ~~United States Coast Guard (“USCG”) registered high-end sail~~expansion and ~~power boats. Additionally, LH-Finance provides inventory floor plan lines~~brings complementary businesses together to drive synergies and growth.

Including the effects of ~~credit to marine dealers, primarily those selling USCG documented vessels.~~

~~Including~~ the known purchase accounting adjustments, as of the acquisition date, ~~LH-Finance~~Happy had approximately ~~$409.1 million~~$6.68 billion in total assets, ~~including $407.4 million~~$3.65 billion in ~~total~~ loans ~~which resulted~~and $5.86 billion in ~~goodwill~~customer deposits. Happy formerly operated its banking business from 62 locations in Texas.

Table of ~~$14.6 million being recorded.~~

Contents

The ~~acquired portfolio~~purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition. The Company will continue to review the estimated fair values of loans, ~~is now housed in~~deposits and intangible assets, and to evaluate the ~~Shore Premier Finance (“SPF”) division.~~ assumed tax positions and contingencies.

The ~~SPF division~~Company has determined that the acquisition of ~~Centennial is responsible for servicing~~ the ~~acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial opened a loan production office in Baltimore, Maryland.~~

~~Future Acquisition~~net assets of Happy ~~Bancshares, Inc.~~

~~On September 15, 2021,~~constitutes a business combination as defined by the ~~Company~~ASC Topic 805. Accordingly, the assets acquired and Centennial entered into an Agreement and Plan of Merger (the “Agreement”) with Happy Bancshares, Inc., a Texas corporation (“Happy”), and its wholly-owned bank subsidiary, Happy State Bank, a Texas banking association (“HSB”), under which the Company and Centennial will acquire Happy and HSB. The Agreement,liabilities assumed are presented at their fair values as amended on October 18, 2021, provides that, in a series of transactions, an acquisition subsidiary of the Company will merge into Happy and Happy will merge into the Company, with the Company as the surviving entity (collectively, the “Merger”). As soon as reasonably practicable following the Merger, HSB will merge into Centennial, with Centennial as the surviving entity.

Under the terms of the Agreement, as amended, the Company will issue approximately 42.3 million shares of its common stock to the shareholders of Happy upon the completion of the Merger, for a purchase price of approximately $1.02 billion, valuedrequired. Fair values were determined based on the ~~volume-weighted average closing price per share~~requirements of ASC Topic 820. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The following schedule is a preliminary breakdown of the ~~Company’s common stock~~assets acquired and liabilities assumed as ~~reported~~of the acquisition date:


	Happy Bancshares, Inc.
	Acquired from Happy		Fair Value Adjustments		As Recorded by HBI
	(Dollars in thousands)
Assets
Cash and due from banks	$	112,999	$	(132)	$	112,867
Interest-bearing deposits with other banks	746,031		—		746,031
Cash and cash equivalents	859,030		(132)		858,898
Investment securities - available-for-sale, net of allowance for credit losses	1,773,540		8,485		1,782,025

Total investment securities	1,773,540		8,485		1,782,025
Loans receivable	3,657,009		(4,303)		3,652,706
Allowance for credit losses	(42,224)		25,408		(16,816)
Loans receivable, net	3,614,785		21,105		3,635,890
Bank premises and equipment, net	153,642		(11,575)		142,067
Foreclosed assets held for sale	193		(77)		116
Cash value of life insurance	105,049		3		105,052
Accrued interest receivable	31,575		—		31,575
Deferred tax asset, net	32,908		2,506		35,414
Goodwill	130,428		(130,428)		—
Core deposit and other intangibles	10,672		31,591		42,263
Other assets	43,330		6,422		49,752
Total assets acquired	$	6,755,152	$	(72,100)	$	6,683,052
Liabilities
Deposits
Demand and non-interest-bearing	$	1,932,756	$	—	$	1,932,756
Savings and interest-bearing transaction accounts	3,519,652		—		3,519,652
Time deposits	401,899		903		402,802
Total deposits	5,854,307		903		5,855,210

FHLB and other borrowed funds	74,212		4,118		78,330
Accrued interest payable and other liabilities	50,889		(6,130)		44,759
Subordinated debentures	159,965		7,625		167,590
Total liabilities assumed	$	6,139,373	$	6,516	$	6,145,889
Equity
Total equity assumed	615,779		(615,779)		—
Total liabilities and equity assumed	$	6,755,152	$	(609,263)	$	6,145,889
Net assets acquired					537,163
Purchase price					962,538
Goodwill					$	425,375

Table of Contents

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

Cash and due from banks, interest-bearing deposits with other banks and federal funds sold – The carrying amount of these assets was deemed a reasonable estimate of fair value based on the ~~Nasdaq Global Select Market (“Nasdaq”)~~short-term nature of these assets.

Investment securities – Investment securities were acquired from Happy with an approximately $8.5 million adjustment to fair value based upon quoted market prices. Otherwise the book value was deemed to approximate fair value.

Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the ~~20 consecutive trading day period ending~~type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and current discount rates. The discount rates used for loans are based on ~~November 1, 2021. NaN~~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 ~~consideration will be paid~~flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. See Note 5 to the Condensed Notes to Consolidated Financial Statements, for additional information related to purchased financial assets with credit deterioration.

Bank premises and equipment – Bank premises and equipment were acquired from Happy with a $11.6 million adjustment to fair value. This represents the difference between current appraisals completed in connection with the ~~Merger, except that holders of outstanding shares of Happy common stock~~acquisition and book value acquired.

Foreclosed assets held for sale – These assets are presented at the ~~time~~estimated fair values that management expects to receive when the properties are sold, net of related costs of disposal.

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

Accrued interest receivable – The carrying amount of these assets was deemed a reasonable estimate of the ~~Merger will receive~~fair value.

Core deposit intangible and other intangibles – This core deposit intangible asset represents the value of the relationships that Happy had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash ~~payments in lieu~~flow methodology that gave appropriate consideration to expected customer attrition rates, cost of ~~any fractional shares~~the deposit base, and the net maintenance cost attributable to customer deposits.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The $903,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of ~~Company common stock~~Happy’s certificates of deposits were estimated to ~~which they are otherwise entitled in connection with~~be below the ~~Merger. In addition,~~current market rates.

FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company ~~expects~~for borrowings with similar terms and maturities.

Accrued interest payable and other liabilities – The fair value adjustment results from certain liabilities whose value was estimated to ~~pay an aggregate~~be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The carrying amount of upaccrued interest and the remainder of other liabilities was deemed to ~~approximately $11.0 million in cash in cancellation~~be a reasonable estimate of ~~certain stock appreciation rights issued by~~fair value.

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.

Table of Contents

The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy ~~that remain outstanding~~might have appeared had the businesses actually been combined. The following schedule represents the unaudited pro forma combined financial information as of the three and six-month periods ended June 30, 2022 and 2021, assuming the acquisition was completed as of January 1, 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands, except per share data)
Total interest income	$	217,013	$	211,279	$	419,318	$	418,143
Total non-interest income	44,581		44,427		88,151		101,485
Net income available to all shareholders	96,923		34,536		182,557		129,653

Basic earnings per common share	$	0.47	$	0.17	$	0.89	$	0.63
Diluted earnings per common share	$	0.47	$	0.17	$	0.88	$	0.62

The unaudited pro-forma consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the ~~time~~beginning of the ~~Merger.~~

~~Subject~~period presented and had the impact of possible significant revenue enhancements and expense efficiencies from in-market cost savings, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results. Pro-forma results include Happy merger expenses of $48.7 million and $49.6 million, provision for credit losses on acquired loans of $45.2 million, provision for credit losses on acquired unfunded commitments of $11.4 million and provision for credit losses on acquired investment securities of $2.0 million for the ~~terms~~three and ~~conditions set forth~~six months ended June 30, 2022 and 2021, respectively. The pro-forma financial information also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans, the initial estimate of expected credit losses is recognized in the ~~Agreement,~~allowance for credit losses on the date of acquisition using the same methodology as ~~amended, at the effective time~~other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the ~~Merger (the “Effective Time”), each outstanding share~~Happy acquisition with credit deterioration at acquisition:


	April 1, 2022
	(In thousands)
Purchased Loans with Credit Deterioration:
Par value	$	165,028
Allowance for credit losses at acquisition	(16,816)
Premium on acquired loans	684
Purchase price	$	148,896

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

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

Contents

3. Investment Securities

The following table summarizes the amortized cost and fair value of securities that are classified as available-for-sale and held-to-maturity are as follows:


	June 30, 2022
	Available-for-Sale
	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
	(In thousands)
U.S. government-sponsored enterprises	$	465,293	$	—	$	465,293	$	2,822	$	(16,658)	$	451,457
Residential mortgage-backed securities	1,780,519		—		1,780,519		657		(152,990)		1,628,186
Commercial mortgage-backed securities	363,117		—		363,117		14		(13,067)		350,064
State and political subdivisions	1,027,748		(842)		1,026,906		1,111		(93,486)		934,531
Other securities	444,184		—		444,184		131		(17,044)		427,271
Total	$	4,080,861	$	(842)	$	4,080,019	$	4,735	$	(293,245)	$	3,791,509


	June 30, 2022
	Held-to-Maturity
	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
	(In thousands)
U.S. Treasuries	$	277,688	$	—	$	277,688	$	—	$	(1,659)	$	276,029


State and political subdivisions	1,091,098		(2,005)		1,089,093		26		(91,868)		997,251

Total	$	1,368,786	$	(2,005)	$	1,366,781	$	26	$	(93,527)	$	1,273,280


	December 31, 2021
	Available-for-Sale
	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
	(In thousands)
U.S. government-sponsored enterprises	$	433,829	$	—	$	433,829	$	2,375	$	(3,225)	$	432,979
Residential mortgage-backed securities	1,175,185		—		1,175,185		4,085		(18,551)		1,160,719
Commercial mortgage-backed securities	372,702		—		372,702		6,521		(1,968)		377,255
State and political subdivisions	973,318		(842)		972,476		26,296		(1,794)		996,978
Other securities	151,449		—		151,449		1,781		(1,354)		151,876
Total	$	3,106,483	$	(842)	$	3,105,641	$	41,058	$	(26,892)	$	3,119,807

On April 1, 2022, the ~~corresponding amounts~~Company completed the acquisition of ~~gross unrealized gains and losses recognized~~Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $1.78 billion in ~~accumulated other comprehensive income (loss):~~

investments, net of purchase accounting adjustments. The Company classified approximately $1.12 billion of investments acquired from Happy as held-to-maturity at the acquisition date.

September 30, 2021

Available-for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

(In thousands)

U.S. government-sponsored enterprises

$
439,181

$
2,702

$
(1,720
)

$
440,163

Residential mortgage-backed securities

1,198,016

6,812

(9,064
)

1,195,764

Commercial mortgage-backed securities

403,840

10,656

(922
)

413,574

State and political subdivisions

965,993

27,356

(2,205
)

991,144

Other securities

109,216

1,137

(390
)

109,963

Total

$
3,116,246

$
48,663

$
(14,301
)

$
3,150,608

December 31, 2020

Available-for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

(In thousands)

U.S. government-sponsored enterprises

$
325,860

$
2,338

$
(1,207
)

$
326,991

Residential mortgage-backed securities

703,138

10,607

(688
)

713,057

Commercial mortgage-backed securities

446,964

18,048

(126
)

464,886

State and political subdivisions

898,174

31,173

(1,454
)

927,893

Other securities

40,755

434

(235
)

40,954

Total

$
2,414,891

$
62,600

$
(3,710
)

$
2,473,781

Table of Contents

Assets, principally investment securities, having a carrying value of approximately ~~$1.17~~$2.77 billion and ~~$1.08~~$1.15 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. Investment securities pledged as collateral for repurchase agreements totaled approximately ~~$141.0~~$118.6 million and ~~$168.9~~$140.9 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at ~~September~~June 30, ~~2021,~~2022, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.


	Available-for-Sale					Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)					(In thousands)
Due in one year or less	$	9,391	$	9,399	Due in one year or less	$	21,153	$	21,175	$	249,949	$	249,689
Due after one year through five years		78,839		79,824	Due after one year through five years	145,743		140,380		4,757		4,690
Due after five years through ten years		348,801		350,567	Due after five years through ten years	487,573		459,863		181,961		168,691
Due after ten years		1,075,359		1,099,480	Due after ten years	1,277,149		1,186,305		932,119		850,210
Mortgage - backed securities: Residential		1,198,016		1,195,764	Mortgage - backed securities: Residential	1,780,519		1,628,186		—		—
Mortgage - backed securities: Commercial		403,840		413,574	Mortgage - backed securities: Commercial	363,117		350,064		—		—
Other		2,000		2,000	Other	5,607		5,536		—		—
Total	$	3,116,246	$	3,150,608	Total	$	4,080,861	$	3,791,509	$	1,368,786	$	1,273,280

During the three and six months ended June 30, 2022, no available-for-sale securities were sold.

During the three months ended ~~September~~June 30, 2021, 0no available-for-sale securities were sold. There were 0no realized gains or losses recorded on sales for the three months ended ~~September~~June 30, 2021. During the ~~nine~~six months ended ~~September~~June 30, 2021, $17.9 million in available-for-sale securities were sold. The gross realized gains on the sales totaled $219,000 for the ~~nine~~six months ended ~~September~~June 30, 2021.

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

The following table shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale and held-to-maturity, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

	September 30, 2021
	Less Than 12 Months					12 Months or More					Total						June 30, 2022
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses				Less Than 12 Months				12 Months or More				Total
	(In thousands)																Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
																	(In thousands)
Available-for-sale:																Available-for-sale:
U.S. government-sponsored enterprises	$	80,986	$	(1,015	)	$	56,150	$	(705	)	$	137,136	$	(1,720	)	U.S. government-sponsored enterprises	$	115,827	$	(10,132)	$	67,691	$	(6,526)	$	183,518	$	(16,658)
Residential mortgage-backed securities		762,805		(8,216	)		31,319		(848	)		794,124		(9,064	)	Residential mortgage-backed securities	1,205,092		(105,830)		253,686		(47,160)		1,458,778		(152,990)
Commercial mortgage-backed securities		81,615		(906	)		6,245		(16	)		87,860		(922	)	Commercial mortgage-backed securities	299,151		(9,507)		44,291		(3,560)		343,442		(13,067)
State and political subdivisions		149,056		(980	)		16,887		(1,225	)		165,943		(2,205	)	State and political subdivisions	789,862		(89,276)		22,922		(4,210)		812,784		(93,486)
Other securities		41,421		(340	)		4,263		(50	)		45,684		(390	)	Other securities	293,266		(15,278)		17,222		(1,766)		310,488		(17,044)
Total	$	1,115,883	$	(11,457	)	$	114,864	$	(2,844	)	$	1,230,747	$	(14,301	)	Total	$	2,703,198	$	(230,023)	$	405,812	$	(63,222)	$	3,109,010	$	(293,245)
Held-to-maturity:																Held-to-maturity:
U.S. Treasuries																U.S. Treasuries	276,029		(1,659)		—		—		276,029		(1,659)
State and political subdivisions																State and political subdivisions	998,550		(91,868)		—		—		998,550		(91,868)
Total																Total	$	1,274,579	$	(93,527)	$	—	$	—	$	1,274,579	$	(93,527)

December 31, 2020

Less Than 12 Months

12 Months or More

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

U.S. government-sponsored enterprises

$
54,611

$
(383
)

$
95,249

$
(824
)

$
149,860

$
(1,207
)
Residential mortgage-backed securities

143,458

(643
)

4,900

(45
)

148,358

(688
)
Commercial mortgage-backed securities

26,886

(126
)

—

—

26,886

(126
)
State and political subdivisions

78,349

(1,454
)

—

—

78,349

(1,454
)
Other securities

5,434

(100
)

8,748

(135
)

14,182

(235
)
Total

$
308,738

$
(2,706
)

$
108,897

$
(1,004
)

$
417,635

$
(3,710
)

Table of Contents


	December 31, 2021
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. government-sponsored enterprises	$	120,730	$	(1,356)	$	78,124	$	(1,869)	$	198,854	$	(3,225)
Residential mortgage-backed securities	854,807		(15,246)		104,897		(3,305)		959,704		(18,551)
Commercial mortgage-backed securities	100,702		(1,251)		28,711		(717)		129,413		(1,968)
State and political subdivisions	136,135		(1,282)		18,647		(512)		154,782		(1,794)
Other securities	75,744		(1,316)		2,703		(38)		78,447		(1,354)
Total	$	1,288,118	$	(20,451)	$	233,082	$	(6,441)	$	1,521,200	$	(26,892)

The Company evaluates all securities quarterly to determine if any debt securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The Company recorded a $2.0 million provision for credit losses on the held-to-maturity investment securities during the second quarter of 2022 as a result of the investment securities acquired as part of the Happy acquisition. Of the Company's held-to-maturity securities, $1.09 billion, or 79.7% are municipal securities. To estimate the necessary loss provision, the Company utilized historical default and recovery rates of the municipal bond sector and applied these rates using a pooling method. The remainder of investments classified as held-to-maturity are U.S. Treasury securities. Due to the inherent low risk in U.S. Treasury securities, no provision for credit loss was established on that portion of the portfolio.

At ~~September~~June 30, ~~2021,~~2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic ~~uncertainties related to the COVID-19 pandemic,~~uncertainty, was adequate for the available-for-sale investment ~~portfolio.~~portfolio, and the allowance for credit losses for the held-to-maturity portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

September 30, 2021

December 31, 2020

(In thousands)

Allowance for credit losses:

Beginning balance
$
842

$
—

Provision for credit loss - investment securities

—

842

Balance, September 30
$
842

$
842

Provision for credit loss - investment securities

—

Balance, December 31, 2020

$
842


Available-for-Sale Investment Securities
	June 30, 2022		December 31, 2021
	(In thousands)
Allowance for credit losses:
Beginning balance	$	842	$	842
Provision for credit loss	—		—
Balance, June 30	$	842	$	842
Provision for credit loss			—
Balance, December 31, 2021			$	842

Table of Contents


Held-to-Maturity Investment Securities
	June 30, 2022				December 31, 2021
	State and Political Subdivisions		U.S. Treasuries		State and Political Subdivisions		U.S. Treasuries
Allowance for credit losses:	(In thousands)
Beginning balance	$	—	$	—	$	—	$	—
Provision for credit loss - acquired securities	(2,005)		—		—		—
Securities charged-off	—		—		—		—
Recoveries	—		—		—		—
Balance, June 30, 2022	$	(2,005)	$	—	$	—	$	—

For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company had investment securities with approximately ~~$2.8~~$63.2 million in unrealized losses, which have been in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the market depreciation was primarily due to the change in interest rates and not the issuer’s financial condition or downgrades by rating agencies. In addition, approximately ~~58.6%~~33.4% of the principal balance from the Company’s investment portfolio will mature ~~and be repaid~~or are expected to ~~the Company~~pay down within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

As of ~~September~~June 30, ~~2021,~~2022, the Company's available-for-sale securities portfolio consisted of ~~1,335~~1,644 investment securities, ~~304~~1,333 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was ~~$14.3~~$293.2 million.The ~~U.S~~U.S. government-sponsored enterprises portfolio contained unrealized losses of ~~$1.7~~$16.7 million on 4458 securities. The residential mortgage-backed securities portfolio contained ~~$9.1~~$153.0 million of unrealized losses on ~~161~~575 securities, and the commercial mortgage-backed securities portfolio contained ~~$922,000~~$13.1 million of unrealized losses on 35152 securities. The state and political subdivisions portfolio contained ~~$2.2~~$93.5 million of unrealized losses on 51466 securities. In addition, the other securities portfolio contained ~~$390,000~~$17.0 million of unrealized losses on 1382 securities.The unrealized losses on the Company's investments were a result of interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. ~~As of September 30, 2021, the Company does not consider an allowance for credit losses on the other portions of the investment portfolio because~~Because the decline in market value was attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be ~~maturity.~~

maturity, the Company has determined that an additional provision for credit losses is not necessary as of June 30, 2022.

As of June 30, 2022, the Company's held-to-maturity securities portfolio consistedof 482 investment securities, 480 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $93.5 million. The U.S Treasury portfolio contained unrealized losses of $1.7 million on 5 securities, and the state and political subdivisions portfolio contained $91.9 million of unrealized losses on 475 securities.

The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of June 30, 2022:


	State and Political Subdivisions		U.S. Treasuries		Total
	(In thousands)
Aaa/AAA	$	217,912	$	277,688	$	495,600
Aa/AA	837,675		—		837,675
A	33,677		—		33,677
Baa/BBB	—		—		—
Not rated	1,834		—		1,834
Total	$	1,091,098	$	277,688	$	1,368,786

Table of Contents

Income earned on ~~available-for sale~~ securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, is as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020			2022		2021		2022		2021
	(In thousands)									(In thousands)
Taxable	$	8,495	$	7,227	$	21,933	$	25,696	Taxable
Available-for-sale									Available-for-sale	$	14,493	$	7,185	$	23,238	$	13,438
Held-to-maturity									Held-to-maturity	6,448		—		6,783		—
Non-taxable		4,839		4,367		14,815		11,179	Non-taxable
Available-for-sale									Available-for-sale	4,751		4,905		9,459		9,976
Held-to-maturity									Held-to-maturity	2,974		—		2,973		—
Total	$	13,334	$	11,594	$	36,748	$	36,875	Total	$	28,666	$	12,090	$	42,453	$	23,414

4. Loans Receivable

The various categories of loans receivable are summarized as follows:

	September 30,			December 31,
	2021			2020				June 30, 2022		December 31, 2021
	(In thousands)							(In thousands)
Real estate:							Real estate:
Commercial real estate loans							Commercial real estate loans
Non-farm/non-residential	$	4,005,841		$	4,429,060		Non-farm/non-residential	$	5,092,539	$	3,889,284
Construction/land development		1,742,687			1,562,298		Construction/land development	2,595,384		1,850,050
Agricultural		138,881			114,431		Agricultural	329,106		130,674
Residential real estate loans							Residential real estate loans
Residential 1-4 family		1,273,988			1,536,257		Residential 1-4 family	1,708,221		1,274,953
Multifamily residential		274,131			536,538		Multifamily residential	389,633		280,837
Total real estate		7,435,528			8,178,584		Total real estate	10,114,883		7,425,798
Consumer		814,732			864,690		Consumer	1,106,343		825,519
Commercial and industrial		1,414,079			1,896,442		Commercial and industrial	2,187,771		1,386,747
Agricultural		68,272			66,869		Agricultural	324,630		43,920
Other		168,489			214,136		Other	190,246		154,105
Total loans receivable		9,901,100			11,220,721		Total loans receivable	13,923,873		9,836,089
Allowance for credit losses		(238,673	)		(245,473	)	Allowance for credit losses	(294,267)		(236,714)
Loans receivable, net	$	9,662,427		$	10,975,248		Loans receivable, net	$	13,629,606	$	9,599,375

On April 1, 2022, the Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $3.65 billion in loans.

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2021,~~2022, the Company did not sell any guaranteed portions of certain SBA loans. During the six months ended June 30, 2022, the Company sold ~~$3.9 million and $15.0~~$2.8 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately ~~$440,000 and $1.6 million.~~$95,000. During the three months ended ~~September~~June 30, ~~2020,~~2021, the Company did 0tnot sell any guaranteed portions of certain SBA loans. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company sold ~~$3.7~~$11.1 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately ~~$341,000.~~

$1.1 million.

Table of Contents

Mortgage loans held for sale of approximately ~~$81.9~~$137.8 million and ~~$114.8~~$72.7 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, are included in residential 1-4 family loans.Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were not material.

~~The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”)~~

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

~~The Company has purchased loans, some of which~~ have experienced more than insignificant credit deterioration since ~~origination. PCD loans~~origination are ~~recorded at the amount paid.~~purchase credit deteriorated (“PCD”) loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a ~~noncredit~~non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. ~~As a result of the acquisition of LH-Finance in 2020, the~~ The Company held approximately ~~$454,000~~$152.3 million and ~~$760,000~~$448,000 in PCD loans, as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The balance consisted of $151.8 million resulting from the acquisition of Happy and $432,000 from the acquisition of LH-Finance.

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

24, 2022.

5. Allowance for Credit Losses, Credit Quality and Other

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

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

Management qualitatively adjusts model results for risk factors ("Q-Factors") that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the ~~first~~second quarter of ~~2021,~~2022, management determined ~~that changes to several of~~ the previously selected economic factors for the various loss driver segments were appropriate and no changes were necessary. The identified loss drivers by segment are included below as of ~~September~~both June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~

2021.

Table of Contents

~~September 30, 2021~~

Loss Driver Segment	Call Report Segment(s)	Modeled Economic Factors
1-4 Family Construction	1a1	National Unemployment (%) & Housing Price Index (%)
All Other Construction	1a2	National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Revolving HELOC & Junior Liens	1c1	National Unemployment (%) & Housing Price Index – CoreLogic (%)
1-4 Family Revolving HELOC & Junior Liens	1c2b	National Unemployment (%) & Gross Domestic Product (%)
1-4 Family Senior Liens	1c2a	National Unemployment (%) & Gross Domestic Product (%)
Multifamily	1d	Rental Vacancy Rate (%) & Housing Price Index – Case-Schiller (%)
Owner Occupied CRE	1e1	National Unemployment (%) & Gross Domestic Product (%)
Non-Owner Occupied CRE	1e2,1b,8	National Unemployment (%) & Gross Domestic Product (%)
Commercial & Industrial, Agricultural, Non-Depository Financial Institutions, Purchase/Carry Securities, Other	4a, 3, 9a, 9b1, 9b2, 10, Other	National Unemployment (%) & National Retail Sales (%)
Consumer Auto	6c	National Unemployment (%) & National Retail Sales (%)
Other Consumer	6b, 6d	National Unemployment (%) & National Retail Sales (%)
Other Consumer - SPF	6d	National Unemployment (%)

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

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

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

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

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

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

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

Table of Contents

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

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

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition. ~~During the first quarter of 2020, we~~The Company completed the acquisition of ~~$406.2 million of loans from LH-Finance.~~Happy on April 1, 2022. As a result, the Company recorded ~~a $6.6~~$4.3 million in net loan ~~discount~~discounts and a ~~$9.3~~$16.8 million increase in the allowance for credit losses ~~for this acquisition. A small portion of the loans acquired during the quarter were purchase credit deteriorated (“PCD”) loans, so~~related to PCD loans. In addition, the Company recorded a ~~$357,000 allowance~~$45.2 million provision for credit losses on ~~these loans.~~

acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments.

The following ~~tables present~~table presents the activity in the allowance for credit losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:

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

	Nine Months Ended September 30, 2021																			Three Months Ended June 30, 2022
	Construction/ Land Development			Other Commercial Real Estate			Residential Real Estate			Commercial & Industrial			Consumer & Other			Total				Construction/ Land Development		Other Commercial Real Estate		Residential Real Estate		Commercial & Industrial		Consumer & Other		Total
	(In thousands)																			(In thousands)
Allowance for credit losses:																			Allowance for credit losses:
Beginning balance	$	32,861		$	88,453		$	53,216		$	46,530		$	24,413		$	245,473		Beginning balance	$	26,349	$	95,876	$	37,111	$	52,492	$	22,940	$	234,768
Allowance for credit losses on PCD loans - Happy acquisition																			Allowance for credit losses on PCD loans - Happy acquisition	950		9,283		980		5,596		7		16,816
Loans charged off		—			(646	)		(543	)		(5,892	)		(1,458	)		(8,539	)	Loans charged off	—		—		(39)		—		(3,226)		(3,265)
Recoveries of loans previously charged off		47			112			554			382			644			1,739		Recoveries of loans previously charged off	302		52		23		221		180		778
Net loans recovered (charged off)		47			(534	)		11			(5,510	)		(814	)		(6,800	)	Net loans recovered (charged off)	302		52		(16)		221		(3,046)		(2,487)
Provision for credit losses - acquired loans																			Provision for credit losses - acquired loans	7,205		18,711		7,380		11,303		571		45,170
Provision for credit losses		(6,925	)		579			(2,324	)		11,582			(2,912	)		—		Provision for credit losses	1,883		(8,727)		5,691		(1,303)		2,456		—
Balance, September 30	$	25,983		$	88,498		$	50,903		$	52,602		$	20,687		$	238,673
Balance, June 30																			Balance, June 30	$	36,689	$	115,195	$	51,146	$	68,309	$	22,928	$	294,267


	Six Months Ended June 30, 2022
	Construction/ Land Development		Other Commercial Real Estate		Residential Real Estate		Commercial & Industrial		Consumer & Other		Total
	(In thousands)
Allowance for credit losses:
Beginning balance	$	28,415	$	87,218	$	48,458	$	53,062	$	19,561	$	236,714
Allowance for credit losses on PCD loans - Happy acquisition	950		9,283		980		5,596		7		16,816
Loans charged off	—		—		(289)		(1,416)		(3,870)		(5,575)
Recoveries of loans previously charged off	317		78		49		330		368		1,142
Net loans recovered (charged off)	317		78		(240)		(1,086)		(3,502)		(4,433)
Provision for credit losses - acquired loans	7,205		18,711		7,380		11,303		571		45,170
Provision for credit losses	(198)		(95)		(5,432)		(566)		6,291		—
Balance, June 30	$	36,689	$	115,195	$	51,146	$	68,309	$	22,928	$	294,267

Table of Contents

The following ~~tables present~~table presents the balances in the allowance for credit losses for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 and the year ended December 31, ~~2020.~~

2021:


	Six Months Ended June 30, 2021 and Year Ended December 31, 2021
	Construction/ Land Development		Other Commercial Real Estate		Residential Real Estate		Commercial & Industrial		Consumer & Other		Total
	(In thousands)
Allowance for credit losses:
Beginning balance	$	32,861	$	88,453	$	53,216	$	46,530	$	24,413	$	245,473
Loans charged off	—		(637)		(323)		(4,210)		(900)		(6,070)
Recoveries of loans previously charged off	39		68		166		302		473		1,048
Net loans recovered (charged off)	39		(569)		(157)		(3,908)		(427)		(5,022)
Provision for credit loss - loans	(10,755)		5,243		(1,877)		9,660		(2,271)		—
Balance, June 30	22,145		93,127		51,182		52,282		21,715		240,451
Loans charged off	—		(9)		(222)		(4,032)		(1,328)		(5,591)
Recoveries of loans previously charged off	19		717		517		289		312		1,854
Net loans recovered (charged off)	19		708		295		(3,743)		(1,016)		(3,737)
Provision for credit loss - loans	6,251		(6,617)		(3,019)		4,523		(1,138)		—
Balance, December 31	$	28,415	$	87,218	$	48,458	$	53,062	$	19,561	$	236,714

Nine Months Ended September 30, 2020 and Year Ended December 31, 2020

Construction/
Land
Development

Other
Commercial
Real Estate

Residential
Real Estate

Commercial
& Industrial

Consumer
& Other

Total

(In thousands)

Allowance for credit losses:

Beginning balance

$
26,433

$
33,529

$
20,135

$
16,615

$
5,410

$
102,122

Impact of adoption ASC 326

(5,296
)

15,912

16,680

11,584

5,108

43,988

Allowance for credit losses on
   PCD loans

—

—

—

—

357

357

Loans charged off

(443
)

(3,003
)

(450
)

(6,207
)

(1,343
)

(11,446
)
Recoveries of loans previously
   charged off

94

614

305

142

626

1,781

Net loans charged off

(349
)

(2,389
)

(145
)

(6,065
)

(717
)

(9,665
)
Provision for credit loss - loans

18,027

50,912

8,550

18,023

6,601

102,113

Provision for credit loss -
   acquired loans

—

—

—

—

9,309

9,309

Balance, September 30

38,815

97,964

45,220

40,157

26,068

248,224

Loans charged off

(775
)

(38
)

(35
)

(1,557
)

(635
)

(3,040
)
Recoveries of loans previously
    charged off

13

33

32

76

135

289

Net loans charged off

(762
)

(5
)

(3
)

(1,481
)

(500
)

(2,751
)
Provision for credit loss - loans

(5,192
)

(9,506
)

7,999

7,854

(1,155
)

—

Balance, December 31

$
32,861

$
88,453

$
53,216

$
46,530

$
24,413

$
245,473

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:


		September 30, 2021							June 30, 2022
		Nonaccrual		Nonaccrual with Reserve		Loans Past Due Over 90 Days Still Accruing			Nonaccrual		Nonaccrual with Reserve		Loans Past Due Over 90 Days Still Accruing
	(In thousands)								(In thousands)
Real estate:								Real estate:
Commercial real estate loans								Commercial real estate loans
Non-farm/non-residential		$	8,819	$	2,244	$	2,413	Non-farm/non-residential	$	14,247	$	2,137	$	10,712
Construction/land development			1,870		—		—	Construction/land development	1,050		—		246
Agricultural			743		—		—	Agricultural	194		—		711
Residential real estate loans								Residential real estate loans
Residential 1-4 family			17,495		2,984		855	Residential 1-4 family	17,210		—		2,378
Multifamily residential			161		—		—	Multifamily residential	156		—		—
Total real estate			29,088		5,228		3,268	Total real estate	32,857		2,137		14,047
Consumer			1,921		—		2	Consumer	1,321		—		43
Commercial and industrial			15,989		4,272		41	Commercial and industrial	8,698		2,268		2,342
Agricultural & other			606		—		—	Agricultural & other	1,294		—		—
Total		$	47,604	$	9,500	$	3,311	Total	$	44,170	$	4,405	$	16,432

December 31, 2020

Nonaccrual

Nonaccrual
with Reserve

Loans Past Due
Over 90 Days
Still Accruing

(In thousands)

Real estate:

Commercial real estate loans

Non-farm/non-residential

$
20,947

$
6,794

$
6,088

Construction/land development

1,381

2,089

1,296

Agricultural

879

—

—

Residential real estate loans

Residential 1-4 family

19,334

3,000

1,821

Multifamily residential

173

—

—

Total real estate

42,714

11,883

9,205

Consumer

3,506

—

174

Commercial and industrial

17,251

—

231

Agricultural & other

1,057

—

—

Total

$
64,528

$
11,883

$
9,610

Table of Contents


	December 31, 2021
	Nonaccrual		Nonaccrual with Reserve		Loans Past Due Over 90 Days Still Accruing
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	11,923	$	2,212	$	2,225
Construction/land development	1,445		—		—
Agricultural	897		—		—
Residential real estate loans
Residential 1-4 family	16,198		3,000		701
Multifamily residential	156		—		—
Total real estate	30,619		5,212		2,926
Consumer	1,648		—		2
Commercial and industrial	13,875		4,018		107
Agricultural & other	1,016		—		—
Total	$	47,158	$	9,230	$	3,035

The Company had ~~$47.6~~$44.2 million and ~~$64.5~~$47.2 million in nonaccrual loans for the periods ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. In addition, the Company had ~~$3.3~~$16.4 million and ~~$9.6~~$3.0 million in loans past due 90 days or more and still accruing for the periods ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The Company had ~~$9.5~~$4.4 million and ~~$11.9~~$9.2 million in nonaccrual loans with a specific reserve as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company did 0tnot recognize any interest income on nonaccrual loans during the period ended ~~September~~June 30, ~~2021~~2022 or ~~September~~June 30, ~~2020.~~

2021.

The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:

	September 30, 2021
	Commercial		Residential					June 30, 2022
	Real Estate		Real Estate		Other			Commercial Real Estate		Residential Real Estate		Other
	(In thousands)							(In thousands)
Real estate:							Real estate:
Commercial real estate loans							Commercial real estate loans
Non-farm/non-residential	$	249,783	$	—	$	—	Non-farm/non-residential	$	330,460	$	—	$	—
Construction/land development		5,201		—		—	Construction/land development	1,296		—		—
Agricultural		743		—		—	Agricultural	905		—		—
Residential real estate loans							Residential real estate loans
Residential 1-4 family		—		21,393		—	Residential 1-4 family	—		20,714		—
Multifamily residential		—		161		—	Multifamily residential	—		1,108		—
Total real estate		255,727		21,554		—	Total real estate	332,661		21,822		—
Consumer		—		—		1,936	Consumer	—		—		1,376
Commercial and industrial		—		—		20,264	Commercial and industrial	—		—		27,326
Agricultural & other		—		—		607	Agricultural & other	—		—		1,915
Total	$	255,727	$	21,554	$	22,807	Total	$	332,661	$	21,822	$	30,617

December 31, 2020

Commercial

Residential

Real Estate

Real Estate

Other

(In thousands)

Real estate:

Commercial real estate loans

Non-farm/non-residential

$
47,429

$
—

$
—

Construction/land development

6,012

—

—

Agricultural

879

—

—

Residential real estate loans

Residential 1-4 family

—

32,413

—

Multifamily residential

—

173

—

Total real estate

54,320

32,586

—

Consumer

—

—

3,694

Commercial and industrial

—

—

21,027

Agricultural & other

—

—

1,057

Total

$
54,320

$
32,586

$
25,778

Table of Contents


	December 31, 2021
	Commercial Real Estate		Residential Real Estate		Other
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	283,919	$	—	$	—
Construction/land development	4,775		—		—
Agricultural	897		—		—
Residential real estate loans
Residential 1-4 family	—		19,775		—
Multifamily residential	—		1,300		—
Total real estate	289,591		21,075		—
Consumer	—		—		1,663
Commercial and industrial	—		—		18,193
Agricultural & other	—		—		1,016
Total	$	289,591	$	21,075	$	20,872

The Company had ~~$300.1~~$385.1 million and ~~$112.7~~$331.5 million in collateral-dependent impaired loans for the periods ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The increase in collateral-dependent impaired loans was due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market. In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.

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

Table of Contents

The following is an aging analysis for loans receivable as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:


	September 30, 2021															June 30, 2022
	Loans Past Due 30-59 Days		Loans Past Due 60-89 Days		Loans Past Due 90 Days or More		Total Past Due		Current Loans		Total Loans Receivable		Accruing Loans Past Due 90 Days or More			Loans Past Due 30-59 Days		Loans Past Due 60-89 Days		Loans Past Due 90 Days or More		Total Past Due		Current Loans		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(In thousands)															(In thousands)
Real estate:															Real estate:
Commercial real estate loans															Commercial real estate loans
Non-farm/non-residential	$	2,213	$	—	$	11,232	$	13,445	$	3,992,396	$	4,005,841	$	2,413	Non-farm/non-residential	$	14,579	$	1,871	$	24,959	$	41,409	$	5,051,130	$	5,092,539	$	10,712
Construction/land development		66		171		1,870		2,107		1,740,580		1,742,687		—	Construction/land development	3,553		2,145		1,296		6,994		2,588,390		2,595,384		246
Agricultural		434		295		743		1,472		137,409		138,881		—	Agricultural	4,106		337		905		5,348		323,758		329,106		711
Residential real estate loans														—	Residential real estate loans
Residential 1-4 family		2,452		3,072		18,350		23,874		1,250,114		1,273,988		855	Residential 1-4 family	3,729		4,404		19,588		27,721		1,680,500		1,708,221		2,378
Multifamily residential		—		—		161		161		273,970		274,131		—	Multifamily residential	54		—		156		210		389,423		389,633		—
Total real estate		5,165		3,538		32,356		41,059		7,394,469		7,435,528		3,268	Total real estate	26,021		8,757		46,904		81,682		10,033,201		10,114,883		14,047
Consumer		401		12		1,923		2,336		812,396		814,732		2	Consumer	701		122		1,364		2,187		1,104,156		1,106,343		43
Commercial and industrial		752		592		16,030		17,374		1,396,705		1,414,079		41	Commercial and industrial	7,996		1,140		11,040		20,176		2,167,595		2,187,771		2,342
Agricultural & other		619		1		606		1,226		235,535		236,761		—	Agricultural & other	658		72		1,294		2,024		512,852		514,876		—
Total	$	6,937	$	4,143	$	50,915	$	61,995	$	9,839,105	$	9,901,100	$	3,311	Total	$	35,376	$	10,091	$	60,602	$	106,069	$	13,817,804	$	13,923,873	$	16,432

December 31, 2020

Loans
Past Due
30-59
Days

Loans
Past Due
60-89
Days

Loans
Past Due
90 Days
or More

Total
Past Due

Current
Loans

Total
Loans
Receivable

Accruing
Loans
Past Due
90 Days
or More

(In thousands)

Real estate:

Commercial real estate loans

Non-farm/non-residential

$
3,856

$
68

$
27,035

$
30,959

$
4,398,101

$
4,429,060

$
6,088

Construction/land development

178

44

2,677

$
2,899

1,559,399

1,562,298

1,296

Agricultural

522

—

879

1,401

113,030

114,431

—

Residential real estate loans

Residential 1-4 family

4,833

7,787

21,155

33,775

1,502,482

1,536,257

1,821

Multifamily residential

111

—

173

284

536,254

536,538

—

Total real estate

9,500

7,899

51,919

69,318

8,109,266

8,178,584

9,205

Consumer

2,899

802

3,680

7,381

857,309

864,690

174

Commercial and industrial

960

515

17,482

18,957

1,877,485

1,896,442

231

Agricultural and other

1,125

3,713

1,057

5,895

275,110

281,005

—

Total

$
14,484

$
12,929

$
74,138

$
101,551

$
11,119,170

$
11,220,721

$
9,610


	December 31, 2021
	Loans Past Due 30-59 Days		Loans Past Due 60-89 Days		Loans Past Due 90 Days or More		Total Past Due		Current Loans		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential	$	1,434	$	576	$	14,148	$	16,158	$	3,873,126	$	3,889,284	$	2,225
Construction/land development	92		22		1,445		1,559		1,848,491		1,850,050		—
Agricultural	—		472		897		1,369		129,305		130,674		—
Residential real estate loans
Residential 1-4 family	1,633		3,560		16,899		22,092		1,252,861		1,274,953		701
Multifamily residential	—		—		156		156		280,681		280,837		—
Total real estate	3,159		4,630		33,545		41,334		7,384,464		7,425,798		2,926
Consumer	60		205		1,650		1,915		823,604		825,519		2
Commercial and industrial	958		316		13,982		15,256		1,371,491		1,386,747		107
Agricultural and other	587		2		1,016		1,605		196,420		198,025		—
Total	$	4,764	$	5,153	$	50,193	$	60,110	$	9,775,979	$	9,836,089	$	3,035

Non-accruing loans at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$47.6~~$44.2 million and ~~$64.5~~$47.2 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$3.3~~$4.8 million and ~~$9.8~~$9.5 million, respectively. Interest recognized on impaired loans,, including those loans with a specific reserve, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$694,000~~$3.6 million and ~~$2.1~~$7.1 million, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

Table of Contents

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Arkansas, Florida, Texas, Alabama and New York.

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

•

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

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

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

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

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

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

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

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

~~Risk rating 5 – Other Loans Especially Mentioned (“OLEM”)~~. A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

•Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.•

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

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

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

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

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

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

The Company’s classified loans include loans in risk ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

Table of Contents

Based on the most recent analysis performed, the risk category of loans by class of loans as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is as follows:


	September 30, 2021																	June 30, 2022
	Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total			2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)																	(In thousands)
Real estate:																	Real estate:
Commercial real estate loans																	Commercial real estate loans
Non-farm/non-residential																	Non-farm/non-residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Risk rating 1	$	—	$	—	$	—	$	245	$	—	$	161	$	—	$	406
Risk rating 2		—		—		—		—		—		—		209,027		209,027	Risk rating 2	—		—		—		122		—		4,188		—		4,310
Risk rating 3		182,402		280,163		314,000		396,848		247,852		981,970		68,510		2,471,745	Risk rating 3	168,978		512,718		295,392		299,302		354,655		970,977		219,357		2,821,379
Risk rating 4		106,983		35,274		120,584		257,933		112,120		358,937		87		991,918	Risk rating 4	185,605		310,791		184,980		177,523		400,884		464,893		134,386		1,859,062
Risk rating 5		—		10,825		2,308		20,791		37,848		197,539		—		269,311	Risk rating 5	8,462		—		4,181		14,622		36,376		232,972		95		296,708
Risk rating 6		—		—		15,219		1,803		11,939		34,797		—		63,758	Risk rating 6	876		—		12,785		29,675		5,630		61,442		266		110,674
Risk rating 7		—		—		—		—		—		—		—		—	Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		82		—		82	Risk rating 8	—		—		—		—		—		—		—		—
Total non-farm/non-residential		289,385		326,262		452,111		677,375		409,759		1,573,325		277,624		4,005,841	Total non-farm/non-residential	363,921		823,509		497,338		521,489		797,545		1,734,633		354,104		5,092,539
Construction/land development																	Construction/land development
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Risk rating 1	$	—	$	12	$	—	$	—	$	—	$	—	$	—	$	12
Risk rating 2		—		—		—		—		—		235		—		235	Risk rating 2	1,262		—		—		—		—		221		—		1,483
Risk rating 3		150,620		228,246		100,935		33,933		23,005		42,863		166,151		745,753	Risk rating 3	202,232		310,042		119,690		103,278		25,526		40,011		122,957		923,736
Risk rating 4		117,314		215,084		501,761		45,824		40,377		39,461		23,650		983,471	Risk rating 4	331,263		544,674		212,516		468,082		12,562		49,210		18,033		1,636,340
Risk rating 5		—		—		416		—		—		1,177		1		1,594	Risk rating 5	3,975		—		21,126		353		—		1,167		—		26,621
Risk rating 6		—		115		874		8		—		10,636		—		11,633	Risk rating 6	—		—		—		743		1		6,448		—		7,192
Risk rating 7		—		—		—		—		—		—		—		—	Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		1		—		—		1	Risk rating 8	—		—		—		—		—		—		—		—
Total construction/land development		267,934		443,445		603,986		79,765		63,383		94,372		189,802		1,742,687	Total construction/land development	538,732		854,728		353,332		572,456		38,089		97,057		140,990		2,595,384
Agricultural																	Agricultural
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		—		—		—	Risk rating 2	—		2,111		—		—		—		—		—		2,111
Risk rating 3		18,093		30,708		8,005		6,673		5,412		21,538		6,616		97,045	Risk rating 3	29,103		46,291		36,778		17,266		11,114		42,619		5,317		188,488
Risk rating 4		4,389		2,120		367		1,164		771		30,233		1,388		40,432	Risk rating 4	16,094		26,835		20,058		15,415		1,916		46,253		4,774		131,345
Risk rating 5		—		—		—		—		—		—		—		—	Risk rating 5	4,005		—		—		—		—		—		—		4,005
Risk rating 6		—		45		—		—		—		1,359		—		1,404	Risk rating 6	—		—		1,757		—		—		1,400		—		3,157
Risk rating 7		—		—		—		—		—		—		—		—	Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—	Risk rating 8	—		—		—		—		—		—		—		—
Total agricultural		22,482		32,873		8,372		7,837		6,183		53,130		8,004		138,881	Total agricultural	49,202		75,237		58,593		32,681		13,030		90,272		10,091		329,106
Total commercial real estate loans	$	579,801	$	802,580	$	1,064,469	$	764,977	$	479,325	$	1,720,827	$	475,430	$	5,887,409	Total commercial real estate loans	$	951,855	$	1,753,474	$	909,263	$	1,126,626	$	848,664	$	1,921,962	$	505,185	$	8,017,029
Residential real estate loans																	Residential real estate loans
Residential 1-4 family																	Residential 1-4 family
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	80	$	90	$	170	Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	118	$	37	$	155
Risk rating 2		—		—		—		—		—		29		—		29	Risk rating 2	—		—		—		—		—		115		—		115
Risk rating 3		173,712		153,260		140,787		111,458		89,445		324,888		86,267		1,079,817	Risk rating 3	228,300		254,988		183,584		122,093		105,793		361,623		105,987		1,362,368
Risk rating 4		8,346		4,250		6,071		17,677		23,144		60,710		30,830		151,028	Risk rating 4	25,964		41,184		66,127		12,130		18,418		71,178		70,261		305,262
Risk rating 5		—		—		3,064		1,506		529		5,114		197		10,410	Risk rating 5	2,734		180		—		3,066		501		1,557		186		8,224
Risk rating 6		788		2,003		2,406		1,931		1,525		16,914		6,933		32,500	Risk rating 6	—		2,180		2,413		3,825		2,414		17,814		3,450		32,096
Risk rating 7		—		—		—		—		—		—		—		—	Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		6		28		—		34	Risk rating 8	—		—		—		—		—		1		—		1
Total residential 1-4 family		182,846		159,513		152,328		132,572		114,649		407,763		124,317		1,273,988	Total residential 1-4 family	256,998		298,532		252,124		141,114		127,126		452,406		179,921		1,708,221
Multifamily residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2		—		—		—		—		—		—		—		—
Risk rating 3		8,496		10,243		35,143		34,974		9,825		46,473		7,782		152,936
Risk rating 4		—		11,271		27,202		3,435		3,009		21,128		37,047		103,092
Risk rating 5		—		—		—		7,621		8,170		—		—		15,791
Risk rating 6		—		—		—		—		897		1,415		—		2,312
Risk rating 7		—		—		—		—		—		—		—		—
Risk rating 8		—		—		—		—		—		—		—		—
Total multifamily residential		8,496		21,514		62,345		46,030		21,901		69,016		44,829		274,131
Total real estate	$	771,143	$	983,607	$	1,279,142	$	943,579	$	615,875	$	2,197,606	$	644,576	$	7,435,528

September 30, 2021

Term Loans Amortized Cost Basis by Origination Year, Continued

2021

2020

2019

2018

2017

Prior

Revolving Loans Amortized Cost Basis

Total

(In thousands)

Consumer

    Risk rating 1

$
2,930

$
2,109

$
1,556

$
1,064

$
259

$
1,777

$
1,753

$
11,448

    Risk rating 2

—

—

45

647

—

9

—

701

    Risk rating 3

153,432

189,046

147,510

116,833

72,351

102,108

6,801

788,081

    Risk rating 4

2,993

1,107

3,110

1,908

185

2,407

74

11,784

    Risk rating 5

—

116

—

99

172

134

—

521

    Risk rating 6

—

46

347

120

—

1,641

41

2,195

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

1

1

—

2

Total consumer

159,355

192,424

152,568

120,671

72,968

108,077

8,669

814,732

Commercial and industrial

    Risk rating 1

$
210,222

$
28,846

$
371

$
157

$
169

$
21,457

$
11,885

$
273,107

    Risk rating 2

19

19

—

—

87

280

175

580

    Risk rating 3

75,240

77,113

95,166

52,322

25,516

55,060

148,891

529,308

    Risk rating 4

132,855

35,907

107,294

98,787

35,085

37,893

75,883

523,704

    Risk rating 5

6,197

158

2,019

8,387

5,725

3,077

672

26,235

    Risk rating 6

1,222

15,430

6,736

25,441

5,570

4,633

330

59,362

    Risk rating 7

—

—

—

1,777

—

—

—

1,777

    Risk rating 8

—

2

1

—

—

1

2

6

Total commercial and industrial

425,755

157,475

211,587

186,871

72,152

122,401

237,838

1,414,079

Agricultural and other

    Risk rating 1

$
11,231

$
203

$
43

$
—

$
—

$
112

$
375

$
11,964

    Risk rating 2

—

—

3,467

—

—

908

809

5,184

    Risk rating 3

58,313

60,137

5,395

7,572

2,187

50,145

14,162

197,911

    Risk rating 4

6,034

376

157

1,542

1,408

1,487

9,441

20,445

    Risk rating 5

—

—

—

—

—

597

—

597

    Risk rating 6

—

—

27

14

33

586

—

660

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

—

—

—

Total agricultural and other

75,578

60,716

9,089

9,128

3,628

53,835

24,787

236,761

Total

$
1,431,831

$
1,394,222

$
1,652,386

$
1,260,249

$
764,623

$
2,481,919

$
915,870

$
9,901,100

Table of Contents


	June 30, 2022
	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Multifamily residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2	—		—		—		—		—		—		—		—
Risk rating 3	3,583		18,192		17,855		14,667		16,076		55,525		39,631		165,529
Risk rating 4	8,034		29,526		121,156		23,503		12,113		15,609		270		210,211
Risk rating 5	—		—		—		—		3,183		7,984		—		11,167
Risk rating 6	—		—		—		747		—		1,823		—		2,570
Risk rating 7	—		—		—		—		—		156		—		156
Risk rating 8	—		—		—		—		—		—		—		—
Total multifamily residential	11,617		47,718		139,011		38,917		31,372		81,097		39,901		389,633
Total real estate	$	1,220,470	$	2,099,724	$	1,300,398	$	1,306,657	$	1,007,162	$	2,455,465	$	725,007	$	10,114,883
Consumer
Risk rating 1	$	3,194	$	5,020	$	1,607	$	955	$	703	$	1,370	$	1,476	$	14,325
Risk rating 2	—		—		1		224		631		—		—		856
Risk rating 3	146,607		310,018		186,953		146,049		131,267		151,552		6,150		1,078,596
Risk rating 4	3,207		1,284		621		2,177		552		2,336		74		10,251
Risk rating 5	33		12		110		—		12		559		—		726
Risk rating 6	17		71		30		172		—		1,215		7		1,512
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		77		—		77
Total consumer	153,058		316,405		189,322		149,577		133,165		157,109		7,707		1,106,343
Commercial and industrial
Risk rating 1	$	920	$	32,090	$	6,644	$	304	$	29	$	21,677	$	7,979	$	69,643
Risk rating 2	170		307		81		197		—		254		546		1,555
Risk rating 3	176,716		166,123		89,398		79,402		48,010		95,750		282,994		938,393
Risk rating 4	26,642		231,306		49,175		123,869		80,950		57,810		494,944		1,064,696
Risk rating 5	283		6,156		28,092		361		7,239		9,480		806		52,417
Risk rating 6	18		577		12,237		4,462		24,553		11,165		6,122		59,134
Risk rating 7	—		—		—		—		1,634		299		—		1,933
Risk rating 8	—		—		—		—		—		—		—		—
Total commercial and industrial	204,749		436,559		185,627		208,595		162,415		196,435		793,391		2,187,771
Agricultural and other
Risk rating 1	$	136	$	727	$	114	$	—	$	—	$	5	$	746	$	1,728
Risk rating 2	73		123		—		3,467		34		968		1,795		6,460
Risk rating 3	107,154		41,975		32,179		6,170		10,553		48,565		123,477		370,073
Risk rating 4	8,981		18,330		3,635		13,824		2,101		11,582		75,742		134,195
Risk rating 5	—		8		203		—		—		1,311		—		1,522
Risk rating 6	—		57		194		16		—		631		—		898
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total agricultural and other	116,344		61,220		36,325		23,477		12,688		63,062		201,760		514,876
Total	$	1,694,621	$	2,913,908	$	1,711,672	$	1,688,306	$	1,315,430	$	2,872,071	$	1,727,865	$	13,923,873

December 31, 2020

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans Amortized Cost Basis

Total

(In thousands)

Real estate:

Commercial real estate loans

Non-farm/non-residential

    Risk rating 1

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

    Risk rating 2

—

—

—

—

—

—

25

25

    Risk rating 3

301,237

340,562

546,670

286,173

289,483

942,449

266,867

2,973,441

    Risk rating 4

27,239

139,354

161,461

265,684

197,979

300,055

17,305

1,109,077

    Risk rating 5

10,591

16,865

67,089

7,764

108,885

84,609

750

296,553

    Risk rating 6

—

859

2,289

987

4,577

40,600

86

49,398

    Risk rating 7

—

—

—

—

—

552

—

552

    Risk rating 8

—

—

—

—

—

14

—

14

Total non-farm/non-residential

339,067

497,640

777,509

560,608

600,924

1,368,279

285,033

4,429,060

Construction/land development

    Risk rating 1

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

    Risk rating 2

—

—

—

—

—

283

—

283

    Risk rating 3

211,567

181,257

91,323

33,986

25,600

54,245

115,120

713,098

    Risk rating 4

129,599

417,737

92,032

46,249

17,161

32,060

76,845

811,683

    Risk rating 5

—

—

392

21,892

—

1,227

545

24,056

    Risk rating 6

—

763

98

63

157

12,065

—

13,146

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

1

—

31

—

32

Total construction/land development

341,166

599,757

183,845

102,191

42,918

99,911

192,510

1,562,298

Agricultural

    Risk rating 1

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

    Risk rating 2

—

—

—

—

—

—

—

—

    Risk rating 3

33,428

8,885

9,119

5,397

3,935

25,159

5,538

91,461

    Risk rating 4

2,141

535

1,206

681

5,499

10,735

665

21,462

    Risk rating 5

—

—

—

—

—

116

—

116

    Risk rating 6

47

—

—

—

—

1,345

—

1,392

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

—

—

—

Total agricultural

35,616

9,420

10,325

6,078

9,434

37,355

6,203

114,431

Total commercial real estate loans

$
715,849

$
1,106,817

$
971,679

$
668,877

$
653,276

$
1,505,545

$
483,746

$
6,105,789

Residential real estate loans

Residential 1-4 family

    Risk rating 1

$
—

$
47

$
—

$
—

$
76

$
12

$
120

$
255

    Risk rating 2

—

—

—

—

—

423

1,540

1,963

    Risk rating 3

237,991

184,578

151,478

139,096

119,642

343,381

119,186

1,295,352

    Risk rating 4

4,626

12,716

32,594

20,687

16,148

68,328

30,137

185,236

    Risk rating 5

—

—

1,363

4,700

383

5,344

516

12,306

    Risk rating 6

554

5,973

829

2,084

3,222

18,074

10,257

40,993

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

8

144

152

Total residential 1-4 family

243,171

203,314

186,264

166,567

139,471

435,570

161,900

1,536,257

Multifamily residential

    Risk rating 1

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

    Risk rating 2

—

—

—

—

—

—

—

—

    Risk rating 3

19,033

60,175

87,104

11,477

8,092

59,592

6,386

251,859

    Risk rating 4

477

6,358

101,364

93,475

1,924

17,672

37,286

258,556

    Risk rating 5

—

—

—

—

—

24,945

—

24,945

    Risk rating 6

—

—

—

894

—

284

—

1,178

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

—

—

—

Total multifamily residential

19,510

66,533

188,468

105,846

10,016

102,493

43,672

536,538

Total real estate

$
978,530

$
1,376,664

$
1,346,411

$
941,290

$
802,763

$
2,043,608

$
689,318

$
8,178,584

December 31, 2020

Term Loans Amortized Cost Basis by Origination Year, Continued

2020

2019

2018

2017

2016

Prior

Revolving Loans Amortized Cost Basis

Total

(In thousands)

Consumer

    Risk rating 1

$
3,389

$
2,375

$
1,596

$
485

$
828

$
1,428

$
1,957

$
12,058

    Risk rating 2

—

47

931

—

—

12

57

1,047

    Risk rating 3

229,189

192,054

152,646

97,812

68,585

68,871

20,094

829,251

    Risk rating 4

3,699

3,479

2,769

1,411

1,371

1,991

117

14,837

    Risk rating 5

144

737

22

198

568

321

—

1,990

    Risk rating 6

12

361

566

3

2,052

2,468

45

5,507

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

—

—

—

Total consumer

236,433

199,053

158,530

99,909

73,404

75,091

22,270

864,690

Commercial and industrial

    Risk rating 1

$
632,735

$
506

$
271

$
183

$
20,199

$
1,445

$
10,023

$
665,362

    Risk rating 2

29

187

2

96

67

623

268

1,272

    Risk rating 3

80,586

131,717

62,814

35,651

39,502

52,743

135,590

538,603

    Risk rating 4

68,032

144,867

149,445

42,416

15,138

43,065

115,341

578,304

    Risk rating 5

3,195

16,341

11,283

346

251

448

10,637

42,501

    Risk rating 6

1,261

4,086

30,834

22,992

2,615

5,198

3,405

70,391

    Risk rating 7

—

3

—

—

—

—

—

3

    Risk rating 8

1

—

1

—

4

—

—

6

Total commercial and industrial

785,839

297,707

254,650

101,684

77,776

103,522

275,264

1,896,442

Agricultural and other

    Risk rating 1

$
59,248

$
51

$
53

$
—

$
110

$
27

$
1,036

$
60,525

    Risk rating 2

16

4,571

—

—

—

2,859

1,159

8,605

    Risk rating 3

78,305

7,045

5,050

5,045

18,445

36,925

42,401

193,216

    Risk rating 4

1,043

5,041

1,592

1,096

895

1,703

4,600

15,970

    Risk rating 5

—

—

—

—

—

605

—

605

    Risk rating 6

—

219

18

—

223

1,624

—

2,084

    Risk rating 7

—

—

—

—

—

—

—

—

    Risk rating 8

—

—

—

—

—

—

—

—

Total agricultural and other

138,612

16,927

6,713

6,141

19,673

43,743

49,196

281,005

Total

$
2,139,414

$
1,890,351

$
1,766,304

$
1,149,024

$
973,616

$
2,265,964

$
1,036,048

$
11,220,721

Table of Contents


	December 31, 2021
	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2	—		—		—		—		—		—		—		—
Risk rating 3	284,127		281,982		266,990		341,642		195,301		891,035		194,640		2,455,717
Risk rating 4	111,697		32,788		115,989		301,520		90,747		345,254		90,028		1,088,023
Risk rating 5	—		10,930		2,239		23,117		49,926		189,038		—		275,250
Risk rating 6	—		—		23,723		2,224		11,751		32,372		224		70,294
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total non-farm/non-residential	395,824		325,700		408,941		668,503		347,725		1,457,699		284,892		3,889,284
Construction/land development
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2	—		—		—		—		—		231		—		231
Risk rating 3	301,719		183,715		108,491		23,574		13,760		41,860		149,433		822,552
Risk rating 4	226,230		217,267		448,899		33,617		45,679		38,122		7,297		1,017,111
Risk rating 5	—		—		388		—		—		1,174		176		1,738
Risk rating 6	—		134		825		3		—		7,456		—		8,418
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total construction/land development	527,949		401,116		558,603		57,194		59,439		88,843		156,906		1,850,050
Agricultural
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2	—		—		—		—		—		—		—		—
Risk rating 3	21,480		27,931		7,768		6,564		5,103		21,689		7,026		97,561
Risk rating 4	4,305		964		365		970		655		22,143		2,065		31,467
Risk rating 5	—		166		—		—		—		—		—		166
Risk rating 6	—		44		—		—		—		1,436		—		1,480
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total agricultural	25,785		29,105		8,133		7,534		5,758		45,268		9,091		130,674
Total commercial real estate loans	$	949,558	$	755,921	$	975,677	$	733,231	$	412,922	$	1,591,810	$	450,889	$	5,870,008
Residential real estate loans
Residential 1-4 family
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	76	$	89	$	165
Risk rating 2	—		—		—		—		—		29		—		29
Risk rating 3	210,970		147,523		119,861		94,848		82,474		296,687		85,836		1,038,199
Risk rating 4	8,885		3,397		56,839		16,887		21,874		53,578		36,642		198,102
Risk rating 5	—		—		3,065		1,220		582		1,366		193		6,426
Risk rating 6	1,136		2,252		2,432		2,063		1,263		16,305		6,580		32,031
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		1		—		1
Total residential 1-4 family	220,991		153,172		182,197		115,018		106,193		368,042		129,340		1,274,953

Table of Contents


	December 31, 2021
	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Multifamily residential
Risk rating 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Risk rating 2	—		—		—		—		—		—		—		—
Risk rating 3	11,898		5,211		34,492		17,375		9,430		43,804		3,583		125,793
Risk rating 4	3,755		44,294		30,060		3,412		2,981		18,805		33,723		137,030
Risk rating 5	—		—		—		7,591		8,105		—		—		15,696
Risk rating 6	—		—		—		—		890		1,428		—		2,318
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total multifamily residential	15,653		49,505		64,552		28,378		21,406		64,037		37,306		280,837
Total real estate	$	1,186,202	$	958,598	$	1,222,426	$	876,627	$	540,521	$	2,023,889	$	617,535	$	7,425,798
Consumer
Risk rating 1	$	4,441	$	1,799	$	1,237	$	920	$	226	$	1,383	$	1,893	$	11,899
Risk rating 2	—		—		45		639		—		8		—		692
Risk rating 3	221,986		173,511		132,148		109,810		67,992		92,076		1,098		798,621
Risk rating 4	3,547		923		2,944		1,776		158		2,641		79		12,068
Risk rating 5	—		116		—		15		—		131		—		262
Risk rating 6	69		34		39		117		—		1,711		7		1,977
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total consumer	230,043		176,383		136,413		113,277		68,376		97,950		3,077		825,519
Commercial and industrial
Risk rating 1	$	99,579	$	12,752	$	350	$	118	$	102	$	21,436	$	9,851	$	144,188
Risk rating 2	175		16		—		—		66		276		168		701
Risk rating 3	125,071		59,056		77,130		67,944		34,733		42,905		145,247		552,086
Risk rating 4	244,927		35,350		89,558		91,840		23,616		34,566		88,750		608,607
Risk rating 5	6,185		609		480		8,258		5,712		2,851		582		24,677
Risk rating 6	492		15,377		5,913		24,941		5,477		2,233		342		54,775
Risk rating 7	—		—		—		1,696		—		—		—		1,696
Risk rating 8	—		—		—		—		—		16		1		17
Total commercial and industrial	476,429		123,160		173,431		194,797		69,706		104,283		244,941		1,386,747
Agricultural and other
Risk rating 1	$	5,042	$	—	$	40	$	—	$	—	$	110	$	552	$	5,744
Risk rating 2	—		—		3,467		—		—		909		983		5,359
Risk rating 3	54,534		44,030		5,158		7,092		2,009		46,570		8,750		168,143
Risk rating 4	1,544		218		154		1,590		1,226		1,224		10,842		16,798
Risk rating 5	—		—		—		—		—		1,297		—		1,297
Risk rating 6	53		—		23		13		33		562		—		684
Risk rating 7	—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—
Total agricultural and other	61,173		44,248		8,842		8,695		3,268		50,672		21,127		198,025
Total	$	1,953,847	$	1,302,389	$	1,541,112	$	1,193,396	$	681,871	$	2,276,794	$	886,680	$	9,836,089

Table of Contents

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the amortized cost of performing and nonperforming loans as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.


	September 30, 2021																	June 30, 2022
	Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total			2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)																	(In thousands)
Real estate:																	Real estate:
Commercial real estate loans																	Commercial real estate loans
Non-farm/non-residential																	Non-farm/non-residential
Performing	$	289,385	$	316,115	$	437,231	$	657,174	$	371,874	$	1,406,655	$	277,624	$	3,756,058	Performing	$	363,921	$	823,509	$	483,438	$	476,985	$	774,705	$	1,485,540	$	353,981	$	4,762,079
Non-performing		—		10,147		14,880		20,201		37,885		166,670		—		249,783	Non-performing	—		—		13,900		44,504		22,840		249,093		123		330,460
Total non-farm/ non-residential		289,385		326,262		452,111		677,375		409,759		1,573,325		277,624		4,005,841
Total non-farm/non-residential																	Total non-farm/non-residential	363,921		823,509		497,338		521,489		797,545		1,734,633		354,104		5,092,539
Construction/land development																	Construction/land development
Performing	$	267,934	$	443,330	$	602,793	$	79,757	$	63,382	$	90,488	$	189,802	$	1,737,486	Performing	$	538,732	$	854,677	$	353,332	$	571,712	$	37,933	$	96,712	$	140,990	$	2,594,088
Non-performing		—		115		1,193		8		1		3,884		—		5,201	Non-performing	—		51		—		744		156		345		—		1,296
Total construction/ land development		267,934		443,445		603,986		79,765		63,383		94,372		189,802		1,742,687	Total construction/ land development	538,732		854,728		353,332		572,456		38,089		97,057		140,990		2,595,384
Agricultural																	Agricultural
Performing	$	22,482	$	32,873	$	8,372	$	7,837	$	6,183	$	52,387	$	8,004	$	138,138	Performing	$	49,202	$	75,237	$	58,593	$	32,681	$	13,030	$	89,367	$	10,091	$	328,201
Non-performing		—		—		—		—		—		743		—		743	Non-performing	—		—		—		—		—		905		—		905
Total agricultural		22,482		32,873		8,372		7,837		6,183		53,130		8,004		138,881	Total agricultural	49,202		75,237		58,593		32,681		13,030		90,272		10,091		329,106
Total commercial real estate loans	$	579,801	$	802,580	$	1,064,469	$	764,977	$	479,325	$	1,720,827	$	475,430	$	5,887,409	Total commercial real estate loans	$	951,855	$	1,753,474	$	909,263	$	1,126,626	$	848,664	$	1,921,962	$	505,185	$	8,017,029
Residential real estate loans																	Residential real estate loans
Residential 1-4 family																	Residential 1-4 family
Performing	$	182,588	$	156,843	$	150,130	$	131,375	$	113,265	$	400,128	$	118,266	$	1,252,595	Performing	$	256,998	$	297,261	$	249,716	$	137,945	$	125,699	$	442,616	$	177,272	$	1,687,507
Non-performing		258		2,670		2,198		1,197		1,384		7,635		6,051		21,393	Non-performing	—		1,271		2,408		3,169		1,427		9,790		2,649		20,714
Total residential 1-4 family		182,846		159,513		152,328		132,572		114,649		407,763		124,317		1,273,988	Total residential 1-4 family	256,998		298,532		252,124		141,114		127,126		452,406		179,921		1,708,221
Multifamily residential																	Multifamily residential
Performing	$	8,496	$	21,514	$	62,345	$	46,030	$	21,901	$	68,855	$	44,829	$	273,970	Performing	$	11,617	$	47,718	$	139,011	$	38,917	$	31,372	$	79,989	$	39,901	$	388,525
Non-performing		—		—		—		—		—		161		—		161	Non-performing	—		—		—		—		—		1,108		—		1,108
Total multifamily residential		8,496		21,514		62,345		46,030		21,901		69,016		44,829		274,131	Total multifamily residential	11,617		47,718		139,011		38,917		31,372		81,097		39,901		389,633
Total real estate	$	771,143	$	983,607	$	1,279,142	$	943,579	$	615,875	$	2,197,606	$	644,576	$	7,435,528	Total real estate	$	1,220,470	$	2,099,724	$	1,300,398	$	1,306,657	$	1,007,162	$	2,455,465	$	725,007	$	10,114,883
Consumer																	Consumer
Performing	$	159,355	$	192,386	$	152,253	$	120,554	$	72,967	$	106,619	$	8,662	$	812,796	Performing	$	153,058	$	316,350	$	189,302	$	149,430	$	133,165	$	155,962	$	7,700	$	1,104,967
Non-performing		—		38		315		117		1		1,458		7		1,936	Non-performing	—		55		20		147		—		1,147		7		1,376
Total consumer		159,355		192,424		152,568		120,671		72,968		108,077		8,669		814,732	Total consumer	153,058		316,405		189,322		149,577		133,165		157,109		7,707		1,106,343
Commercial and industrial																	Commercial and industrial
Performing	$	425,755	$	157,273	$	207,163	$	177,113	$	69,338	$	119,460	$	237,713	$	1,393,815	Performing	$	204,749	$	435,803	$	182,667	$	204,643	$	153,210	$	192,144	$	787,229	$	2,160,445
Non-performing		—		202		4,424		9,758		2,814		2,941		125		20,264	Non-performing	—		756		2,960		3,952		9,205		4,291		6,162		27,326
Total commercial and industrial		425,755		157,475		211,587		186,871		72,152		122,401		237,838		1,414,079	Total commercial and industrial	204,749		436,559		185,627		208,595		162,415		196,435		793,391		2,187,771
Agricultural and other																	Agricultural and other
Performing	$	75,578	$	60,716	$	9,062	$	8,859	$	3,595	$	53,566	$	24,778	$	236,154	Performing	$	116,344	$	61,220	$	36,122	$	23,461	$	12,688	$	61,852	$	201,274	$	512,961
Non-performing		—		—		27		269		33		269		9		607	Non-performing	—		—		203		16		—		1,210		486		1,915
Total agricultural and other		75,578		60,716		9,089		9,128		3,628		53,835		24,787		236,761	Total agricultural and other	116,344		61,220		36,325		23,477		12,688		63,062		201,760		514,876
Total	$	1,431,831	$	1,394,222	$	1,652,386	$	1,260,249	$	764,623	$	2,481,919	$	915,870	$	9,901,100	Total	$	1,694,621	$	2,913,908	$	1,711,672	$	1,688,306	$	1,315,430	$	2,872,071	$	1,727,865	$	13,923,873

December 31, 2020

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans Amortized Cost Basis

Total

(In thousands)

Real estate:

Commercial real estate loans

Non-farm/non-residential

    Performing

$
339,067

$
497,640

$
775,220

$
560,279

$
598,074

$
1,326,404

$
284,947

$
4,381,631

    Non-performing

—

—

2,289

329

2,850

41,875

86

47,429

Total non-farm/
    non-residential

339,067

497,640

777,509

560,608

600,924

1,368,279

285,033

4,429,060

Construction/land
    development

    Performing

$
341,166

$
598,995

$
183,821

$
102,127

$
42,779

$
94,888

$
192,510

$
1,556,286

    Non-performing

—

762

24

64

139

5,023

—

6,012

Total construction/
    land development

341,166

599,757

183,845

102,191

42,918

99,911

192,510

1,562,298

Agricultural

    Performing

$
35,616

$
9,420

$
10,325

$
6,078

$
9,434

$
36,476

$
6,203

$
113,552

    Non-performing

—

—

—

—

—

879

—

879

Total agricultural

35,616

9,420

10,325

6,078

9,434

37,355

6,203

114,431

Total commercial real estate
    loans

$
715,849

$
1,106,817

$
971,679

$
668,877

$
653,276

$
1,505,545

$
483,746

$
6,105,789

Residential real estate loans

Residential 1-4 family

    Performing

$
242,505

$
196,951

$
185,316

$
161,274

$
137,840

$
425,056

$
154,902

$
1,503,844

    Non-performing

666

6,363

948

5,293

1,631

10,514

6,998

32,413

Total residential 1-4
    family

243,171

203,314

186,264

166,567

139,471

435,570

161,900

1,536,257

Multifamily residential

    Performing

$
19,510

$
66,533

$
188,468

$
105,846

$
10,016

$
102,320

$
43,672

$
536,365

    Non-performing

—

—

—

—

—

173

—

173

Total multifamily
    residential

19,510

66,533

188,468

105,846

10,016

102,493

43,672

536,538

Total real estate

$
978,530

$
1,376,664

$
1,346,411

$
941,290

$
802,763

$
2,043,608

$
689,318

$
8,178,584

Consumer

    Performing

$
236,395

$
198,737

$
158,324

$
99,905

$
71,924

$
73,448

$
22,263

$
860,996

    Non-performing

38

316

206

4

1,480

1,643

7

3,694

Total consumer

236,433

199,053

158,530

99,909

73,404

75,091

22,270

864,690

Commercial and industrial

    Performing

$
785,776

$
293,938

$
246,177

$
98,664

$
76,427

$
100,050

$
274,383

$
1,875,415

    Non-performing

63

3,769

8,473

3,020

1,349

3,472

881

21,027

Total commercial and industrial

785,839

297,707

254,650

101,684

77,776

103,522

275,264

1,896,442

Agricultural and other

    Performing

$
138,612

$
16,927

$
6,695

$
6,141

$
19,450

$
42,927

$
49,196

$
279,948

    Non-performing

—

—

18

—

223

816

—

1,057

Total agricultural and other

138,612

16,927

6,713

6,141

19,673

43,743

49,196

281,005

Total

$
2,139,414

$
1,890,351

$
1,766,304

$
1,149,024

$
973,616

$
2,265,964

$
1,036,048

$
11,220,721

Table of Contents


	December 31, 2021
	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
	(In thousands)
Real estate:
Commercial real estate loans
Non-farm/non-residential
Performing	$	395,824	$	315,447	$	394,061	$	648,351	$	298,086	$	1,268,731	$	284,865	$	3,605,365
Non-performing	—		10,253		14,880		20,152		49,639		188,968		27		283,919
Total non-farm/non-residential	395,824		325,700		408,941		668,503		347,725		1,457,699		284,892		3,889,284
Construction/land development
Performing	$	527,949	$	400,982	$	557,778	$	57,024	$	59,439	$	85,197	$	156,906	$	1,845,275
Non-performing	—		134		825		170		—		3,646		—		4,775
Total construction/land development	527,949		401,116		558,603		57,194		59,439		88,843		156,906		1,850,050
Agricultural
Performing	$	25,785	$	28,939	$	8,133	$	7,534	$	5,758	$	44,537	$	9,091	$	129,777
Non-performing	—		166		—		—		—		731		—		897
Total agricultural	25,785		29,105		8,133		7,534		5,758		45,268		9,091		130,674
Total commercial real estate loans	$	949,558	$	755,921	$	975,677	$	733,231	$	412,922	$	1,591,810	$	450,889	$	5,870,008
Residential real estate loans
Residential 1-4 family
Performing	$	220,380	$	151,459	$	180,113	$	113,845	$	105,129	$	360,700	$	123,552	$	1,255,178
Non-performing	611		1,713		2,084		1,173		1,064		7,342		5,788		19,775
Total residential 1-4 family	220,991		153,172		182,197		115,018		106,193		368,042		129,340		1,274,953
Multifamily residential
Performing	$	15,653	$	49,505	$	64,552	$	28,378	$	21,406	$	62,737	$	37,306	$	279,537
Non-performing	—		—		—		—		—		1,300		—		1,300
Total multifamily residential	15,653		49,505		64,552		28,378		21,406		64,037		37,306		280,837
Total real estate	$	1,186,202	$	958,598	$	1,222,426	$	876,627	$	540,521	$	2,023,889	$	617,535	$	7,425,798
Consumer
Performing	$	229,986	$	176,355	$	136,403	$	113,160	$	68,376	$	96,506	$	3,070	$	823,856
Non-performing	57		28		10		117		—		1,444		7		1,663
Total consumer	230,043		176,383		136,413		113,277		68,376		97,950		3,077		825,519
Commercial and industrial
Performing	$	476,424	$	122,999	$	168,984	$	185,569	$	66,928	$	103,391	$	244,259	$	1,368,554
Non-performing	5		161		4,447		9,228		2,778		892		682		18,193
Total commercial and industrial	476,429		123,160		173,431		194,797		69,706		104,283		244,941		1,386,747
Agricultural and other
Performing	$	61,173	$	44,248	$	8,819	$	8,682	$	3,235	$	49,725	$	21,127	$	197,009
Non-performing	—		—		23		13		33		947		—		1,016
Total agricultural and other	61,173		44,248		8,842		8,695		3,268		50,672		21,127		198,025
Total	$	1,953,847	$	1,302,389	$	1,541,112	$	1,193,396	$	681,871	$	2,276,794	$	886,680	$	9,836,089

The Company had approximately ~~$27.8~~$13.8 million or ~~201~~83 total revolving loans convert to term loans for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$92.4~~$21.7 million or ~~289~~140 total revolving loans convert to term loans for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. These loans were considered immaterial for vintage disclosure inclusion.

Table of Contents

The following is a presentation of troubled debt restructurings (“TDRs”) by class as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:


	September 30, 2021													June 30, 2022
	Number of Loans		Pre- Modification Outstanding Balance		Rate Modification		Term Modification		Rate & Term Modification		Post- Modification Outstanding Balance			Number of Loans	Pre- Modification Outstanding Balance		Rate Modification		Term Modification		Rate & Term Modification		Post- Modification Outstanding Balance
	(Dollars in thousands)													(Dollars in thousands)
Real estate:													Real estate:
Commercial real estate loans													Commercial real estate loans
Non-farm/non-residential		12	$	6,119	$	3,666	$	628	$	87	$	4,381	Non-farm/non-residential	11	$	6,085	$	3,404	$	608	$	82	$	4,094
Construction/land development		3		322		216		2		—		218	Construction/land development	1	216		199		—		—		199
Agricultural		1		282		262		—		—		262	Agricultural	—	—		—		—		—		—
Residential real estate loans													Residential real estate loans
Residential 1-4 family		18		2,495		953		157		374		1,484	Residential 1-4 family	14	2,166		660		112		299		1,071
Multifamily residential													Multifamily residential	1	1,130		952		—		—		952
Total real estate		34		9,218		5,097		787		461		6,345	Total real estate	27	9,597		5,215		720		381		6,316
Consumer		4		22		14		—		3		17	Consumer	4	23		12		—		3		15
Commercial and industrial		9		2,354		201		87		78		366	Commercial and industrial	10	2,099		152		41		74		267
Total		47	$	11,594	$	5,312	$	874	$	542	$	6,728	Total	41	$	11,719	$	5,379	$	761	$	458	$	6,598


	December 31, 2020													December 31, 2021
	Number of Loans		Pre- Modification Outstanding Balance		Rate Modification		Term Modification		Rate & Term Modification		Post- Modification Outstanding Balance			Number of Loans	Pre- Modification Outstanding Balance		Rate Modification		Term Modification		Rate & Term Modification		Post- Modification Outstanding Balance
	(Dollars in thousands)													(Dollars in thousands)
Real estate:													Real estate:
Commercial real estate loans													Commercial real estate loans
Non-farm/non-residential		14	$	11,510	$	4,350	$	383	$	4,723	$	9,456	Non-farm/non-residential	12	$	6,119	$	3,581	$	623	$	85	$	4,289
Construction/land development		2		58		—		7		9		16	Construction/land development	2	240		210		1		—		211
Agricultural		1		282		267		—		—		267	Agricultural	1	282		262		—		—		262
Residential real estate loans													Residential real estate loans
Residential 1-4 family		21		2,913		1,441		165		431		2,037	Residential 1-4 family	15	2,328		844		117		332		1,293
Multifamily residential													Multifamily residential	1	1,130		1,144		—		—		1,144
Total real estate		38		14,763		6,058		555		5,163		11,776	Total real estate	31	10,099		6,041		741		417		7,199
Consumer		1		17		14		—		—		14	Consumer	4	22		13		—		3		16
Commercial and industrial		12		2,470		308		127		91		526	Commercial and industrial	9	2,353		172		65		74		311
Total		51	$	17,250	$	6,380	$	682	$	5,254	$	12,316	Total	44	$	12,474	$	6,226	$	806	$	494	$	7,526

Table of Contents

The following is a presentation of TDRs on non-accrual status as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 because they are not in compliance with the modified terms:


	September 30, 2021				December 31, 2020					June 30, 2022			December 31, 2021
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance			Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
	(Dollars in thousands)									(Dollars in thousands)
Real estate:									Real estate:
Commercial real estate loans									Commercial real estate loans
Non-farm/non-residential		2	$	9		2	$	350	Non-farm/non-residential	1	$	5	2	$	7
Construction/land development		2		216		1		9	Construction/land development	1	199		1	210
Agricultural		1		262		1		267	Agricultural	—	—		1	262
Residential real estate loans									Residential real estate loans
Residential 1-4 family		6		405		7		547	Residential 1-4 family	5	352		5	388
Total real estate		11		892		11		1,173	Total real estate	7	556		9	867
Consumer		3		3		—		—	Consumer	3	3		3	3
Commercial and industrial		6		254		8		414	Commercial and industrial	8	176		6	206
Total		20	$	1,149		19	$	1,587	Total	18	$	735	18	$	1,076

The following is a presentation of total foreclosed assets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:


	September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
	(In thousands)					(In thousands)
Commercial real estate loans					Commercial real estate loans
Non-farm/non-residential	$	261	$	438	Non-farm/non-residential	$	49	$	536
Construction/land development		835		3,189	Construction/land development	55		834
Residential real estate loans					Residential real estate loans
Residential 1-4 family		75		793	Residential 1-4 family	269		260
Total foreclosed assets held for sale	$	1,171	$	4,420	Total foreclosed assets held for sale	$	373	$	1,630

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The purchase price of the loans at acquisition was $1.3 million, and a $357,000 allowance for credit losses was recorded on these loans at acquisition along with a $17,000 non-credit premium. The allowance and non-credit premium resulted in a par value of $1.0 million for these loans at acquisition. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of purchase credit deteriorated loans was approximately ~~$454,000~~$152.3 million and ~~$760,000,~~$448,000, respectively.This balance, as of June 30, 2022, consisted of $151.8 million resulting from the acquisition of Happy and $432,000 from the acquisition of LH-Finance.

6. Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at ~~September~~June 30, ~~2021~~2022 and ~~December��~~December 31, ~~2020,~~2021, were as follows:


	September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
	(In thousands)					(In thousands)
Goodwill					Goodwill
Balance, beginning of period	$	973,025	$	958,408	Balance, beginning of period	$	973,025	$	973,025
Acquisitions		—		14,617
Acquisition of Happy Bancshares					Acquisition of Happy Bancshares	425,375		—
Balance, end of period	$	973,025	$	973,025	Balance, end of period	$	1,398,400	$	973,025

September 30, 2021

December 31, 2020

(In thousands)

Core Deposit and Other Intangibles

Balance, beginning of period

$
30,728

$
36,572

Amortization expense

(4,262
)

(4,423
)
Balance, September 30

26,466

32,149

Amortization expense

(1,421
)
Balance, end of year

$
30,728

Table of Contents


	June 30, 2022		December 31, 2021
	(In thousands)
Core Deposit and Other Intangibles
Balance, beginning of period	$	25,045	$	30,728
Acquisition of Happy Bancshares	42,263		—
Amortization expense	(3,898)		(2,842)
Balance, June 30	63,410		27,886
Amortization expense			(2,841)
Balance, end of year			$	25,045

The carrying basis and accumulated amortization of core deposits and other intangibles at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were:


	September 30, 2021			December 31, 2020				June 30, 2022		December 31, 2021
	(In thousands)							(In thousands)
Gross carrying basis	$	86,625		$	86,625		Gross carrying basis	$	128,888	$	86,625
Accumulated amortization		(60,159	)		(55,897	)	Accumulated amortization	(65,478)		(61,580)
Net carrying amount	$	26,466		$	30,728		Net carrying amount	$	63,410	$	25,045

Core deposit and other intangible amortization expense was approximately $2.5 million and $1.4 million for the three months ended ~~September~~June 30, 2022 and 2021, ~~and 2020.~~respectively. Core deposit and other intangible amortization expense was approximately ~~$4.3~~$3.9 million and ~~$4.4~~$2.8 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020.~~respectively. The Company’s estimated amortization expense of core deposits and other intangibles for each of the years ~~2021~~2022 through ~~2025~~2026 is approximately: ~~2021 – $5.7 million;~~ 2022 – ~~$5.7~~$8.9 million; 2023 – ~~$5.5~~$9.7 million; 2024 – ~~$4.3~~$8.5 million; 2025 – ~~$3.9~~$8.1 million; 2026 – $7.8 million.

The carrying amount of the Company’s goodwill was $1.40 billion and $973.0 million at ~~each of September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively. Goodwill is tested annually for impairment during the fourth quarter or more often if events and circumstances indicate there may be an 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 consolidated financial statements.

7. Other Assets

Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, other assets were ~~$171.2~~$271.0 million and ~~$164.9~~$177.0 million, respectively.

The Company has equity securities without readily determinable fair values such as stock holdings in the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“Federal Reserve”) which are outside the scope of ASC Topic 321, Investments – Equity Securities (“ASC Topic 321”). These equity securities without a readily determinable fair value were ~~$88.1~~$112.1 million and ~~$86.7~~$88.2 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, and are accounted for at cost.

The Company has equity securities such as stock holdings in First National Bankers’ Bank and other miscellaneous holdings which are accounted for under ASC Topic 321. These equity securities without a readily determinable fair value were ~~$34.8~~$70.3 million and ~~$28.2~~$36.4 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. There were no observable transactions during the period that would indicate a material change in fair value. Therefore, these investments were accounted for at cost, less impairment.

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8. Deposits

~~Deposits~~

The aggregate amount of time deposits with a minimum denomination of $250,000 was ~~$476.6~~$353.2 million and ~~$558.0~~$321.6 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The aggregate amount of time deposits with a minimum denomination of $100,000 was ~~$701.3~~$688.2 million and ~~$864.3~~$537.4 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled ~~$1.7 million~~$661,000 and ~~$5.6~~$2.0 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. Interest expense applicable to certificates in excess of $100,000 totaled ~~$6.1~~$1.4 million and ~~$18.8~~$4.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, brokered deposits were $626.9 million and $625.7 million, ~~and $635.7 million,~~ respectively.

Deposits totaling approximately ~~$1.86~~$2.69 billion and ~~$1.98~~$1.91 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

9. Securities Sold Under Agreements to Repurchase

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, securities sold under agreements to repurchase totaled ~~$141.0~~$118.6 million and ~~$168.9~~$140.9 million, respectively. For the three-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, securities sold under agreements to repurchase daily weighted-average totaled ~~$143.9~~$123.1 million and ~~$157.2~~$157.6 million, respectively. For the ~~nine months~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, securities sold under agreements to repurchase daily weighted-average totaled ~~$153.7~~$130.2 million and ~~$150.0~~$158.6 million, respectively.

The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is presented in the following tables:


	September 30, 2021											June 30, 2022
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total			Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
	(In thousands)											(In thousands)
Securities sold under agreements to repurchase:											Securities sold under agreements to repurchase:
U.S. government-sponsored enterprises	$	8,753	$	—	$	—	$	—	$	8,753	U.S. government-sponsored enterprises	$	6,540	$	—	$	—	$	—	$	6,540
Mortgage-backed securities		7,979		—		—		—		7,979	Mortgage-backed securities	3,300		—		—		—		3,300
State and political subdivisions		121,412		—		—		—		121,412	State and political subdivisions	105,319		—		—		—		105,319
Other securities		2,858		—		—		—		2,858	Other securities	3,414		—		—		—		3,414
Total borrowings	$	141,002	$	—	$	—	$	—	$	141,002	Total borrowings	$	118,573	$	—	$	—	$	—	$	118,573


	December 31, 2020											December 31, 2021
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total			Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
	(In thousands)											(In thousands)
Securities sold under agreements to repurchase:											Securities sold under agreements to repurchase:
U.S. government-sponsored enterprises	$	11,166	$	—	$	—	$	—	$	11,166	U.S. government-sponsored enterprises	$	8,433	$	—	$	—	$	—	$	8,433
Mortgage-backed securities		18,830		—		—		—		18,830	Mortgage-backed securities	7,920		—		—		—		7,920
State and political subdivisions		135,308		—		—		—		135,308	State and political subdivisions	122,173		—		—		—		122,173
Other securities		3,627		—		—		—		3,627	Other securities	2,360		—		—		—		2,360
Total borrowings	$	168,931	$	—	$	—	$	—	$	168,931	Total borrowings	$	140,886	$	—	$	—	$	—	$	140,886

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10. FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The Company had 0no other borrowed funds as of ~~September~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, all of the outstanding balances were classified as long-term advances. The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%. Expected maturities could differ from contractual maturities because FHLB may have the right to call or the Company may have the right to prepay certain obligations.

Additionally, the Company had ~~$1.12~~$1.09 billion and ~~$1.11~~$1.07 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The parent company took out a $20.0 million line of credit for general corporate purposes during 2015. The balance on this line of credit at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 was 0.

zero.

11. Subordinated Debentures

Subordinated debentures at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of subordinated debt securities and guaranteed payments on trust preferred securities with the following components:

As of September 30,

As of
December 31,

2021

2020

(In thousands)

Trust preferred securities

Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75%
   during the first five years and at a floating rate of 1.85% above the
   three-month LIBOR rate, reset quarterly, thereafter, currently
   callable without penalty

$
3,093

$
3,093

Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00%
   during the first five years and at a floating rate of 2.00% above the
   three-month LIBOR rate, reset quarterly, thereafter, currently
   callable without penalty

15,464

15,464

Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84%
   during the first five years and at a floating rate of 1.45% above the
   three-month LIBOR rate, reset quarterly, thereafter, currently
   callable without penalty

25,774

25,774

Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29%
   during the first five years and at a floating rate of 2.50% above the
   three-month LIBOR rate, reset quarterly, thereafter, currently
   callable without penalty

16,495

16,495

Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15%
   above the three-month LIBOR rate, reset quarterly, currently callable
   without penalty

4,489

4,452

Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38%
   during the first five years and at a floating rate of 1.62% above the
   three-month LIBOR rate, reset quarterly, thereafter, currently
   callable without penalty

5,919

5,849

Subordinated debt securities

Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed
   rate of 5.625% during the first five years and at a floating rate of
   3.575% above the then three-month LIBOR rate, reset quarterly,
   thereafter, callable in 2022 without penalty

299,666

299,199

Total

$
370,900

$
370,326


	As of June 30, 2022		As of December 31, 2021
	(In thousands)
Trust preferred securities
Subordinated debentures, issued in 2004, due 2034, floating rate of 4.00% above the three-month LIBOR rate, reset quarterly, currently callable without penalty	$	2,165	$	—
Subordinated debentures, issued in 2003, due 2034, floating rate of 2.95% above the three-month LIBOR rate, reset quarterly, currently callable without penalty	10,310		—
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty	5,155		4,501
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	—		3,093
Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	—		15,464
Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	—		25,774
Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	—		16,495
Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	—		5,942
Subordinated debt securities
Subordinated notes, net of issuance costs, issued in 2020, due 2030, fixed rate of 5.50% during the first five years and at a floating rate of 534.5 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2025 without penalty	144,063		—
Subordinated notes, net of issuance costs, issued in 2022, due 2032, fixed rate of 3.125% during the first five years and at a floating rate of 182 basis points above the then three-month SOFR rate, reset quarterly, thereafter, callable in 2027 without penalty	296,762		—
Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty	—		299,824
Total	$	458,455	$	371,093

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Trust Preferred Securities. The Company holds trust preferred securities with a face amount of ~~$73.3~~$17.6 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that ~~qualify~~previously qualified for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities ~~will be phased out upon completion of the acquisition of Happy Bancshares,~~ ~~but~~has been eliminated, and these securities ~~will still be~~are now treated as Tier 2 capital. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in the Company’s subordinated debentures, the sole asset of each trust. The trust 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 subordinated debentures held by the trust. The Company wholly owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related subordinated debentures. The Company’s obligations under the subordinated securities and other relevant trust agreements, in 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 has received approval from the Federal Reserve to redeem the trust preferred securities, and is in the process of redeeming all of its trust preferred securities.

On April 1, 2022, the Company acquired $23.2 million in trust preferred securities from Happy which were currently callable without penalty based on the terms of the specific agreements. During the quarter, $10.7 million of these trust preferred securities were paid off without penalty. As of June 30, 2022, the Company held a face amount of $12.5 million in trust preferred securities acquired from Happy.

During the second quarter of 2022, the Company chose to redeem an additional $68.1 million in trust preferred securities held prior to the acquisition of Happy. As of June 30, 2022, the Company's remaining balance of trust preferred securities which were held prior to the acquisition of Happy was $5.1 million.

Subordinated Debt Securities. On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.

On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”) for net proceeds, after underwriting discounts and issuance costs of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excludingJanuary 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 3, 2017, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the ~~“Notes”~~“2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bear interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 2027 Notes ~~will~~ bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be ~~zero~~zero..

Table of Contents

The Company, ~~may,~~ beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. ~~The Company may also redeem the Notes at any time, including prior to~~On April 15, 2022, ~~at its option, in whole but not in part, if: (i) a change or prospective change in law occurs that could prevent~~ the Company ~~from deducting interest payable on~~completed the Notes for U.S. federal income tax purposes; (ii) a subsequent event occurs that could preclude the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) the Company is required to register as an investment company under the Investment Company Act of 1940, as amended; in each case, at a redemption price equal to 100%payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus ~~any~~ accrued and unpaid interest to, but excluding, the ~~redemption date. The Notes provide the Company with additional Tier 2 regulatory capital to support expected future growth.~~

Redemption Date.

12. Income Taxes

The following is a summary of the components of the provision ~~(benefit)~~ for income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~

2021:


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,						For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020			2021		2020				2022		2021		2022		2021
	(In thousands)											(In thousands)
Current:											Current:
Federal	$	14,693	$	16,271		$	52,771	$	57,154		Federal	$	19,242	$	15,175	$	33,207	$	38,058
State		4,864		5,386			17,470		18,921		State	5,077		5,024		8,761		12,599
Total current		19,557		21,657			70,241		76,075		Total current	24,319		20,199		41,968		50,657
Deferred:											Deferred:
Federal		2,744		(451	)		5,211		(29,071	)	Federal	(16,636)		3,661		(14,752)		2,488
State		908		(149	)		1,725		(9,624	)	State	(4,389)		1,212		(3,893)		823
Total deferred		3,652		(600	)		6,936		(38,695	)	Total deferred	(21,025)		4,873		(18,645)		3,311
Income tax expense	$	23,209	$	21,057		$	77,177	$	37,380		Income tax expense	$	3,294	$	25,072	$	23,323	$	53,968

The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~

2021:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,									Three Months Ended June 30,				Six Months Ended June 30,
	2021				2020				2021				2020					2022		2021		2022		2021
Statutory federal income tax rate		21.00		%		21.00		%		21.00		%		21.00		%	Statutory federal income tax rate	21.00	%	21.00	%	21.00	%	21.00	%
Effect of non-taxable interest income		(1.08	)			(1.03	)			(1.00	)			(1.48	)		Effect of non-taxable interest income	(8.30)		(1.03)		(2.53)		(0.97)
Stock compensation		0.16				1.17				0.23				0.53			Stock compensation	0.90		0.16		0.58		0.25
State income taxes, net of federal benefit		3.50				3.82				4.00				3.00			State income taxes, net of federal benefit	(4.38)		4.18		2.56		4.22
Executive officer compensation & other		0.05				(1.66	)			(0.32	)			(1.07	)		Executive officer compensation & other	7.87		(0.24)		0.77		(0.48)
Effective income tax rate		23.63		%		23.30		%		23.91		%		21.98		%	Effective income tax rate	17.09	%	24.07	%	22.38	%	24.02	%

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The types 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:


	September 30, 2021			December 31, 2020				June 30, 2022		December 31, 2021
	(In thousands)							(In thousands)
Deferred tax assets:							Deferred tax assets:
Allowance for credit losses	$	69,135		$	72,445		Allowance for credit losses	$	84,584	$	68,644
Deferred compensation		4,751			4,741		Deferred compensation	5,310		5,342
Stock compensation		5,475			4,768		Stock compensation	6,211		5,044
Non-accrual interest income		853			775		Non-accrual interest income	1,914		694
Real estate owned		109			620		Real estate owned	109		109
Unrealized loss on investment securities, available-for-sale							Unrealized loss on investment securities, available-for-sale	72,534		—
Loan discounts		4,151			6,806		Loan discounts	8,550		4,169
Tax basis premium/discount on acquisitions		3,693			5,101		Tax basis premium/discount on acquisitions	2,216		3,220
Investments		273			502		Investments	34,527		263
Deposits		(57	)		(33	)	Deposits	207		—
Other		5,259			5,855		Other	17,392		5,283
Gross deferred tax assets		93,642			101,580		Gross deferred tax assets	233,554		92,768
Deferred tax liabilities:							Deferred tax liabilities:
Accelerated depreciation on premises and equipment		264			1,929		Accelerated depreciation on premises and equipment	4,095		761
Unrealized gain on securities		9,735			15,072		Unrealized gain on securities	—		4,220
Core deposit intangibles		6,066			7,056		Core deposit intangibles	15,360		5,736
FHLB dividends		2,807			2,711		FHLB dividends	2,782		2,820
Other		5,046			4,563		Other	2,732		941
Gross deferred tax liabilities		23,918			31,331		Gross deferred tax liabilities	24,969		14,478
Net deferred tax assets	$	69,724		$	70,249		Net deferred tax assets	$	208,585	$	78,290

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Alabama, Arizona, Arkansas, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Mississippi, Missouri, New Hampshire, New Jersey, New York, New Mexico, North Carolina, Oklahoma, ~~Missouri,~~ Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2018.

13. Common Stock, Compensation Plans and Other

Common Stock

~~As of September 30, 2021, the~~

The Company’s Restated Articles of Incorporation, as amended, authorize the issuance of up to 300,000,000 shares of common stock, par value $0.01 per share.

The Company also has the authority to issue up to 5,500,000 shares of preferred stock, par value $0.01 per share under the Company’s Restated Articles of Incorporation, as amended.

Stock Repurchases

On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program. During the first ~~nine~~six months of ~~2021,~~2022, the Company repurchased a total of ~~1.4 million~~1,212,732 shares with a weighted-average stock price of ~~$25.64~~$21.89 per share. Shares repurchased under the program as of ~~September~~June 30, ~~2021~~2022 since its inception total ~~17,349,835~~18,874,067 shares. The remaining balance available for repurchase is ~~22,402,165~~20,877,933 shares at ~~September~~June 30, ~~2021.~~

2022.

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Stock Compensation Plans

On January 21, 2022, the Company’s Board of Directors adopted, and on April 21, 2022, the Company's shareholders approved, the Home BancShares, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The ~~Company has a stock option and performance incentive plan known as~~2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the ~~“Plan”~~“2006 Plan” and, together with the 2022 Plan, the “Plans”)., which expired on February 27, 2022. The purpose of the ~~Plan~~Plans is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve the Company’s business results. As of ~~September~~June 30, ~~2021,~~2022, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 Plan, subject to shareholder approval of the Plan, was ~~13,288,000.~~14,788,000 shares (representing 13,288,000 shares approved for issuance under the 2006 Plan plus 1,500,000 shares added upon adoption of the 2022 Plan). At ~~September~~June 30, ~~2021,~~2022, the Company had ~~approximately 1,602,000~~2,617,211 shares of common stock ~~remaining~~ available for future grants ~~and approximately 3,041,000 stock options outstanding for~~under 2022 Plan, subject to shareholder approval of the 2022 Plan. As of June 30, 2022, a total of ~~approximately 4,643,000~~5,761,527 shares of common stock were reserved for issuance pursuant to ~~outstanding awards under~~ the ~~Plan.~~

Plans.

The intrinsic value of the stock options outstanding and stock options vested at ~~September~~June 30, ~~2021~~2022 was ~~$10.9~~$5.7 million and ~~$9.7~~$5.4 million, respectively. The intrinsic value of stock options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$1.7 million.~~$259,000. Total unrecognized compensation cost, net of income tax benefit, related to non-vested stock option awards, which are expected to be recognized over the vesting periods, was approximately ~~$6.5~~$5.5 million as of ~~September~~June 30, ~~2021.~~

2022.

The table below summarizes the stock option transactions under the 2022 Plan at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and changes during the ~~nine-month~~three-month period and year then ended:


	For the Nine Months Ended September 30, 2021					For the Year Ended December 31, 2020						For the Six Months Ended June 30, 2022			For the Year Ended December 31, 2021
	Shares (000)			Weighted- Average Exercisable Price		Shares (000)			Weighted- Average Exercisable Price			Shares (000)	Weighted- Average Exercisable Price		Shares (000)	Weighted- Average Exercisable Price
Outstanding, beginning of year		3,254		$	19.77		3,411		$	19.60	Outstanding, beginning of year	3,015	$	20.06	3,254	$	19.77
Granted		15			21.68		—			—	Granted	178	21.04		15	21.68
Forfeited/Expired		(47	)		22.25		(76	)		21.95	Forfeited/Expired	(29)	22.83		(57)	22.44
Exercised		(181	)		15.27		(81	)		10.61	Exercised	(20)	10.63		(197)	14.78
Outstanding, end of period		3,041			20.01		3,254			19.77	Outstanding, end of period	3,144	20.14		3,015	20.06
Exercisable, end of period		1,552		$	17.37		1,537		$	16.82	Exercisable, end of period	1,813	$	18.46	1,543	$	17.46

Stock-based compensation expense for stock-based compensation awards granted is based on the grant-date fair value. For stock option awards, the fair value is estimated at 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. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company's employee stock options. The weighted-average fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$11.11~~$5.17 per share. There were 0178,000 options granted during the ~~year~~six months ended ~~December 31, 2020.~~June 30, 2022. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted.

The assumptions used in determining the fair value of the ~~2021~~2022 and ~~2020~~2021 stock option grants were as follows:

	~~For the Nine Months Ended September 30, 2021~~			~~For the Year Ended December 31, 2020~~
~~Expected dividend yield~~		~~2.59~~	%	~~Not Applicable~~
~~Expected stock price volatility~~		~~70.13~~	%	~~Not Applicable~~
~~Risk-free interest rate~~		~~0.75~~	%	~~Not Applicable~~
~~Expected life of options~~	~~6.5 years~~			~~Not Applicable~~


	For the Six Months Ended June 30, 2022		For the Year Ended December 31, 2021
Expected dividend yield	3.15	%	2.59	%
Expected stock price volatility	31.22	%	70.13	%
Risk-free interest rate	2.80	%	0.75	%
Expected life of options	6.5 years		6.5 years

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The following is a summary of currently outstanding and exercisable options at ~~September~~June 30, ~~2021:~~

2022:


Options Outstanding	Options Outstanding							Options Exercisable				Options Outstanding					Options Exercisable
Exercise Prices		Options Outstanding Shares (000)		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price		Options Exercisable Shares (000)		Weighted- Average Exercise Price		Exercise Prices	Options Outstanding Shares (000)	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price		Options Exercisable Shares (000)	Weighted- Average Exercise Price
$6.56 to $8.62			164		1.15	$	8.32		164	$	8.32	$6.56 to $8.62	140	0.55	$	8.62	140	$	8.62
$9.54 to $14.71			140		2.80		13.23		140		13.23	$9.54 to $14.71	140	2.05	13.23		140	13.23
$16.77 to $16.86			130		2.89		16.80		130		16.80	$16.77 to $16.86	130	2.14	16.80		130	16.80
$17.12 to $17.36			102		3.47		17.14		102		17.14	$17.12 to $17.36	92	2.72	17.13		92	17.13
$17.40 to $18.46			871		3.88		18.45		738		18.45	$17.40 to $18.46	871	3.13	18.45		738	18.45
$18.50 to $20.16			41		7.53		19.05		14		19.04	$18.50 to $20.16	41	6.78	19.05		23	19.05
$20.58 to $21.25			158		4.51		21.08		143		21.12
$20.46 to $21.25												$20.46 to $21.25	293	6.58	20.79		149	21.10
$21.31 to $22.22			112		6.85		22.18		60		22.22	$21.31 to $22.22	132	6.68	22.18		82	22.21
$22.70 to $23.32			1,242		6.81		23.32		1		22.70	$22.70 to $23.32	1,208	6.06	23.32		246	23.32
$23.51 to $25.96			81		5.72		25.63		60		25.81	$23.51 to $25.96	99	5.81	25.39		73	25.85
			3,041						1,552				3,144				1,813

The table below summarized the activity for the Company’s restricted stock issued and outstanding at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and changes during the period and year then ended:


	As of September 30, 2021			As of December 31, 2020				As of June 30, 2022		As of December 31, 2021
	(In thousands)							(In thousands)
Beginning of year		1,371			1,636		Beginning of year	1,231		1,371
Issued		215			264		Issued	391		216
Vested		(238	)		(453	)	Vested	(177)		(320)
Forfeited		(26	)		(76	)	Forfeited	(31)		(36)
End of period		1,322			1,371		End of period	1,414		1,231
Amount of expense for nine months and twelve months ended, respectively	$	5,307		$	6,824
Amount of expense for six months and twelve months ended, respectively							Amount of expense for six months and twelve months ended, respectively	$	3,664	$	7,112

Total unrecognized compensation cost, net of income tax benefit, related to non-vested restricted stock awards, which are expected to be recognized over the vesting periods, was approximately ~~$16.6~~$19.2 million as of ~~September~~June 30, ~~2021.~~

2022.

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14. Non-Interest Expense

The table below shows the components of non-interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~

2021:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020			2022		2021		2022		2021
	(In thousands)									(In thousands)
Salaries and employee benefits	$	42,469	$	41,511	$	126,990	$	120,928	Salaries and employee benefits	$	65,795	$	42,462	$	109,346	$	84,521
Occupancy and equipment		9,305		9,566		27,584		28,611	Occupancy and equipment	14,256		9,042		23,400		18,279
Data processing expense		6,024		4,921		17,787		13,861	Data processing expense	10,094		5,893		17,133		11,763
Merger and acquisition expenses		1,006		—		1,006		711	Merger and acquisition expenses	48,731		—		49,594		—
Other operating expenses:									Other operating expenses:
Advertising		1,204		902		3,444		2,923	Advertising	2,117		1,194		3,383		2,240
Amortization of intangibles		1,421		1,420		4,262		4,423	Amortization of intangibles	2,477		1,421		3,898		2,842
Electronic banking expense		2,521		2,426		7,375		6,195	Electronic banking expense	3,352		2,616		5,890		4,854
Directors’ fees		395		429		1,192		1,265	Directors’ fees	375		414		779		797
Due from bank service charges		265		259		787		721	Due from bank service charges	396		273		666		522
FDIC and state assessment		1,648		1,607		4,119		5,001	FDIC and state assessment	2,390		1,108		4,058		2,471
Insurance		749		766		2,317		2,223	Insurance	973		787		1,743		1,568
Legal and accounting		1,050		1,235		2,954		3,432	Legal and accounting	1,061		1,058		1,858		1,904
Other professional fees		1,787		1,661		5,196		6,622	Other professional fees	2,254		1,796		3,863		3,409
Operating supplies		474		460		1,426		1,548	Operating supplies	995		465		1,749		952
Postage		301		328		931		968	Postage	556		292		862		630
Telephone		371		321		1,082		955	Telephone	384		365		721		711
Other expense		4,629		3,900		13,015		12,757	Other expense	9,276		3,796		13,435		8,385
Total other operating expenses		16,815		15,714		48,100		49,033	Total other operating expenses	26,606		15,585		42,905		31,285
Total non-interest expense	$	75,619	$	71,712	$	221,467	$	213,144	Total non-interest expense	$	165,482	$	72,982	$	242,378	$	145,848

15. Leases

The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through ~~2042~~2044 and do not include renewal options based on economic factors that would have implied that continuation of the lease was reasonably certain. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally include real estate taxes and common area maintenance (“CAM”) charges in the rental payments. Short-term leases are leases having a term of twelve months or less. As part of the adoption of Topic 842, the Company elected the package of practical expedients whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. In accordance with ASU 2018-11, the Company ~~elected the practical expedient whereby we elected to~~does not separate nonlease components from the associated lease component of our operating leases. As a result, ~~we account~~the Company accounts for these components as a single component under Topic 842 since (i) the timing and pattern of transfer of the nonlease components and the associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The Company recognizes short term leases on a straight-line basis and does not record a related ROU asset and liability for such leases. In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.

As of ~~September~~June 30, 2022, the balances of the right-of-use asset and lease liability was $45.6 million and $48.7 million, respectively. As of December 31, 2021, the balances of the right-of-use asset and lease liability was ~~$40.8~~$39.6 million and ~~$43.7 million, respectively. As of December 31, 2020, the balances of the right-of-use asset and lease liability was $40.2 million and $43.0~~$42.4 million, respectively The right-of-use asset is included in bank premises and equipment, net, and the lease liability is included in accrued interest payable and other ~~liabilities.~~

liabilities.

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The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:

	September 30, 2021			December 31, 2020
2021	$	2,910		$	8,235
								June 30, 2022		December 31, 2021
2022		7,366			6,486		2022	$	4,547	$	7,714
2023		6,535			5,714		2023	8,153		6,574
2024		5,972			5,262		2024	7,296		6,001
2025		5,510			4,818		2025	6,568		5,510
2026							2026	6,308		5,389
Thereafter		30,388			27,453		Thereafter	30,335		24,999
Total future minimum lease payments	$	58,681		$	57,968		Total future minimum lease payments	$	63,207	$	56,187
Discount effect of cash flows		(15,017	)		(14,922	)	Discount effect of cash flows	(14,505)		(13,778)
Present value of net future minimum lease payments	$	43,664		$	43,046		Present value of net future minimum lease payments	$	48,702	$	42,409

Additional information (dollar amounts in thousands):


	For the Three Months Ended						For the Nine Months Ended							For the Three Months Ended						Six Months Ended
Lease expense:	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020			Lease expense:	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Operating lease expense	$	1,971		$	2,044		$	5,961		$	6,085		Operating lease expense	$	2,116		$	1,981		$	3,939		$	3,990
Short-term lease expense		1			9			5			41		Short-term lease expense	—			1			1			5
Variable lease expense		250			253			759			772		Variable lease expense	218			251			443			508
Total lease expense	$	2,222		$	2,306		$	6,725		$	6,898		Total lease expense	$	2,334		$	2,233		$	4,383		$	4,503
Other information:													Other information:
Cash paid for amounts included in the measurement of lease liabilities	$	1,988		$	2,021		$	5,956		$	6,013		Cash paid for amounts included in the measurement of lease liabilities	$	2,154		$	1,974		$	3,983		$	3,968
Weighted-average remaining lease term (in years)		9.67			10.08			9.78			10.21		Weighted-average remaining lease term (in years)	9.33			9.75			9.42			9.84
Weighted-average discount rate		3.42	%		3.60	%		3.49	%		3.61	%	Weighted-average discount rate	3.38		%	3.53		%	3.39		%	3.53		%

The Company currently leases three properties from three related parties. Total rent expense from the leases was $36,000 or ~~1.64%~~1.56% of total lease expense and ~~$107,000~~$73,000 or ~~1.59%~~1.66% of total lease expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~

2022.

16. Significant Estimates and Concentrations of Credit Risks

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for credit losses and certain concentrations of credit risk are reflected in Note 5, while deposit concentrations are reflected in Note 8.

The Company’s primary market areas are in Arkansas, Florida, Texas, South Alabama and New York. The Company primarily grants loans to customers located within these markets unless the borrower has an established relationship with the Company.

The diversity of the Company’s economic base tends to provide a stable lending environment. Although the Company has a loan portfolio that is diversified in both industry and geographic area, a substantial portion of its debtors’ ability to honor their contracts is dependent upon real estate values, tourism demand and the economic conditions prevailing in its market areas.

Although the Company has a diversified loan portfolio, at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, commercial real estate loans represented ~~59.5%~~57.6% and ~~54.4%~~59.7% of total loans receivable, respectively, and ~~215.2%~~229.2% and ~~234.3%~~212.2% of total stockholders’ equity at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Residential real estate loans represented ~~15.6%~~15.1% and ~~18.5%~~15.8% of total loans receivable and ~~56.6%~~60.0% and ~~79.6%~~56.3% of total stockholders’ equity at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Approximately ~~74.2%~~78.0% of the Company’s total loans and ~~76.4%~~82.1% of the Company’s real estate loans as of ~~September~~June 30, ~~2021,~~2022, are to borrowers whose collateral is located in Alabama, Arkansas, Florida, Texas and New York, the states in which the Company has its branch locations.

Table of Contents

As of ~~September~~June 30, ~~2021,~~2022, the markets in which we operate have ~~begun to experience~~been experiencing significant economic ~~recovery. However, there is still a significant amount of~~ uncertainty primarily related to inflationary concerns, continuing supply chain issues and the ~~COVID-19 pandemic which may slow~~potential impacts of international unrest. However, excluding the ~~anticipated economic recovery. The~~impact of the acquisition of Happy Bancshares, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of ~~September~~June 30, ~~2021. During~~2022. In addition, excluding the ~~nine months ended September 30, 2021,~~impact of the acquisition of Happy Bancshares, the Company ~~recorded a negative~~determined no additional provision for unfunded commitments was necessary as of ~~$4.8 million. This was primarily due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position~~. ~~The financial statements have been prepared using values and information currently available to the Company. The Company is continuing to closely monitor the situation.~~

June 30, 2022.

Any future volatility in the economy could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

17. Commitments and Contingencies

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of ~~their~~its customers. These commitments and contingent liabilities include lines of credit and commitments to extend credit and issue standby letters of credit. The Company applies the same credit policies and standards as they do in the lending process when making these commitments. The collateral obtained is based on the assessed creditworthiness of the borrower.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, commitments to extend credit of ~~$3.11~~$4.47 billion and ~~$2.82~~$3.05 billion, respectively, were outstanding. A percentage of these balances are participated out to other banks; therefore, the Company can call on the participating banks to fund future draws. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Outstanding standby letters of credit are contingent commitments issued by the Company, generally to guarantee the performance of a customer in third-party borrowing arrangements. The term of the guarantee is dependent upon the creditworthiness of the borrower, some of which are long-term. 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. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. The maximum amount of future payments the Company could be required to make under these guarantees at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, is $90.6~~2021, was $164.9 million and ~~$56.1~~$110.8 million, respectively.

The Company and/or its bank subsidiary have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position or results of operations or cash flows of the Company and its subsidiary.

18. Regulatory Matters

The Bank is subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. Since the Bank is also under supervision of the Federal Reserve, it is further limited if the total of all dividends declared in any calendar year by the Bank exceeds the Bank’s net profits to date for that year combined with its retained net profits for the preceding two years. During the first ~~nine~~six months of ~~2021,~~2022, the Company requested approximately ~~$195.6~~$53.1 million in regular dividends from its banking subsidiary.

The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common Tier 1 equity and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of ~~September~~June 30, ~~2021,~~2022, the Company meets all capital adequacy requirements to which it is subject.

Table of Contents

On December ~~21,~~31, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule, which is reflected in the Company's risk-based capital ~~ratios presented below.~~

ratios.

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” and certain provisions of the Dodd-Frank Act (“Basel III”). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement began being phased in beginning January 1, 2016 at the 0.625% level and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019 when the phase-in period ended, and the full capital conservation buffer requirement became effective.

Basel III permanently grandfathers trust preferred securities and other non-qualifying capital instruments that were issued and outstanding as of May 19, 2010 in the Tier 1 capital of bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. The rule phases out of Tier 1 capital these non-qualifying capital instruments issued before May 19, 2010 by all other bank holding companies. ~~Because our total consolidated assets were less than $15 billion as of December 31, 2009, our outstanding trust preferred securities continue to be treated as Tier 1 capital.~~ However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities ~~will be phased out upon completion of the acquisition of Happy Bancshares,~~ ~~but~~has been eliminated, and these securities ~~will still be~~are now treated as Tier 2 capital.

Basel III also amended the prompt corrective action rules to incorporate a “common equity Tier 1 capital” requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization will be required to have at least a 4.5% “common equity Tier 1 risk-based capital” ratio, a 4% “Tier 1 leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio and an 8% “total risk-based capital” ratio.

The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are now: a 6.5% “common equity Tier 1 risk-based capital” ratio, a 5% “Tier 1 leverage capital” ratio, an 8% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ~~ratio~~.ratio. As of ~~September~~June 30, ~~2021,~~2022, the Bank met the capital standards for a well-capitalized institution. The Company’s “common equity Tier 1 risk-based capital” ratio, “Tier 1 leverage capital” ratio, “Tier 1 risk-based capital” ratio, and “total risk-based capital” ratio were ~~15.12%~~12.78%, ~~11.00%~~9.77%, ~~15.73%~~12.88%, and ~~19.55%~~16.61%, respectively, as of ~~September~~June 30, ~~2021.~~

2022.

19. Additional Cash Flow Information

In connection with the ~~LH-Finance~~Happy acquisition, accounted for ~~using the purchase method,~~under ASC Topic 805, the Company acquired approximately ~~$409.1 million~~$6.68 billion in assets, including ~~$407.4~~$858.9 million in ~~loans~~cash and cash equivalents, assumed $6.15 billion in liabilities, issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of ~~February 29, 2020, and paid $421.2~~April 1, 2022. In addition, the holders of certain Happy stock-based awards received approximately $3.7 million in ~~cash.~~

cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.

The following is a summary of the Company’s additional cash flow information during the ~~nine-month~~six-month periods ended:


	September 30,					June 30,
	2021		2020			2022		2021
	(In thousands)					(In thousands)
Interest paid	$	36,757	$	72,909	Interest paid	$	27,605	$	28,428
Income taxes paid		82,245		54,698	Income taxes paid	38,553		58,685
Assets acquired by foreclosure		2,058		1,673	Assets acquired by foreclosure	9		1,951

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20. Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a hierarchy of three levels of inputs that may be used to measure fair values:


Level 1			Quoted prices in active markets for identical assets or liabilities


Level 2			Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices 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			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

Financial Assets and Liabilities Measured on a Recurring Basis

Available-for-sale securities and marketable equity securities are the only material instruments valued on a recurring basis which are held by the Company at fair value. ~~The Company does not have any Level 1 securities.~~ Primarily all of the Company's securities are considered to be Level 2 securities, with the exception of the marketable equity securities, which are considered to be Level 1 securities. ~~These~~The Level 2 securities consist primarily of U.S. government-sponsored enterprises, mortgage-backed securities plus state and political subdivisions. 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 bond’s terms and conditions, among other things. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, Level 3 securities were immaterial. In addition, there were no material transfers between hierarchy levels during ~~2021~~2022 and ~~2020.~~2021. See Note 3 to the Condensed Notes to Consolidated Financial Statements for additional detail related to investment securities.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities with complicated structures. Pricing for the Company’s investment securities is fairly generic and is easily obtained. The Company uses a third-party comparison pricing vendor in order to reflect consistency in the fair values of the investment securities sampled by the Company each quarter.

Financial Assets and Liabilities Measured on a Nonrecurring Basis

~~Impaired~~Held-to-maturity investment securities and impaired loans that are collateral dependent are the only material financial assets valued on a non-recurring basis which are held by the Company at fair value. The held-to-maturity investment securities consist primarily of state and political subdivisions plus U.S. Treasury 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 bond’s terms and conditions, among other things. Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the net realizable value of the collateral if the loan is collateral dependent. A portion of the allowance for credit losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for credit losses to require an increase, such increase is reported as a component of the provision for credit ~~losses~~.losses. The fair value of loans with specific allocated losses was ~~$252.8~~$323.1 million and ~~$102.1~~$280.0 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.The increase in collateral-dependent impaired loans was due to the Company changing the valuation for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. ~~The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market.~~ ~~In the event of default, liquidation would be achieved through a loan sale. The Company is continuing to monitor these impaired loans and will adjust the discount as necessary.~~ This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed approximately ~~$92,000~~$77,000 and ~~$388,000~~$126,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company reversed approximately ~~$276,000~~$149,000 and ~~$811,000~~$184,000 of accrued interest receivable when impaired loans were put on non-accrual status during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

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Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Foreclosed assets held for sale are the only material non-financial assets valued on a non-recurring basis which are held by the Company 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 held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was ~~$1.2~~$373,000 and $1.6 million, ~~and $4.4 million,~~ respectively.

~~NaN~~

No foreclosed assets held for sale were remeasured during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis. The Company’s policy is to comply with the regulatory guidelines.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral-dependent impaired loans and foreclosed assets primarily relate to customized discounting criteria applied to the customer’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the underlying collateral. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from ~~25%~~10% to ~~55%~~60% for commercial and residential real estate collateral.

Fair Values of Financial Instruments

The following table presents the estimated fair values of the Company’s financial instruments. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

	September 30, 2021
	Carrying						June 30, 2022
	Amount		Fair Value		Level		Carrying Amount		Fair Value		Level
	(In thousands)						(In thousands)
Financial assets:						Financial assets:
Cash and cash equivalents	$	3,280,256	$	3,280,256	1	Cash and cash equivalents	$	2,816,376	$	2,816,376	1
Investment securities - available for sale						Investment securities - available for sale	3,791,509		3,791,509		2
Investment securities - held-to-maturity (U.S. Treasuries)						Investment securities - held-to-maturity (U.S. Treasuries)	277,688		276,029		1
Investment securities - held-to-maturity (state and political subdivisions)						Investment securities - held-to-maturity (state and political subdivisions)	1,089,093		997,251		2
Loans receivable, net of impaired loans and allowance		9,409,596		9,687,138	3	Loans receivable, net of impaired loans and allowance	13,302,682		13,695,308		3
Accrued interest receivable		48,577		48,577	1	Accrued interest receivable	80,274		80,274		1
FHLB, Federal Reserve & First National Bankers Bank stock; other equity investments		122,824		122,824	3
FHLB, FRB & FNBB Bank stock; other equity investments						FHLB, FRB & FNBB Bank stock; other equity investments	182,399		182,399		3
Marketable equity securities						Marketable equity securities	33,631		33,631		1
Financial liabilities:						Financial liabilities:
Deposits:						Deposits:
Demand and non-interest bearing	$	4,139,149	$	4,139,149	1	Demand and non-interest bearing	$	6,036,583	$	6,036,583	1
Savings and interest-bearing transaction accounts		8,813,326		8,813,326	1	Savings and interest-bearing transaction accounts	12,424,192		12,424,192		1
Time deposits		1,050,896		1,089,205	3	Time deposits	1,119,297		1,096,797		3
Securities sold under agreements to repurchase		141,002		141,002	1	Securities sold under agreements to repurchase	118,573		118,573		1
FHLB and other borrowed funds		400,000		403,489	2	FHLB and other borrowed funds	400,000		400,025		2
Accrued interest payable		9,409		9,409	1	Accrued interest payable	9,203		9,203		1
Subordinated debentures		370,900		377,839	3	Subordinated debentures	458,455		430,470		3

December 31, 2020

Carrying

Amount

Fair Value

Level

(In thousands)

Financial assets:

Cash and cash equivalents

$
1,263,788

$
1,263,788

1
Loans receivable, net of impaired loans and allowance

10,873,120

11,292,004

3
Accrued interest receivable

60,528

60,528

1
FHLB, Federal Reserve & First National Bankers Bank
stock; other equity investments

114,854

114,854

3
Financial liabilities:

Deposits:

Demand and non-interest bearing

$
3,266,753

$
3,266,753

1
Savings and interest-bearing transaction accounts

8,212,240

8,212,240

1
Time deposits

1,246,797

1,266,430

3
Securities sold under agreements to repurchase

168,931

168,931

1
FHLB and other borrowed funds

400,000

414,207

2
Accrued interest payable

5,925

5,925

1
Subordinated debentures

370,326

378,981

3

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	December 31, 2021
	Carrying Amount		Fair Value		Level
	(In thousands)
Financial assets:
Cash and cash equivalents	$	3,650,315	$	3,650,315	1
Investment securities - available for sale	3,119,807		3,119,807		2
Loans receivable, net of impaired loans and allowance	9,319,421		9,503,261		3
Accrued interest receivable	46,736		46,736		1
FHLB, FRB & FNBB Bank stock; other equity investments	124,638		124,638		3
Marketable equity securities	17,110		17,110		1
Financial liabilities:
Deposits:
Demand and non-interest bearing	$	4,127,878	$	4,127,878	1
Savings and interest-bearing transaction accounts	9,251,805		9,251,805		1
Time deposits	880,887		901,280		3
Securities sold under agreements to repurchase	140,886		140,886		1
FHLB and other borrowed funds	400,000		401,362		2
Accrued interest payable	4,798		4,798		1
Subordinated debentures	371,093		374,894		3

21. Recent Accounting Pronouncements

~~In January 2017, the FASB issued ASU 2017-04,~~

~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption was permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company has goodwill from prior business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. During 2020, the Company performed its impairment assessment and determined the fair value of the aggregated reporting units exceed the carrying value, such that the Company’s goodwill was not considered impaired. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures. The current accounting policies and processes have not changed, except for the elimination of the Step 2 analysis.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement~~. The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,~~ that amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. The internal-use software guidance states that only qualifying costs incurred during the application development stage can be capitalized. The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with the applicable guidance. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

~~In November 2018, the FASB issued ASU 2018-19,~~ ~~Codification Improvements to Topic 326, Financial Instruments-Credit Losses.~~ The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The effective date and transition requirements for the amendments in this update are the same as the effective dates and transition requirements in ASU 2016-13.

~~In March 2019, the FASB issued ASU 2019-01,~~ ~~Leases (Topic 842) Codification Improvements~~. The amendments in this Update reinstate the exception in Topic 842 for lessors that are not manufacturers or dealers. Specifically, those lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of ~~fair value~~ (exit price) in Topic 820. In addition, the amendments in this Update address the concerns of lessors within the scope of Topic 942 about where “principal payments received under leases” should be presented. Specifically, lessors that are depository and lending institutions within the scope of Topic 942 will present all “principal payments received under leases” within investing activities. Finally, the amendments in this Update clarify the FASB’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. The effective date for the amendments in this update is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

~~In April 2019, the FASB issued ASU 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.~~ ~~The amendments~~ ~~clarify certain aspects of the accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12 and 2016-01, respectively).~~ The amendments made to the provisions of ASU 2016-13 are related to accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, cost to sell financial assets when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, amortized cost basis of line of credit arrangements that are converted to term loans and extension and renewal options that are not unconditionally cancelable by the entity. The effective date and transition requirements for the amendments in this update are the same as the effective dates and transition requirements in ASU 2016-13. The significant amendments made to the provisions of ASU 2017-12 are related to partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis adjustments, disclosure of fair value hedge basis adjustments, consideration of the hedged contractually specified interest rate under the hypothetical derivative method, application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments and transition guidance for reclassifying prepayable debt securities from HTM to available-for-sale. The amendments to ASU 2017-12 are effective as of the beginning of the first annual reporting period beginning after the date of issuance of ASU 2019-04. The amendments made to the provisions of ASU 2016-01 indicate that the measurement alternative for equity securities without readily determinable fair values represent a nonrecurring fair value measurement under ASC 820, and therefore, such securities should be remeasured at fair value when an entity identifies an orderly transaction “for an identical or similar investment of the same issuer.” The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

~~In May 2019, the FASB issued ASU 2019-05,~~ ~~Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief. The amendments~~ provide transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13. Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that were previously recorded at amortized cost and are within the scope of the credit losses guidance in ASC 326-20, are eligible for the fair value option under ASC 825-10, and are not held-to-maturity debt securities. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

~~In November 2019, the FASB issued ASU 2019-11,~~ ~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses.~~ The amendments clarify that the allowance for credit losses for purchased financial assets with credit deterioration should include expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity. The amendments also clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, the expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition. Also, the amendments provide transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumption in effect immediately before the restructuring. The amendments extend the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. In addition, the amendments clarify that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial asset to apply the practical expedient. The entity applying the practical expedient should estimate the expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral that is greater than the fair value of the collateral securing the financial asset. An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard guidance effective January 1, 2020, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In December 31, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in the update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in the update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so on an entity-by-entity basis for a legal entity that is both not subject to tax and disregarded by the taxing authority. The amendments require that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the guidance effective January 1, 2021, and its adoption did not have a significant impact on our financial position or financial statement disclosures.

In March 2020, the FASB issued ASU 2020-04,“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

~~On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Section 4013~~

Table of ~~the CARES Act provides financial institutions the temporary option to not apply~~Contents

~~ASC Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors~~, to certain loan modifications related to COVID-19 made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after termination of the President’s national emergency declaration for COVID-19. On December 28, 2020, an extension of section 4013 of the CARES Act, provided institutions with an extension of the temporary option to not apply ASC Subtopic 310-40 until January 1, 2022. Further, financial institutions do not need to determine impairment associated with certain loan concessions that would otherwise have been required for TDRs (e.g., interest rate concessions, payment deferrals, or loan extensions). The Company has relied on Section 4013 of the CARES Act in accounting for loan modifications since the fourth quarter of 2020. The Company has granted loan modification to 38 outstanding loans for a total of $228.2 million as of September 30, 2021. ~~All of the customers currently on deferment chose principal deferment only and now have returned to paying interest monthly~~.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” The amendments in the update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in the update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for entities that have adopted ASU No. 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These amendments should be applied prospectively. However, for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. Early adoption is permitted if an entity has adopted ASU 2016-13. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently evaluating the potential impacts related to the adoption of the ASU.

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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Home BancShares, Inc.

Conway, Arkansas

Results of Review of Interim Consolidated Financial Statements

We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc. and subsidiaries (the “Company”) as of ~~September~~June 30, ~~2021,~~2022, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’ equity for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 and cash flows for the ~~nine-month~~six month periods ended
~~September~~ June 30, ~~2021~~2022 and ~~2020,~~2021, and the related notes (collectively referred to as the “interim financial information” or “statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company and subsidiaries as of December 31, ~~2020,~~2021, 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 ~~26, 2021,~~24, 2022, 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, ~~2020,~~2021, 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 review 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.

/s/ ~~BKD,~~FORVIS, LLP

(Formerly BKD,LLP)

Little Rock, Arkansas

~~November 4, 2021~~

August 9, 2022

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Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February ~~26, 2021,~~24, 2022, which includes the audited financial statements for the year ended December 31, ~~2020.~~ 2021. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Home BancShares, Inc. on a consolidated basis.

General

We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as “Centennial” or the “Bank”). As of ~~September~~June 30, ~~2021,~~2022, we had, on a consolidated basis, total assets of ~~$17.77~~$24.25 billion, loans receivable, net of ~~$9.66~~allowance for credit losses of $13.63 billion, total deposits of ~~$14.00~~$19.58 billion, and stockholders’ equity of ~~$2.74~~$3.50 billion.

We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank (“FHLB”) and other borrowed funds are our primary source of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger and acquisition expenses and/or certain gains, losses and other non-interest income and expenses.

Table 1: Key Financial Measures

	As of or for the Three Months Ended						As of or for the Nine Months Ended
	September 30,						September 30,							As of or for the Three Months Ended June 30,				As of or for the Six Months Ended June 30,
	2021			2020			2021			2020				2022		2021		2022		2021
	(Dollars in thousands, except per share data)													(Dollars in thousands, except per share data)
Total assets	$	17,765,056		$	16,549,758		$	17,765,056		$	16,549,758		Total assets	$	24,253,168	$	17,627,192	$	24,253,168	$	17,627,192
Loans receivable		9,901,100			11,691,470			9,901,100			11,691,470		Loans receivable	13,923,873		10,199,175		13,923,873		10,199,175
Allowance for credit losses		238,673			248,224			238,673			248,224		Allowance for credit losses	(294,267)		(240,451)		(294,267)		(240,451)
Total deposits		14,003,371			12,937,466			14,003,371			12,937,466		Total deposits	19,580,072		13,891,341		19,580,072		13,891,341
Total stockholders’ equity		2,736,062			2,540,799			2,736,062			2,540,799		Total stockholders’ equity	3,498,565		2,696,189		3,498,565		2,696,189
Net income		74,992			69,320			245,664			132,654		Net income	15,978		79,070		80,870		170,672
Basic earnings per share		0.46			0.42			1.49			0.80		Basic earnings per share	0.08		0.48		0.44		1.03
Diluted earnings per share		0.46			0.42			1.49			0.80		Diluted earnings per share	0.08		0.48		0.44		1.03
Book value per share		16.68			15.38			16.68			15.38		Book value per share	17.04		16.39		17.04		16.39
Tangible book value per share (non-GAAP)⁽¹⁾		10.59			9.30			10.59			9.30		Tangible book value per share (non-GAAP)(1)	9.92		10.31		9.92		10.31
Annualized net interest margin – FTE		3.60	%		3.92	%		3.74	%		4.08	%
Annualized net interest margin - FTE													Annualized net interest margin - FTE	3.64%		3.61%		3.46%		3.81%
Efficiency ratio		42.26			39.56			39.86			40.40		Efficiency ratio	66.31		41.09		58.26		38.72
Efficiency ratio, as adjusted (non-GAAP)⁽²⁾		42.29			40.08			41.67			40.25		Efficiency ratio, as adjusted (non-GAAP)(2)	46.02		42.07		46.53		41.36
Annualized return on average assets		1.68			1.66			1.90			1.11
Annualized return on average common equity		10.97			10.97			12.32			7.13
Return on average assets													Return on average assets	0.26		1.81		0.75		2.01
Return on average common equity													Return on average common equity	1.78		11.92		5.14		13.02

(1)~~(1)~~

See Table 19 ~~for the non-GAAP tabular reconciliation.~~

~~(2)~~

~~See Table 23 for the non-GAAP tabular reconciliation.~~

~~Overview~~

~~Recent Developments – COVID-19~~

The Company has been, and may continue to be, impacted by the novel coronavirus (“COVID-19”) pandemic. Uncertainty remains about the duration of the pandemic as well as the timing and extent of the economic recovery. We continue to evaluate protocols and processes in place to execute our business continuity plans and help promote the health and safety of our employees and customers. To support our customers or to comply with law, we have deferred loan payments for certain consumer and commercial customers, and we have suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and have offered fee waivers, payment deferrals, and other expanded assistance for automobile, mortgage, small business and personal lending customers.

As of September 30, 2021, our loan deferrals decreased to $228.2 million on 38 loans from the December 31, 2020 balance of $330.7 million on 56 loans. All of the customers currently on deferment totaling $228.2 million chose principal deferment only and now have returned to paying interest monthly. The hospitality sector has been most negatively impacted by COVID-19 and represents approximately 67% of the deferment balance as of September 30, 2021. The geographic distribution of these deferrals is similar through all of our markets. Our review of deferment requests required updated interim operating statements, balance sheet and liquidity verifications, and validation of the current risk rating.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) established a new federal economic relief program administered by the Small Business Administration (“SBA”) called the Paycheck Protection Program (“PPP”), which provides for 100% federally guaranteed loans to be issued by participating private financial institutions to small businesses for payroll and certain other permitted expenses. PPP loans are forgivable, in whole or in part, so long as employee and compensation levels of the borrower are maintained, and the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments were deferred for the ~~first six months~~non-GAAP tabular reconciliation.

(2)See Table 23 for the non-GAAP tabular reconciliation.

Table of the loan. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/HCEA Act”) was signed into law in April 2020. The PPP/HCEA Act authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA. The Consolidated Appropriations Act (“CAA”) was signed into law in December 2020. The CAA also authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA with a term of five years. As of September 30, 2021, as a participating lender, we have generated 12,971 loans to both existing and new customers totaling $1.23 billion. As of September 30, 2021, the outstanding PPP loan balances were $241.5 million. The average loan size was $108,000.

Although the economic and public health outlooks improved in the United States during the first nine months of 2021, the future impact of the pandemic on our business, results of operations and financial condition remains uncertain. Should current economic conditions deteriorate or if the pandemic continues to intensify through the spread of more contagious or severe strains of COVID-19, the pandemic could have an adverse effect on our business and results of operations and financial condition.

On September 9, 2021, President Biden announced that he has directed the Occupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either the full vaccination or weekly testing of employees for employers with 100 or more employees. On November 4, 2021, OSHA issued its ETS which sets out the specific terms of the mandate and its implementation. We are currently reviewing these requirements to assess any potential impacts of their implementation on our operations.
Contents

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~

2021

Our net income ~~increased $5.7~~decreased $63.1 million, or ~~8.2%~~79.8%, to ~~$75.0~~$16.0 million for the three-month period ended ~~September~~June 30, ~~2021,~~2022, from ~~$69.3~~$79.1 million for the same period in ~~2020.~~2021. On a diluted earnings per share basis, our earnings were ~~$0.46~~$0.08 per share for the three-month period ended ~~September~~June 30, ~~2021~~2022 compared to ~~$0.42~~$0.48 per share for the three-month period ended ~~September~~June 30, ~~2020.~~2021. During the ~~three-month period ended September 30, 2021,~~second quarter of 2022, we completed the ~~Company did not record any provision for credit losses compared to~~previously announced acquisition of Happy Bancshares, Inc. ("Happy"). As a ~~$14.0~~result of the acquisition of Happy, which we completed on April 1, 2022, we incurred $48.7 million in merger expenses and recorded a $45.2 million provision for credit losses ~~three-month period ended September 30, 2020.~~on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for credit losses on acquired held-to-maturity investment securities. The ~~$14.0~~summation of these items reduced earnings by $107.3 million ~~of total credit loss expense~~and earnings per share by $0.39 per share for the three-month period ended ~~September~~June 30, ~~2020 was~~2022. The markets in which we operate have been experiencing significant economic uncertainty primarily ~~due~~related to inflationary concerns, continuing supply chain issues and the ~~COVID-19 pandemic. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since~~potential impacts of international unrest. However, excluding the ~~fourth quarter~~impact of ~~2020. The~~the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of ~~September~~June 30, ~~2021. The~~2022. In addition, excluding the impact of the acquisition of Happy, the Company ~~also~~determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the three months ended June 30, 2022, the Company recorded ~~a $61,000 adjustment~~$1.4 million in special dividend from equity investments, $2.4 million in recoveries on historic losses, $1.8 million loss for the ~~increase~~decrease in the fair ~~market~~ value of marketable securities and ~~$2.2~~$2.1 million ~~of special dividend income from our equity investments as well as $1.0 million of merger and acquisition expense.~~

in trust preferred securities ("TRUPS") redemption fees.

Total interest income ~~decreased~~increased by ~~$9.6~~$62.5 million, or ~~5.7%, non-interest expense increased by $3.9 million, or 5.4%~~40.5%, and non-interest income ~~decreased~~increased by ~~$741,000,~~$13.5 million, or ~~2.5%~~43.3%. This was ~~partially~~more than offset by ~~an by $8.0~~a $5.0 million, or ~~39.3%~~38.0%, ~~decrease~~increase in total interest expense and a $92.5 million, or 126.7%, increase in non-interest expense. The ~~decrease~~increase in interest income was due to a ~~$12.2~~$40.1 million, ~~decrease~~or 28.3%, increase in loan interest income, a $16.6 million, or 137.1%, increase in investment income and a $5.9 million, or 828.6%, increase in interest income on deposits at other banks. The increase in non-interest income was primarily due to a $5.0 million, or 97.1%, increase in service charges on deposit accounts, a $4.6 million, or 152.6%, increase in other income, a $3.9 million, or 873.0%, increase in trust fees, a $2.9 million, or 29.8%, increase in other services charges and fees and $1.3 million, or 49.1%, increase in dividends from FHLB, FRB, FNBB and other which was partially offset by a ~~$1.7~~$3.1 million, or 244.1%, decrease in the fair value adjustment for marketable securities resulting from a $1.8 million loss for the decrease in the fair value of marketable securities, and a $1.1 million, or 100.0%, decrease in gain on sale of SBA loans. Included within other income was $2.4 million in recoveries on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in ~~investment income.~~interest expense was primarily due to a $4.3 million, or 66.8%, increase in interest on deposits and a $649,000, or 13.5%, increase in interest on subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the quarter. The increase in non-interest expense was due to $48.7 million in merger and acquisition expenses, a ~~$1.1~~$23.3 million, or 55.0%, increase in ~~data processing expense, a $1.1~~salaries and employee benefits, an $11.0 million, or 70.7%, increase in other operating expenses, a ~~$1.0~~$5.2 million, or 57.7%, increase in ~~merger~~occupancy and ~~acquisition expense,~~equipment and ~~a $958,000 increase in salaries and employee benefits. The decrease in non-interest income was primarily due to~~ a $4.2 million, ~~decrease in mortgage lending income, which was partially offset by a $1.7 million~~or 71.3%, increase in data processing expense. Included within other ~~income, a $1.4 million increase in fair value adjustment for marketable securities, and a $1.0 million increase in service charges on deposit accounts. The decrease in interest~~operating expense was ~~primarily due to a $7.6~~$2.1 million ~~decrease~~ in ~~interest on deposits and an $318,000 decrease in interest on FHLB borrowed funds.~~TRUPS redemption fees. Income tax expense ~~increased~~decreased by ~~$2.2~~$21.8 million, or 86.9%, during the quarter due to ~~an increase~~a decrease in net income.

These fluctuations are primarily due to the acquisition of Happy during the quarter and the rising rate environment.

Our net interest margin ~~decreased~~increased from ~~3.92%~~3.61% for the three-month period ended ~~September~~June 30, ~~2020~~2021 to ~~3.60%~~3.64% for the three-month period ended ~~September~~June 30, ~~2021.~~2022. The yield on interest earning assets was ~~3.91%~~3.97% and ~~4.47%~~3.94% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, as average interest earning assets increased from ~~$14.98~~$15.89 billion to ~~$16.11~~$22.18 billion.The increase in average earning assets is primarily ~~the result of~~due to a ~~$1.99~~$3.30 billion increase in average loans receivable, a $2.31 billion increase in average investment securities, and $675.6 million increase in average interest-bearing balances due from banks ~~and a $862.1 million increase in average investment securities, partially offset by~~due to the ~~$1.71 billion decrease in average loans receivable.~~acquisition of Happy during the quarter. Average PPP loan balances were $371.5 million for the three months ended September 30, 2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees, we recognized total interest income of $10.2 million on PPP loans for the three months ended September 30, 2021.~~The PPP loans were accretive to the net interest margin by 17 basis points for the three months ended September 30, 2021.~~This was primarily due to approximately $232.4 million of the Company’s PPP loans being forgiven during the third quarter of 2021 which included the acceleration of $8.2 million in deferred fees for the loans that were forgiven. As of September 30, 2021, the Company had $9.0 million in remaining unamortized PPP fees. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market. As a result, we had an increase of $1.99 billion in average interest-bearing cash balances for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This excess liquidity was dilutive to the net interest margin by 49 basis points. For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, we recognized ~~$4.9~~$5.2 million and ~~$7.0~~$5.8 million, respectively, in total net accretion for acquired loans and deposits.The reduction in accretion was dilutive to the net interest margin by 5one basis ~~points.~~point. We recognized ~~$3.5~~$1.4 million in event interest income for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~no event income~~$942,000 for the three months ended ~~September~~June 30, ~~2020.~~2021. This increased the net interest margin by 8one basis ~~points.~~point.

Our efficiency ratio was ~~42.26%~~66.31% for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~39.56%~~41.09% for the same period in ~~2020.~~2021. For the ~~third~~second quarter of ~~2021,~~2022, our efficiency ratio, as adjusted (non-GAAP), was ~~42.29%~~46.02%, compared to ~~40.08%~~42.07% reported for the ~~third~~second quarter of ~~2020.~~2021. (See Table 23 for the non-GAAP tabular reconciliation).

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Our annualized return on average assets was ~~1.68%~~0.26% for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~1.66%~~1.81% for the same period in ~~2020.~~2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.57% for the three months ended June 30, 2022, compared to 1.75% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was ~~10.97%~~1.78% and 11.92% for ~~both~~ the three months ended ~~September~~June 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.83% for the three months ended June 30, 2022 and ~~2020.~~

11.54% for the same period in 2021. (See Table 21 for the non-GAAP tabular reconciliation).

Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~

2021

Our net income ~~increased $113.0~~decreased $89.8 million, or ~~85.2%~~52.6%, to ~~$245.7~~$80.9 million for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2021,~~2022, from ~~$132.7~~$170.7 million for the same period in ~~2020.~~2021. On a diluted earnings per share basis, our earnings were ~~$1.49~~$0.44 per share for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2021 and $0.80~~2022 compared to $1.03 per share for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020.During~~2021. As a result of the ~~nine-month period ended September 30, 2021, the Company~~acquisition of Happy, which we completed on April 1, 2022, we incurred $49.6 million in merger expenses and recorded a ~~$4.8 million negative provision for unfunded commitments compared to a $112.3~~$45.2 million provision for credit losses ~~and a $17.0~~on acquired loans for the CECL "double count," an $11.4 million provision for credit losses on acquired unfunded commitments, a $2.0 million provision for ~~a total~~ credit ~~loss expense~~losses on acquired held-to-maturity investment securities. The summation of ~~$129.3~~these items reduced earnings by $108.2 million and earnings per share by $0.44per share for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020.~~2022. The ~~$4.8 million negative provision for~~markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the ~~nine-month period ended September 30, 2021 was due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to~~potential impacts of international unrest. However, excluding the ~~borrower’s current cash flow position. The $129.3 million~~impact of ~~total credit loss expense for the nine-month period ended September 30, 2020 was primarily due to the COVID-19 pandemic, with $9.3 million for~~ the acquisition of ~~LH-Finance on February 29, 2020. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since~~Happy, the ~~fourth quarter of 2020. The~~ Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of ~~September~~June 30, ~~2021.The~~2022. In addition, excluding the impact of the acquisition of Happy, the Company ~~also~~determined no additional provision for unfunded commitments was necessary as of June 30, 2022. During the six months ended June 30, 2022, the Company recorded a ~~$7.1 million~~$324,000 adjustment for the increase in fair ~~market~~ value of marketable securities, ~~$12.5~~$1.4 million of special dividend ~~income~~ from ~~our~~ equity investments, ~~$5.1~~$2.1 million in TRUPS redemption fees and a $5.6 million recovery on historic ~~losses from loans charged-off prior to acquisition, $1.0~~losses.

Total interest income increased by $44.8 million, ~~of merger and acquisition~~or 14.1%. This was more than offset by a $1.1 million, or 1.5%, decrease in non-interest income, a $4.2 million, or 15.2%, increase in interest expense and a ~~$219,000 gain on investment securities.~~

~~Total interest expense decreased by $35.6~~$96.5 million, or ~~47.0%, and non-interest income increased by $27.7 million, or 35.6%. This was partially offset by a $36.2 million, or 7.1%, decrease in total interest income and an $8.3 million, or 3.9%~~66.2%, increase in non-interest expense. The increase in interest income was due to an $18.6 million, or 6.4%, increase in loan interest income, a $19.0 million, or 81.3%, increase in investment income and a $7.1 million, or 637.5%, increase in interest income on deposits at other banks. The decrease in non-interest income was primarily due to a $6.7 million, or 95.4%, decrease in income for the fair value adjustment for marketable securities resulting from a $324,000 increase in the fair value of marketable securities for the six months ended June 30, 2022 compared to a $7.0 million increase for the six months ended June 30, 2021, a $6.6 million, or 58.7%, decrease in dividends from FHLB, FRB, FNBB and other, a $4.5 million, or 31.0%, decrease in mortgage lending income, which was partially offset by a $6.1 million, or 60.3%, increase in service charges on deposit accounts, a $4.6 million, or 41.3%, increase in other income, a $3.9 million, or 406.6%, increase in trust fees and a $3.0 million, or 17.4%, increase in other service charges and fees. Included within other income was $5.6 million recovery on historic losses, and included within dividends from FHLB, FRB, FNBB and other was $1.4 million in special dividends. The increase in interest expense was primarily due to a ~~$32.7~~$2.7 million, ~~decrease~~or 28.5%, increase in interest on ~~deposits~~ subordinated debentures as a result of the acquisition of $140.0 million of subordinated debt and $23.2 million in trust preferred securities from Happy during the second quarter,and a ~~$1.9~~$1.5 million, ~~decrease~~or 10.5%, increase in interest on FHLB borrowed funds. The increase in non-interest income was primarily due to a $13.3 million increase in the fair value adjustment on marketable securities, a $5.6 million increase in other income, a $3.1 million increase in other service charges and fees, a $2.4 million increase in dividends from FHLB, FRB, FNBB & other, a $1.3 million increase in mortgage lending income, and a $1.2 million increase in gain on sale of SBA loans. The decrease in interest income was due to a $36.7 million decrease in loan interest income.deposits. The increase in non-interest expense was due to $49.6 million in merger and acquisition expenses, a ~~$6.1~~$24.8 million, or 29.4%, increase in salaries and employee benefits, ~~and~~an $11.6 million, or 37.1%, increase in other operating expenses, a ~~$3.9~~$5.4 million, or 45.7%, increase in data processing expense and ~~was partially offset by~~ a ~~$1.0~~$5.1 million, ~~decrease~~or 28.0% increase in occupancy and ~~equipment and a $933,000 decrease in~~equipment. Included within other operating ~~expenses.~~expense was $2.1 million in TRUPS redemption fees. Income tax expense ~~increased~~decreased by ~~$39.8~~$30.6 million, or 56.8%, during the quarter due to ~~an increase~~a decrease in net income. These fluctuations are primarily due to the acquisition of Happy during the second quarter of 2022 and the rising rate environment.

Our net interest margin decreased from ~~4.08%~~3.81% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020~~2021 to ~~3.74%~~3.46% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2021.~~2022. The yield on interest earning assets was ~~4.08%~~3.79% and ~~4.79%~~4.17% for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, as average interest earning assets increased from ~~$14.36~~$15.51 billion to ~~$15.71~~$19.49 billion.The increase in average earning assets is primarily the result of a ~~$1.70~~$1.59 billion increase in average investment securities, a $1.28 billion increase in average interest-bearing balances due from banks and a ~~$637.1 million~~$1.12 billion increase ~~in average investment securities, partially offset by the $987.3 million decrease~~ in average loans receivable. ~~Average PPP loan balances were $525.9 million for~~For the ~~nine~~six months ended ~~September~~June 30, ~~2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees,~~2022 and 2021, we recognized ~~total interest income of $29.8 million on PPP loans for the nine months ended September 30, 2021.The PPP loans were accretive to the net interest margin by 13 basis points for the nine months ended September 30, 2021.~~This was primarily due to approximately $781.4 million of the Company’s PPP loans being forgiven during the first nine months of 2021 which included the acceleration of $19.9 million in deferred fees for the loans that were forgiven. As of September 30, 2021, the Company had $9.0 million in remaining unamortized PPP fees. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market. As a result, we had an increase of $1.70 billion in average interest-bearing cash balances for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This excess liquidity was dilutive to the net interest margin by 45 basis points. For the nine months ended September 30, 2021 and 2020, we~~recognized $16.2~~$8.3 million and ~~$21.6~~$11.3 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 53 basis points. ~~We recognized $5.5~~The Company experienced an $18.8 million reduction in ~~event~~ interest income from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the ~~nine months ended September 30, 2021 compared~~loans that were forgiven. This was dilutive to ~~$2.1 million in event income for the three months ended September 30, 2020. This increased~~ the net interest margin by 3approximately 9 basis points.

Our efficiency ratio was ~~39.86%~~58.26% for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2021,~~2022, compared to ~~40.40%~~38.72% for the same period in ~~2020.~~2021. For the ~~nine~~first six months ~~ended September 30, 2021,~~of 2022, our efficiency ratio, as adjusted (non-GAAP), was ~~41.67%~~46.53%, compared to ~~40.25%~~41.36% reported for the ~~nine~~first six months ~~ended September 30, 2020.~~of 2021. (See Table 23 for the non-GAAP tabular reconciliation).

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Our annualized return on average assets was ~~1.90%~~0.75% for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2021,~~2022, compared to ~~1.11%~~2.01% for the same period in ~~2020.~~2021. Our annualized return on average assets, as adjusted (non-GAAP), was 1.48% for the six months ended June 30, 2022, compared to 1.81% for the same period in 2021. (See Table 20 for the non-GAAP tabular reconciliation). Our annualized return on average common equity was ~~12.32%~~5.14% and 13.02% for the ~~nine~~six-month period ended June 30, 2022, and 2021, respectively. Our annualized return on average common equity, as adjusted (non-GAAP), was 10.08% for the six months ended ~~September~~June 30, ~~2021, compared to 7.13%~~2022 and 11.74% for the same period in ~~2020.~~

2021. (See Table 21 for the non-GAAP tabular reconciliation).

Financial Condition as of and for the Period Ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~

2021

Our total assets as of ~~September~~June 30, ~~2021~~2022 increased ~~$1.37~~$6.20 billion to ~~$17.77~~$24.25 billion from the ~~$16.40~~$18.05 billion reported as of December 31, ~~2020.~~2021. The increase in total assets is primarily due to the acquisition of $6.68 billion in total assets, net of purchase accounting adjustments, from Happy during the second quarter of 2022. Cash and cash equivalents ~~increased $2.02 billion, or 159.6%,~~decreased $833.9 million, for the ~~nine~~six months ended ~~September~~June 30, 2022. Our loan portfolio balance increased to $13.92 billion as of June 30, 2022 from $9.84 billion at December 31, 2021. The increase in ~~cash and cash equivalents is~~loans was primarily due to ~~loan paydowns~~the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as ~~the significant amount of excess liquidity~~$192.9 million in ~~the market as a continued result of the COVID-19 pandemic and the accompanying governmental response.Our~~organic loan ~~portfolio balance decreased~~growth. Total deposits increased $5.32 billion to ~~$9.90~~$19.58 billion as of ~~September~~June 30, ~~2021~~2022 from ~~$11.22 billion at December 31, 2020 due to organic loan decline~~of $885.9 million and $781.4 million of the Company’s PPP loans being forgiven during the first nine months of 2021, which was partially offset by $347.7 million in new PPP loan originations during 2021. Total deposits increased $1.28 billion to $14.00 billion as of September 30, 2021 from $12.73$14.26 billion as of December 31, ~~2020, which~~2021. The increase in deposits was primarily due to ~~customers holding higher deposit balances~~the acquisition of $5.86 billion in ~~response to~~deposits, net of purchase accounting adjustments, from Happy in the ~~COVID-19 pandemic as well as the accompanying governmental response to the pandemic.~~second quarter of 2022. Stockholders’ equity increased ~~$130.3~~$732.8 million to ~~$2.74~~$3.50 billion as of ~~September~~June 30, ~~2021,~~2022, compared to ~~$2.61~~$2.77 billion as of December 31, ~~2020.~~2021. The ~~$130.3~~$732.8 million increase in stockholders’ equity is primarily associated with the ~~$245.7~~$961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $80.9 million in net income for the ~~nine~~six months ended ~~September~~June 30, ~~2021,whichwas~~2022, partially offset by the ~~$18.1~~$226.4 million in other comprehensive loss, ~~for~~ the ~~nine months ended September 30, 2021, $69.2~~$61.0 million of shareholder dividends paid and stock repurchases of ~~$37.0~~$26.6 million in ~~2021.~~

2022.

Our non-performing loans were ~~$50.9~~$60.6 million, or 0.44% of total loans as of June 30, 2022, compared to $50.2 million, or 0.51% of total loans as of ~~September 30, 2021, compared to $74.1 million, or 0.66% of total loans as of~~ December 31, ~~2020.~~2021. The allowance for credit losses as a percentage of non-performing loans increased to ~~468.77%~~485.57% as of ~~September~~June 30, ~~2021,~~2022, from ~~331.10%~~471.61% as of December 31, ~~2020.~~2021. Non-performing loans from our Arkansas franchise were ~~$15.5~~$15.0 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$24.1~~$13.9 million as of December 31, ~~2020.~~2021. Non-performing loans from our Florida franchise were ~~$25.2~~$33.3 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$43.1~~$26.8 million as of December 31, ~~2020.~~2021. Non-performing loans from our Texas franchise were $5.5 million at June 30, 2022 compared to zero as of December 31, 2021. Non-performing loans from our Alabama franchise were ~~$523,000~~$813,000 at ~~September~~June 30, ~~2021~~2022 compared to ~~$530,000~~$470,000 as of December 31, ~~2020.~~2021. Non-performing loans from our ~~SPF~~Shore Premier Finance ("SPF") franchise were ~~$1.9~~$1.3 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$3.6~~$1.5 million as of December 31, ~~2020.~~2021. Non-performing loans from our Centennial Commercial Finance Group (“CFG”) franchise were ~~$7.8~~$4.7 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$2.8~~$7.5 million as of December 31, ~~2020.~~

2021.

As of ~~September~~June 30, ~~2021,~~2022, our non-performing assets ~~decreased~~increased to ~~$52.1~~$61.1 million, or ~~0.29%~~0.25% of total assets, from ~~$78.6~~$51.8 million, or ~~0.48%~~0.29% of total assets, as of December 31, ~~2020.~~2021. Non-performing assets from our Arkansas franchise were ~~$16.1~~$15.0 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$25.6~~$14.4 million as of December 31, ~~2020.~~2021. Non-performing assets from our Florida franchise were ~~$25.8~~$33.6 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$46.0~~$27.9 million as of December 31, ~~2020.~~2021.Non-performing assets from our Texas franchise were $5.7 million at June 30, 2022 compared to zero as of December 31, 2021. Non-performing assets from our Alabama franchise were ~~$523,000~~$813,000 at ~~September~~June 30, ~~2021~~2022 compared to ~~$564,000~~$470,000 as of December 31, ~~2020.~~2021. Non-performing assets from our SPF franchise were ~~$1.9~~$1.3 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$3.6~~$1.5 million as of December 31, ~~2020.~~2021. Non-performing assets from our CFG franchise were ~~$7.8~~$4.7 million at ~~September~~June 30, ~~2021~~2022 compared to ~~$2.8~~$7.5 million as of December 31, ~~2020.~~2021.

The ~~$7.8~~$4.7 million balance of non-accrual loans for our Centennial CFG market consists of ~~two loans~~one loan that ~~are~~is assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The decision to place ~~these loans~~this loan on non-accrual status was made by the Federal Reserve and not the Company. The ~~loans~~loan that ~~make~~makes up the total balance ~~are~~is still current on both principal and interest. However, all interest payments are currently being applied to the principal balance. Because the Federal Reserve required us to place ~~these loans~~this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

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Critical Accounting Policies

and Estimates

Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.

We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including revenue recognition and the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.

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

•

Other service charges and fees – These represent credit card interchange fees and Centennial CFG loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. Interchange fees were $4.2 million, $12.2 million, $3.8 million and $11.0 million for the three and nine months ended September 30, 2021 and 2020, respectively. Centennial CFG loan fees were $1.8 million, $7.1 million, $2.7 million and $5.6 million for the three and nine months ended September 30, 2021 and 2020, respectively.

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

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC ~~310-30. In 2019,~~Topic 310. Interchange fees were $6.5 million, $10.5 million, $4.3 million and $8.1 million for the ~~Company reevaluated its~~three and six months ended June 30, 2022 and 2021, respectively. Centennial CFG loan ~~pools of purchased loans with deteriorated credit quality. These loans pools related specifically to acquired loans from~~fees were $3.3 million, $5.1 million, $3.3 million and $5.3 million and for the ~~Heritage, Liberty, Landmark, Bay Cities, Bank of Commerce, Premier Bank, Stonegate~~three and Shore Premier Finance acquisitions. At acquisition, a portion of these loans were recorded as purchased credit impaired loans on a pool by pool basis. Through the reevaluation of these loan pools, management determined that estimated losses for purchase credit impaired loans should be processed against the credit mark of the applicable pools. The remaining non-accretable mark was then moved to accretable mark to be recognized over the remaining weighted average life of the loan pools. The projected losses for these loans were less than the total credit mark. As such, the remaining $107.6 million of loans in these pools along with the $29.3 million in accretable yield was deemed to be immaterialsix months ended June 30, 2022 and was reclassified out of the purchased credit impaired loans category. As of December 31, 2020, the Company no longer held any purchased loans with deteriorated credit quality. Therefore, the Company did not have any PCI loans upon adoption on of ASC 326 as of January 1, 2020.

2021, respectively.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As of December 31, 2019, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined than an allowance for credit losses on available-for-sale securities was not deemed material. However, the Company evaluated the investment portfolio during the first quarter of 2020 and determined that an $842,000 provision for credit losses was necessary. No additional provision was deemed necessary during the remaining quarters of 2020 or the first three quarters of 2021. See ~~Note 3 “Investment Securities” in the Condensed Notes to Consolidated Financial Statements for further discussion.~~

Investments – Available-for-sale. Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments("CECL"). The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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Investments – Held-to-Maturity. Securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. 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.

Loans Receivable and Allowance for Credit Losses. ~~Except~~Loans receivable that management has the intent and ability to hold for ~~loans acquired during our acquisitions, substantially all of our loans receivable~~the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, ~~as it is management’s intent to hold them for the foreseeable future~~deferred fees or ~~until maturity or payoff, except for mortgage loans held for sale.~~costs on originated loans. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding. Loan origination fees and direct origination costs are capitalized and recognized as adjustments to yield on the related loans.

The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

The allowance for credit losses is measured based on call report segment as these types of ~~loan~~loans exhibit similar risk characteristics. The identified loan segments are as follows:

•

~~1-4 family construction~~

•

~~All other~~•1-4 family construction

•All other construction•

~~1-4 family revolving home equity lines of credit (“HELOC”) & junior liens~~

•

~~1-4 family senior~~•1-4 family revolving home equity lines of credit (“HELOC”) & junior liens

•1-4 family senior liens•

~~Multifamily~~

•Multifamily•

~~Owner occupied commercial real estate~~

•

~~Non-owner~~•Owner occupied commercial real estate

•Non-owner occupied commercial real estate•

~~Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other~~

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other•

~~Consumer auto~~

•Consumer auto•

~~Other consumer~~

•Other consumer•

~~Other consumer - SPF~~

•Other consumer - SPF

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

For loans that are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation if a specific reserve is not recorded.

•

~~Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.~~

•Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.•

~~The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.~~

•The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Loans considered impaired, according to ASC 326, are loans for which, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The aggregate amount of impairment of loans is utilized in evaluating the adequacy of the allowance for credit losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for credit losses when in the process of collection, it appears likely that such losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion the collection of interest is doubtful or generally when loans are 90 days or more past due. When accrual of interest 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.

Acquisition Accounting and Acquired Loans. We account for our acquisitions under FASB 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. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. All purchased loans are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

~~The Company has purchased~~Purchased loans ~~some of which~~that have experienced more than insignificant credit deterioration since ~~origination. Purchase~~origination are purchase credit deteriorated (“PCD”) ~~loans are recorded at the amount paid.~~loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a ~~noncredit~~non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit ~~loss.~~

losses.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Foreclosed Assets Held for Sale. Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.

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Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.

Income Taxes. We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.

Stock Compensation. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.

Acquisitions

Acquisition of ~~LH-Finance~~

Marine Portfolio

On February ~~29, 2020,~~4, 2022, the Company completed the ~~acquisition~~purchase of ~~LH-Finance,~~ the performing marine ~~lending division~~loan portfolio of ~~People’s United~~Utah-based LendingClub Bank ~~N.A. The Company paid a purchase price~~(“LendingClub”). Under the terms of approximately $421.2 million in cash. LH-Finance provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, LH-Finance provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels.

~~Including~~ the purchase ~~accounting adjustments, as of~~agreement with LendingClub, the ~~acquisition date, LH-Finance had~~Company acquired yacht loans totaling approximately ~~$409.1 million in total assets, including $407.4 million in total loans, which resulted in goodwill of $14.6 million being recorded.~~

~~The acquired~~$242.2 million. This portfolio of loans is ~~now~~ housed ~~in our SPF division. The SPF~~within the Company's Shore Premier Finance division, which is responsible for servicing the acquired loan portfolio and originating new loan production.

Acquisition of Happy Bancshares, Inc.

On April 1, 2022, the Company completed the acquisition of Happy Bancshares, Inc. (“Happy”), and merged Happy State Bank into Centennial Bank. The Company issued approximately 42.4 million shares of its common stock valued at approximately $958.8 million as of April 1, 2022. In ~~connection with this~~addition, the holders of certain Happy stock-based awards received approximately $3.7 million in cash in cancellation of such awards, for a total transaction value of approximately $962.5 million.

Including the effects of the known purchase accounting adjustments, as of the acquisition ~~we opened a loan production office~~date, Happy had approximately $6.68 billion in ~~Baltimore, Maryland.~~

~~See~~total assets, $3.65 billion in loans and $5.86 billion in customer deposits. Happy formerly operated its banking business from 62 locations in Texas.

For further discussion of the acquisition, see Note 2 ~~“Business Combinations” in~~"Business Combinations" to the Condensed Notes to Consolidated Financial ~~Statements for additional information regarding the acquisition of LH-Finance.~~

~~Future Acquisition of Happy Bancshares, Inc.~~

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

Under the terms of the Agreement, as amended, the Company will issue approximately 42.3 million shares of its common stock to the shareholders of Happy upon the completion of the Merger, for a purchase price of approximately $1.02 billion, valued based on the volume-weighted average closing price per share of the Company’s common stock as reported on the Nasdaq Global Select Market (“Nasdaq”) for the 20 consecutive trading day period ending on November 1, 2021. No cash consideration will be paid in connection with the Merger, except that holders of outstanding shares of Happy common stock at the time of the Merger will receive cash payments in lieu of any fractional shares of Company common stock to which they are otherwise entitled in connection with the Merger. In addition, the Company expects to pay an aggregate of up to approximately $11.0 million in cash in cancellation of certain stock appreciation rights issued by Happy that remain outstanding at the time of the Merger.

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

As of September 30, 2021, Happy had approximately $6.44 billion in total assets, $3.55 billion in loans and $5.47 billion in customer deposits. Happy is conducting banking business from 63 locations across the Texas Panhandle, South Plains, Austin, Central Texas and the Dallas/Fort Worth Metroplex.

Statements.

We will continue evaluating all types of potential bank acquisitions, which may include FDIC-assisted acquisitions as opportunities arise, to determine what is in the best interest of our Company. Our goal in making these decisions is to maximize the return to our investors.

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Branches

As opportunities arise, we will continue to open new (commonly referred to as de novo) branches in our current markets and in other attractive market areas.

As of ~~September~~June 30, ~~2021,~~2022, we had ~~160~~222 branch locations. There were 76 branches in Arkansas, 78 branches in Florida, 62 branches in Texas, five branches in Alabama and one branch in New York City.

Results of Operations

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~

2021

losses.

Net Interest Income

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 affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, 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 (25.1475% for 2022 and 25.74% for 2021).

Table of ~~25.74% .~~

Contents

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. ~~The~~In 2020, the Federal ~~reserve~~Reserve lowered the target rate ~~two times~~to 0.00% to 0.25%. This remained in ~~2020. First,~~effect throughout all of 2021. On March 16, 2022, the target rate was ~~lowered~~increased to ~~1.00%~~0.25% to ~~1.25% on March 3, 2020; second,~~0.50%. On May 4, 2022, the target rate was ~~lowered~~increased to ~~0.00%~~0.75% to ~~0.25% on March~~1.00%. On June 15, ~~2020. The~~2022, the target rate ~~remains at 0.00%~~was increased to ~~0.25% as of September 30, 2021.~~

1.50% to 1.75%. Presently, the Federal Reserve has indicated they are anticipating multiple rate increases for 2022.

Our net interest margin ~~decreased~~increased from ~~3.92%~~3.61% for the three-month period ended ~~September~~June 30, ~~2020~~2021 to ~~3.60%~~3.64% for the three-month period ended ~~September~~June 30, ~~2021.~~2022. The yield on interest earning assets was ~~3.91%~~3.97% and ~~4.47%~~3.94% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, as average interest earning assets increased from ~~$14.98~~$15.89 billion to ~~$16.11~~$22.18 billion.The increase in average earning assets is primarily ~~the result of~~due to a ~~$1.99~~$3.30 billion increase in average loans receivable, a $2.31 billion increase in average investment securities, and $675.6 million increase in average interest-bearing balances due from banks ~~and a $862.1 million increase in average investment securities, partially offset by the $1.71 billion decrease in average loans receivable.~~Average PPP loan balances were $371.5 million for the three months ended September 30, 2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees, we recognized total interest income of $10.2 million on PPP loans for the three months ended September 30, 2021.~~The PPP loans were accretive~~due to the ~~net interest margin by 17 basis points for the three months ended September 30, 2021.This was primarily due to approximately $232.4 million~~acquisition of ~~the Company’s PPP loans being forgiven~~Happy during the third quarter of 2021 which included the acceleration of $8.2 million in deferred fees for the loans that were forgiven. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market. As a result, we had an increase of $1.99 billion in average interest-bearing cash balances for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This excess liquidity was dilutive to the net interest margin by 49 basis points. quarter.For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, we recognized ~~$4.9~~$5.2 million and ~~$7.0 million, respectively, in total net accretion for acquired loans and deposits.~~The reduction in accretion was dilutive to the net interest margin by 5 basis points. We recognized $3.5 million in event interest income for the three months ended September 30, 2021 compared to no event income for the three months ended September 30, 2020. This increased the net interest margin by 8 basis points.

Our net interest margin decreased from 4.08% for the nine-month period ended September 30, 2020 to 3.74% for the nine-month period ended September 30, 2021. The yield on interest earning assets was 4.08% and 4.79% for the nine months ended September 30, 2021 and 2020, respectively, as average interest earning assets increased from $14.36 billion to $15.71 billion.The increase in average earning assets is primarily the result of a $1.70 billion increase in average interest-bearing balances due from banks and a $637.1 million increase in average investment securities, partially offset by the $987.3 million decrease in average loans receivable. Average PPP loan balances were $525.9 million for the nine months ended September 30, 2021. These loans bear interest at 1.00% plus the accretion of the deferred origination fee. Including deferred fees, we recognized total interest income of $29.8 million on PPP loans for the nine months ended September 30, 2021.~~The PPP loans were accretive to the net interest margin by 13 basis points for the nine months ended September 30, 2021.~~This was primarily due to approximately $781.4 million of the Company’s PPP loans being forgiven during the first nine months of 2021 which included the acceleration of $19.9 million in deferred fees for the loans that were forgiven. The COVID-19 pandemic and the resulting governmental response have created a significant amount of excess liquidity in the market. As a result, we had an increase of $1.70 billion in average interest-bearing cash balances for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This excess liquidity was dilutive to the net interest margin by 45 basis points. For the nine months ended September 30, 2021 and 2020, we~~recognized $16.2 million and $21.6~~$5.8 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by 5one basis ~~points.~~point. We recognized ~~$5.5~~$1.4 million in event interest income for the ~~nine~~three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$2.1 million in event income~~$942,000 for the three months ended ~~September~~June 30, ~~2020.~~2021. This increased the net interest margin by 3one basis ~~points.~~point.

~~Net~~

Our net interest ~~income on a fully taxable equivalent basis~~margin decreased ~~$1.4 million, or 0.9%, to $146.4 million~~from 3.81% for the ~~three-month~~six-month period ended ~~September~~June 30, 2021 ~~from $147.7 million~~to 3.46% for the ~~same~~six-month period ~~in 2020.This decrease in net~~ended June 30, 2022. The yield on interest ~~income~~earning assets was 3.79% and 4.17% for the ~~three-month~~six-month period ended ~~September~~June 30, 2022 and 2021, ~~was the result of a $9.4 million decrease~~respectively, as average interest earning assets increased from $15.51 billion to $19.49 billion. The increase in ~~interest income, which was partially offset by an $8.0 million decrease in interest expense, on a fully taxable equivalent basis.The $9.4 million decrease in interest income was~~average earning assets is primarily the result of a ~~$23.8 million decrease in loan interest income due to a reduction~~$1.59 billion increase in average ~~loan balances of $1.71~~investment securities, a $1.28 billion ~~which was partially offset by an $11.5 million~~ increase in loan interest income due to higher yields for a net decrease in interest income of $12.2 million. This reduction in income was partially offset by an increase in income on investment securities of $2.0 million and a $865,000 increase in income onaverage interest-bearing balances due from ~~banks. Overall,~~banks and a $1.12 billion increase in average loans receivable. For the ~~change~~six months ended June 30, 2022 and 2021, we recognized $8.3 million and $11.3 million, respectively, in ~~composition of earning assets reduced~~total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest ~~income~~margin by ~~$18.9~~3 basis points. The Company experienced an $18.8 million ~~while the change in asset yield (primarily from loan interest income) increase interest income by $9.5 million. The decrease~~reduction in interest income ~~also reflected a $2.1 million decrease in loan accretion income. The $8.0 million decrease in interest expense~~from PPP loans due to the forgiveness of the PPP loans and the acceleration of the deferred fees for the ~~three-month period ended September 30, 2021 is primarily~~loans that were forgiven. This was dilutive to the ~~result of interest-bearing liabilities repricing in a decreasing~~net interest ~~rate environment, which lowered interest expense~~margin by $6.4 million, as well as a $1.7 million decrease in interest expense resulting from a change in the composition of average interest bearing liabilities. The decrease in interest expense was primarily driven by a $7.6 million decrease in interest expense on deposits and an $318,000 decrease in interest expense on FHLB borrowed funds.

approximately 9 basis points.

Net interest income on a fully taxable equivalent basis increased ~~$527,000,~~$58.2 million, or ~~0.1%~~40.7%, to ~~$439.3~~$201.2 million for the ~~nine-month~~three-month period ended ~~September~~June 30, ~~2021,~~2022, from ~~$438.8~~$143.0 million for the same period in ~~2020.~~2021. This increase in net interest income for the ~~nine-month~~three-month period ended ~~September~~June 30, ~~2021~~2022 was the result of a ~~$35.6~~$63.2 million ~~decrease~~increase in interest ~~expense, which was~~income, partially offset by ~~a $35.1~~an $5.0 million ~~decrease~~increase in interest ~~income,~~expense, on a fully taxable equivalent basis. The ~~$35.1~~$63.2 million ~~decrease~~increase in interest income was primarily the result of the higher ~~levels~~level of ~~earning assets at lower yields. Although our~~average interest earning assets due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher yield on earning assets resulted in an increase in interest income of approximately $6.9 million, and the increase in earning assets resulted in an increase in interest income of approximately $56.3 million. The $5.0 million increase in interest expense is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 and the increasing interest rate environment. The higher yield on interest bearing liabilities resulted in an increase in interest expense of approximately $548,000 and the increase in interest bearing liabilities resulted in an increase in interest expense of approximately $4.5 million.

Net interest income on a fully taxable equivalent basis increased ~~our~~$41.2 million, or 14.1%, to $334.1 million for the six-month period ended June 30, 2022, from $292.9 million for the same period in 2021.This increase in net interest income for the six-month period ended June 30, 2022 was the result of a $45.4 million increase in interest income, partially offset by a $4.2 million increase in interest expense, on a fully taxable equivalent basis. The $45.4 million increase in interest income was primarily the result of the higher level of average ~~loan balances decreased~~interest earning assets due to the acquisition of Happy during the second quarter of 2022 partially offset by ~~$987.3 million while average interest-bearing balances due from banks increased by $1.70 billion.~~lower earning asset yields. The lower yield on earning assets resulted in a decrease in interest income of approximately ~~$8.9 million,~~$844,000, and the ~~change~~increase in ~~composition of~~ earning assets ~~at lower yields~~ resulted in ~~a decrease~~an increase in interest income of approximately ~~$26.2~~$46.2 million. The ~~lower yield was primarily driven by the decrease in income on loans of $36.9~~$4.2 million ~~which was partially offset by an~~ increase in income on investment securities of $1.1 million and a $655,000 increase in income on interest-bearing balances due from banks. The decrease in interest income also reflected a $5.5 million decrease in loan accretion income. The $35.6 million decrease in interest expense ~~for the nine-month period ended September 30, 2021~~ is primarily the result of the higher level of average interest bearing liabilities due to the acquisition of Happy during the second quarter of 2022 partially offset by lower interest rates paid on interest-bearing liabilities. The lower yield on interest bearing liabilities ~~repricing~~resulted in ~~a decreasing interest rate environment, which lowered interest expense by $30.1 million, as well as a $5.5 million~~an decrease in interest expense ~~resulting from a change~~of approximately $2.8 million and the increase in ~~the composition of average~~ interest bearing ~~liabilities. The decrease~~liabilities resulted in an increase in interest expense ~~was primarily driven by a $32.7 million decrease in interest expense on deposits and an $1.9 million decrease in interest expense on FHLB borrowed funds.~~

of approximately $7.0 million.

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Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, as well as changes in fully taxable equivalent net interest margin for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020.~~

2021.

Table 2: Analysis of Net Interest Income


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020				2022			2021			2022			2021
	(Dollars in thousands)													(Dollars in thousands)
Interest income	$	157,060		$	166,633		$	474,192		$	510,406		Interest income	$	217,013		$	154,481		$	361,916		$	317,132
Fully taxable equivalent adjustment		1,748			1,576			5,343			4,237		Fully taxable equivalent adjustment	2,471			1,774			4,209			3,595
Interest income – fully taxable equivalent		158,808			168,209			479,535			514,643		Interest income – fully taxable equivalent	219,484			156,255			366,125			320,727
Interest expense		12,449			20,495			40,241			75,876		Interest expense	18,255			13,229			32,010			27,792
Net interest income – fully taxable equivalent	$	146,359		$	147,714			439,294			438,767		Net interest income – fully taxable equivalent	$	201,229		$	143,026		$	334,115		$	292,935
Yield on earning assets – fully taxable equivalent		3.91	%		4.47	%		4.08	%		4.79	%	Yield on earning assets – fully taxable equivalent	3.97		%	3.94		%	3.79		%	4.17		%
Cost of interest-bearing liabilities		0.46			0.76			0.50			0.97		Cost of interest-bearing liabilities	0.49			0.49			0.49			0.53
Net interest spread – fully taxable equivalent		3.45			3.71			3.58			3.82		Net interest spread – fully taxable equivalent	3.48			3.45			3.30			3.64
Net interest margin – fully taxable equivalent		3.60			3.92			3.74			4.08		Net interest margin – fully taxable equivalent	3.64			3.61			3.46			3.81

Table 3: Changes in Fully Taxable Equivalent Net Interest Margin

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021 vs. 2020

2021 vs. 2020

(In thousands)

Increase (decrease) in interest income due to change
   in earning assets

$
(18,909
)

$
(26,219
)
Increase (decrease) in interest income due to change
   in earning asset yields

9,508

(8,889
)
(Increase) decrease in interest expense due to change in
   interest-bearing liabilities

1,666

5,522

(Increase) decrease in interest expense due to change in
   interest rates paid on interest-bearing liabilities

6,380

30,113

Increase (decrease) in net interest income

$
(1,355
)

$
527


	Three Months Ended June 30,		Six Months Ended June 30,
	2022 vs. 2021		2022 vs. 2021
	(In thousands)
Increase in interest income due to change in earning assets	$	56,278	$	46,242
Increase (decrease) increase in interest income due to change in earning asset yields	6,951		(844)
Increase in interest expense due to change in interest-bearing liabilities	(4,478)		(7,014)
(Increase) decrease in interest expense due to change in interest rates paid on interest-bearing liabilities	(548)		2,796
Increase (decrease) increase in net interest income	$	58,203	$	41,180

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Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. 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. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Table 4: Average Balance Sheets and Net Interest Income Analysis


	Three Months Ended September 30,															Three Months Ended June 30,
	2021							2020								2022						2021
	Average Balance		Income / Expense		Yield / Rate			Average Balance		Income / Expense		Yield / Rate				Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate
	(Dollars in thousands)															(Dollars in thousands)
ASSETS															ASSETS
Earnings assets															Earnings assets
Interest-bearing balances due from banks	$	2,914,785	$	1,117		0.15	%	$	926,754	$	252		0.11	%	Interest-bearing balances due from banks	$	3,252,674	$	6,565	0.81	%	$	2,577,101	$	707	0.11	%
Federal funds sold		82		—		0.00			124		—		0.00		Federal funds sold	1,857		3		0.65		51		—		—
Investment securities – taxable		2,289,680		8,495		1.47			1,618,058		7,227		1.78		Investment securities – taxable	3,817,209		20,941		2.20		1,909,485		7,185		1.51
Investment securities – non-taxable		862,586		6,416		2.95			672,067		5,731		3.39		Investment securities – non-taxable	1,270,602		10,055		3.17		864,416		6,494		3.01
Loans receivable		10,043,393		142,780		5.64			11,758,143		154,999		5.24		Loans receivable	13,838,687		181,920		5.27		10,541,466		141,869		5.40
Total interest-earning assets		16,110,526		158,808		3.91	%		14,975,146		168,209		4.47	%	Total interest-earning assets	22,181,029		219,484		3.97	%	15,892,519		156,255		3.94	%
Non-earning assets		1,584,700							1,619,349						Non-earning assets	2,607,336						1,598,840
Total assets	$	17,695,226						$	16,594,495						Total assets	$	24,788,365					$	17,491,359
LIABILITIES AND STOCKHOLDERS’ EQUITY															LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities															Liabilities
Interest-bearing liabilities															Interest-bearing liabilities
Savings and interest-bearing transaction accounts	$	8,794,657	$	3,613		0.16	%	$	7,937,412	$	6,651		0.33	%	Savings and interest-bearing transaction accounts	$	12,632,612	$	9,770	0.31	%	$	8,684,726	3,960		0.18	%
Time deposits		1,063,500		2,029		0.76			1,745,279		6,549		1.49		Time deposits	1,170,860		959		0.33		1,123,287		2,474		0.88
Total interest-bearing deposits		9,858,157		5,642		0.23			9,682,691		13,200		0.54		Total interest-bearing deposits	13,803,472		10,729		0.31		9,808,013		6,434		0.26
Federal funds purchased															Federal funds purchased	869		2		0.92		—		—		—
Securities sold under agreement to repurchase		143,937		102		0.28			157,172		237		0.60		Securities sold under agreement to repurchase	123,011		187		0.61		157,570		107		0.27
FHLB and other borrowed funds		400,000		1,917		1.90			464,799		2,235		1.91		FHLB and other borrowed funds	400,000		1,896		1.90		400,000		1,896		1.90
Subordinated debentures		370,805		4,788		5.12			370,038		4,823		5.19		Subordinated debentures	568,187		5,441		3.84		370,613		4,792		5.19
Total interest-bearing liabilities		10,772,899		12,449		0.46	%		10,674,700		20,495		0.76	%	Total interest-bearing liabilities	14,895,539		18,255		0.49	%	10,736,196		13,229		0.49	%
Non-interest-bearing liabilities															Non-interest-bearing liabilities
Non-interest-bearing deposits		4,091,174							3,259,501						Non-interest-bearing deposits	6,138,497						3,966,968
Other liabilities		120,200							146,502						Other liabilities	162,571						128,048
Total liabilities		14,984,273							14,080,703						Total liabilities	21,196,607						14,831,212
Stockholders’ equity		2,710,953							2,513,792						Stockholders’ equity	3,591,758						2,660,147
Total liabilities and stockholders’ equity	$	17,695,226						$	16,594,495						Total liabilities and stockholders’ equity	$	24,788,365					$	17,491,359
Net interest spread						3.45	%						3.71	%	Net interest spread					3.48	%					3.45	%
Net interest income and margin			$	146,359		3.60	%			$	147,714		3.92	%	Net interest income and margin			$	201,229	3.64	%			$	143,026	3.61	%

Table ~~4: Average Balance Sheets and Net Interest Income Analysis~~

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	Nine Months Ended September 30,															Six Months Ended June 30,
	2021							2020								2022						2021
	Average Balance		Income / Expense		Yield / Rate			Average Balance		Income / Expense		Yield / Rate				Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate
	(Dollars in thousands)															(Dollars in thousands)
ASSETS															ASSETS
Earnings assets															Earnings assets
Interest-bearing balances due from banks	$	2,372,227	$	2,234		0.13	%	$	671,231	$	1,579		0.31	%	Interest-bearing balances due from banks	$	3,374,606	$	8,238	0.49	%	$	2,096,452	$	1,117	0.11	%
Federal funds sold		83		—		0.00			1,775		21		1.58		Federal funds sold	1,805		4		0.45		84		—		—
Investment securities – taxable		1,947,799		21,933		1.51			1,665,900		25,696		2.06		Investment securities – taxable	3,155,481		30,021		1.92		1,774,026		13,438		1.53
Investment securities – non-taxable		858,440		19,610		3.05			503,253		14,712		3.90		Investment securities – non-taxable	1,061,822		16,339		3.10		856,332		13,194		3.11
Loans receivable		10,532,411		435,758		5.53			11,519,706		472,635		5.48		Loans receivable	11,899,115		311,523		5.28		10,780,972		292,978		5.48
Total interest-earning assets		15,710,960		479,535		4.08	%		14,361,865		514,643		4.79	%	Total interest-earning assets	19,492,829		366,125		3.79	%	15,507,866		320,727		4.17	%
Non-earning assets		1,594,442							1,655,973						Non-earning assets	2,115,558						1,599,393
Total assets	$	17,305,402						$	16,017,838						Total assets	$	21,608,387					$	17,107,259
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY															LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities															Liabilities
Interest-bearing liabilities															Interest-bearing liabilities
Savings and interest-bearing transaction accounts	$	8,607,728	$	12,289		0.19	%	$	7,544,763	$	30,272		0.54	%
Savings and interest- bearing transaction accounts															Savings and interest- bearing transaction accounts	$	11,007,232	$	13,643	0.25	%	$	8,512,714	8,677		0.21	%
Time deposits		1,131,538		7,492		0.89			1,847,833		22,242		1.61		Time deposits	1,013,600		1,980		0.39		1,166,121		5,462		0.94
Total interest-bearing deposits		9,739,266		19,781		0.27			9,392,596		52,514		0.75		Total interest-bearing deposits	12,020,832		15,623		0.26		9,678,835		14,139		0.29
Federal funds purchased		—		—		0.00			2,080		13		0.83		Federal funds purchased	437		2		0.92		—		—		—
Securities sold under agreement to repurchase		153,677		399		0.35			150,020		959		0.85		Securities sold under agreement to repurchase	130,248		295		0.46		158,628		297		0.38
FHLB and other borrowed funds		400,000		5,688		1.90			579,805		7,589		1.75
FHLB borrowed funds															FHLB borrowed funds	400,000		3,771		1.90		400,000		3,771		1.90
Subordinated debentures		370,615		14,373		5.19			369,846		14,801		5.35		Subordinated debentures	589,917		12,319		4.21		370,518		9,585		5.22
Total interest-bearing liabilities		10,663,558		40,241		0.50	%		10,494,347		75,876		0.97	%	Total interest-bearing liabilities	13,141,434		32,010		0.49	%	10,607,981		27,792		0.53	%
Non-interest-bearing liabilities															Non-interest-bearing liabilities
Non-interest-bearing deposits		3,848,302							2,904,159						Non-interest-bearing deposits	5,152,673						3,724,854
Other liabilities		127,656							134,281						Other liabilities	142,080						131,446
Total liabilities		14,639,516							13,532,787						Total liabilities	18,436,187						14,464,281
Stockholders’ equity		2,665,886							2,485,051						Stockholders’ equity	3,172,200						2,642,978
Total liabilities and stockholders’ equity	$	17,305,402						$	16,017,838						Total liabilities and stockholders’ equity	$	21,608,387					$	17,107,259
Net interest spread						3.58	%						3.82	%	Net interest spread					3.30	%					3.64	%
Net interest income and margin			$	439,294		3.74	%			$	438,767		4.08	%	Net interest income and margin			$	334,115	3.46	%			$	292,935	3.81	%

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Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020,~~2021, on a fully taxable basis. 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 5: Volume/Rate Analysis


	Three Months Ended September 30,									Nine Months Ended September 30,										Three Months Ended June 30,						Six Months Ended June 30,
	2021 over 2020									2021 over 2020										2022 over 2021						2022 over 2021
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total				Volume		Yield / Rate		Total		Volume		Yield / Rate		Total
	(In thousands)																			(In thousands)
Increase (decrease) in:																			Increase (decrease) in:
Interest income:																			Interest income:
Interest-bearing balances due from banks	$	727		$	138		$	865		$	2,061		$	(1,406	)	$	655		Interest-bearing balances due from banks	$	232	$	5,626	$	5,858	$	1,036	$	6,085	$	7,121
Federal funds sold		—			—			—			(10	)		(11	)		(21	)	Federal funds sold	—		3		3		—		4		4
Investment securities – taxable		2,639			(1,371	)		1,268			3,896			(7,659	)		(3,763	)	Investment securities – taxable	9,432		4,324		13,756		12,480		4,103		16,583
Investment securities – non-taxable		1,482			(797	)		685			8,651			(3,753	)		4,898		Investment securities – non-taxable	3,198		363		3,561		3,162		(17)		3,145
Loans receivable		(23,757	)		11,538			(12,219	)		(40,817	)		3,940			(36,877	)	Loans receivable	43,416		(3,365)		40,051		29,564		(11,019)		18,545
Total interest income		(18,909	)		9,508			(9,401	)		(26,219	)		(8,889	)		(35,108	)	Total interest income	56,278		6,951		63,229		46,242		(844)		45,398
Interest expense:																			Interest expense:
Interest-bearing transaction and savings deposits		654			(3,692	)		(3,038	)		3,772			(21,755	)		(17,983	)	Interest-bearing transaction and savings deposits	2,295		3,515		5,810		2,859		2,107		4,966
Time deposits		(2,001	)		(2,519	)		(4,520	)		(6,827	)		(7,923	)		(14,750	)	Time deposits	101		(1,616)		(1,515)		(638)		(2,844)		(3,482)
Federal funds purchased		—			—			—			(7	)		(6	)		(13	)	Federal funds purchased	1		1		2		1		1		2
Securities sold under agreement to repurchase		(18	)		(117	)		(135	)		22			(582	)		(560	)	Securities sold under agreement to repurchase	(28)		108		80		(58)		56		(2)
FHLB borrowed funds		(311	)		(7	)		(318	)		(2,513	)		612			(1,901	)	FHLB borrowed funds	—		—		—		—		—		—
Subordinated debentures		10			(45	)		(35	)		31			(459	)		(428	)	Subordinated debentures	2,109		(1,460)		649		4,850		(2,116)		2,734
Total interest expense		(1,666	)		(6,380	)		(8,046	)		(5,522	)		(30,113	)		(35,635	)	Total interest expense	4,478		548		5,026		7,014		(2,796)		4,218
Increase (decrease) in net interest income	$	(17,243	)	$	15,888		$	(1,355	)	$	(20,697	)	$	21,224		$	527		Increase (decrease) in net interest income	$	51,800	$	6,403	$	58,203	$	39,228	$	1,952	$	41,180

Provision for Credit Losses

~~The Company adopted ASU 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2020. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.~~

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

During the three-month period ended September 30, 2021, the Company did not record any credit loss expense compared to a $14.0 million provision for credit losses and no provision for credit losses on unfunded commitments for a total credit loss expense of $14.0 million for the three-month period ended September 30, 2020. During the nine-month period ended September 30, 2021, the Company did not record a provision for credit losses but did record a $4.8 million negative provision for unfunded commitmentsLoans.for a total credit loss benefit of $4.8 million compared to a $112.3 million provision for credit losses and a $17.0 million provision for unfunded commitments for a total credit loss expense of $129.3 million for the nine-month period ended September 30, 2020. The $4.8 negative provision for the nine-month period ended September 30, 2021 was due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position. The $129.3 million of total credit loss expense for the nine-month period ended September 30, 2020 was primarily due to the COVID-19 pandemic, with $9.3 million for the acquisition of LH-Finance on February 29, 2020. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since the fourth quarter of 2020. The Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2021. Net charge-offs to average total loans was 0.07% for the three months ended September 30, 2021 compared to 0.14% for the three months ended September 30, 2020. Net charge-offs to average total loans was 0.09% for the nine months ended September 30, 2021 compared to 0.11% for the nine months ended September 30, 2020.

~~Loans.~~ Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

Acquired loans. In accordance with ASC 326, the Company records both a discount and an allowance for credit losses on acquired loans. This is commonly referred to as “double ~~accounting.”~~accounting" (or "double count").

Table of Contents

The allowance for credit losses is measured based on call report segment as these types of ~~loan~~loans exhibit similar risk characteristics. The identified loan segments are as follows:

•

~~1-4 family construction~~

•

~~All other~~•1-4 family construction

•All other construction•

~~1-4 family revolving HELOC & junior liens~~

•

~~1-4 family senior~~•1-4 family revolving HELOC & junior liens

•1-4 family senior liens•

~~Multifamily~~

•Multifamily•

~~Owner occupied commercial real estate~~

•

~~Non-owner~~•Owner occupied commercial real estate

•Non-owner occupied commercial real estate•

~~Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other~~

•Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other•

~~Consumer auto~~

•Consumer auto•

~~Other consumer~~

•Other consumer•

~~Other consumer - SPF~~

•Other consumer - SPF

During the three-month and six-month periods ended June 30, 2022, the Company recorded a $45.2 million provision for credit losses on acquired loans for the CECL "double count" and an $11.4 million provision for credit losses on acquired unfunded commitments resulting from the acquisition of Happy on April 1, 2022. As of June 30, 2022, the markets in which we operate have been experiencing significant economic uncertainty primarily related to inflationary concerns, continuing supply chain issues and the potential impacts of international unrest. However, excluding the impact of the acquisition of Happy, the Company determined that an additional provision for credit losses was not necessary as the current level of the allowance for credit losses was considered adequate as of June 30, 2022. In addition, excluding the impact of the acquisition of Happy, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022.

Net charge-offs to average total loans was 0.07% for the three months ended June 30, 2022 compared to 0.09% for the three months ended June 30, 2021. Net charge-offs to average total loans was 0.08% for the six months ended June 30, 2022 compared to 0.09% for the six months ended June 30, 2021.

Investments – Available-for-sale: The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Investments – Held-to-Maturity.

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.

Table of Contents

At June 30, 2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio, and the allowance for credit losses for the HTM portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

Non-Interest Income

Total non-interest income was ~~$29.2~~$44.6 million and ~~$105.6~~$75.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$30.0~~$31.1 million and ~~$77.9~~$76.4 million for the same ~~periods~~period in ~~2020.~~2021. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.

Table 6 measures the various components of our non-interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, as well as changes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020.~~

2021.

Table 6: Non-Interest Income

	Three Months Ended											Nine Months Ended
	September 30,						2021 Change					September 30,						2021 Change						Three Months Ended June 30,				2021 Change from 2020								Six Months Ended June 30,								2021 Change from 2020
	2021			2020			from 2020					2021			2020			from 2020						2022		2021								2022				2021						2021 Change from 2020
	(Dollars in thousands)																							(Dollars in thousands)
Service charges on deposit accounts	$	5,941		$	4,910		$	1,031		21.0	%	$	16,059		$	15,837		$	222		1.4	%	Service charges on deposit accounts	$	10,084	$	5,116	2021 Change from 2020		$	4,968			97.1	%			$	16,224			$	10,118			$	6,106			60.3	%
Other service charges and fees		8,051			8,539			(488	)	(5.7	)		25,318			22,261			3,057		13.7		Other service charges and fees	12,541		9,659		2,882				29.8				20,274				17,267				3,007				17.4
Trust fees		479			378			101		26.7			1,445			1,213			232		19.1		Trust fees	4,320		444		3,876				873.0				4,894				966				3,928				406.6
Mortgage lending income		5,948			10,177			(4,229	)	(41.6	)		20,317			18,994			1,323		7.0		Mortgage lending income	5,996		6,202		(206)				(3.3)				9,912				14,369				(4,457)				(31.0)
Insurance commissions		586			271			315		116.2			1,556			1,482			74		5.0		Insurance commissions	658		478		180				37.7				1,138				970				168				17.3
Increase in cash value of life insurance		509			548			(39	)	(7.1	)		1,548			1,666			(118	)	(7.1	)	Increase in cash value of life insurance	1,140		537		603				112.3				1,632				1,039				593				57.1
Dividends from FHLB, FRB, FNBB & other		2,661			3,433			(772	)	(22.5	)		13,916			11,505			2,411		21.0		Dividends from FHLB, FRB, FNBB & other	3,945		2,646		1,299				49.1				4,643				11,255				(6,612)				(58.7)
Gain on sale of SBA loans		439			—			439		100.0			1,588			341			1,247		365.7		Gain on sale of SBA loans	—		1,149		(1,149)				(100.0)				95				1,149				(1,054)				(91.7)
(Loss) gain on sale of branches, equipment and other assets, net		(34	)		(27	)		(7	)	25.9			(86	)		109			(195	)	(178.9	)
Gain (loss) on sale of branches, equipment and other assets, net																							Gain (loss) on sale of branches, equipment and other assets, net	2		(23)		25				108.7				18				(52)				70				134.6
Gain on OREO, net		246			470			(224	)	(47.7	)		1,266			982			284		28.9		Gain on OREO, net	9		619		(610)				(98.5)				487				1,020				(533)				(52.3)
Gain on securities, net		—			—			—		0.0			219			—			219		100.0		Gain on securities, net	—		—		—				0.0				—				219				(219)				(100.0)
Fair value adjustment for marketable securities		61			(1,350	)		1,411		(104.5	)		7,093			(6,249	)		13,342		213.5		Fair value adjustment for marketable securities	(1,801)		1,250		(3,051)				(244.1)				324				7,032				(6,708)				(95.4)
Other income		4,322			2,602			1,720		66.1			15,366			9,760			5,606		57.4		Other income	7,687		3,043		4,644				152.6				15,609				11,044				4,565				41.3
Total non-interest income	$	29,209		$	29,951		$	(742	)	(2.5	)%	$	105,605		$	77,901		$	27,704		35.6	%	Total non-interest income	$	44,581	$	31,120	$	13,461			43.3	%			$	75,250			$	76,396			$	(1,146)			(1.5)	%

Non-interest income ~~decreased $742,000,~~increased $13.5 million, or ~~2.5%~~43.3%, to ~~$29.2~~$44.6 million for the three months ended ~~September~~June 30, ~~2021~~2022 from ~~$30.0~~$31.1 million for the same period in ~~2020.~~ The primary factors that resulted in this decrease were mortgage lending income which decreased non-interest income by $4.2 million. Other factors were changes related to service charges on deposit accounts, dividends from FHLB, FRB, FNBB & other, fair value adjustment for marketable securities and other income.

~~Additional details for the three months ended September 30, 2021 on some of the more significant changes are as follows:~~

•

~~The $1.0 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from increased economic activity.~~

•

~~The $4.2 million decrease in mortgage lending income is primarily due to the decrease in volume of secondary market loans from the peak in 2020.~~

•

~~The $772,000 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments.~~

•

~~The $1.4 million increase in the fair value adjustment for marketable securities is due to an increase in the fair market values of marketable securities held by the Company.~~

•

The $1.7 million increase in other income is primarily due to a $1.3 million increase in loan recoveries and a $629,000 increase in investment brokerage fee income, partially offset by a $173,000 decrease in miscellaneous income and a $128,000 decrease in rent income from other real estate owned.

~~Non-interest income increased~~ ~~$27.7 million, or~~ ~~35.6%, to~~ ~~$105.6 million~~ ~~for~~ ~~nine months ended September 30, 2021~~ ~~from~~ ~~$77.9 million~~ ~~for the same period in 2020.~~2021. The primary factors that resulted in this increase were the ~~impact~~increase in service charges on deposit account and the increase in other income. Other factors were changes related to other services charges and fees, trust fees, dividends from FHLB, FRB, FNBB and other, gain on sale of SBA loans, gain on OREO and fair value adjustment for marketable securities which increased non-interest income by $13.3 million, the $5.6 million increase in other income and the $3.1 million increase in other service charges and fees. Other factors were changes related mortgage lending income, dividends from FHLB, FRB, FNBB & other and gain on salesecurities.

Table of ~~SBA loans.~~Contents

Additional details for the ~~nine~~three months ended ~~September~~June 30, ~~2021~~2022 on some of the more significant changes are as follows:

•

~~The $3.1 million increase in other service charges and fees is primarily due to an increase in Centennial CFG property finance loan fees and Mastercard income.~~

•The $5.0 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from the acquisition of Happy.•

~~The $1.3 million increase in mortgage lending income is primarily due to the increase in volume of secondary market loan sales driven by the current low interest rate environment.~~

•The $2.9 million increase in other service charges and fees is primarily related to an increase in interchange fees resulting from the acquisition of Happy.•

~~The $2.4 million increase for dividends from FHLB, FRB, FNBB & other is primarily due to an increase in special dividends from equity investments.~~

•The $3.9 million increase in trust fees is primarily related to an increase in trust fees resulting from the acquisition of Happy.•

~~The $1.2 million gain in SBA loans is primarily due to the increase of loan sales during 2021.~~

•The $1.3 million increase for dividends from FHLB, FRB, FNBB & other is primarily due to an increase in special dividends from equity investments and an increase in FRB stock holdings related to the acquisition of Happy.•

~~The $13.3 million increase in the fair value adjustment for marketable securities is due to an increase in the fair market values of marketable securities held by the Company.~~

•The $1.1 million decrease in gains on sales of SBA loans was due to no SBA loan sales taking place during the second quarter of 2022.•

The $5.6 million increase in other income is primarily due to a $4.4 million increase in loan recoveries and a $1.5 million increase in investment brokerage fee income, partially offset by a $317,000 decrease in gains on life insurance.

•The $610,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.

•The $3.1 million decrease in the fair value adjustment for marketable securities is due to a reduction in the fair market values of marketable securities held by the Company.

•The $4.6 million increase in other income is primarily due to a $2.8 million increase in additional income for items previously charged off, a $878,000 increase in investment brokerage fee income, a $260,000 increase in real estate rental income and a $492,000 increase in building rental income related to the acquisition of Happy.

Non-interest income decreased $1.1 million, or 1.5%, to $75.3 million for the six months ended June 30, 2022 from $76.4 million for the same period in 2021. The primary factors that resulted in this decrease were the reduction in dividends from FHLB, FRB, FNBB & other, the reduction in fair value adjustment for marketable securities and the reduction in mortgage lending income which was partially offset by the increase in service charges on deposit accounts, increase in other income and increase in trust fees. Other factors were changes related to other service charges and fees and gain on sale of SBA loans.

Additional details for the six months ended June 30, 2022 on some of the more significant changes are as follows:

•The $6.1 million increase in service charges on deposit accounts is primarily related to an increase in overdraft fees resulting from the acquisition of Happy.

•The $3.0 million increase in other service charges and fees is primarily related to an increase in interchange acquisition fees resulting from the acquisition of Happy.

•The $3.9 million increase in trust fees is primarily related to an increase in employee and personal trust fees resulting from the acquisition of Happy.

•The $4.5 million decrease in mortgage lending income is primarily due to a decrease in volume of secondary market loans from the high volume of loans during 2021.

•The $6.6 million decrease for dividends from FHLB, FRB, FNBB & other is primarily due to a decrease in special dividends from equity investments, partially offset by an increase in FRB stock holdings related to the acquisition of Happy.

•The $1.1 million decrease in gains on sales of SBA loans is primarily due to decrease in the volume of SBA loan sales during 2022.

•The $533,000 decrease in gains on OREO resulted from a reduction in the level of sales of OREO during 2022.

•The $6.7 million decrease in the fair value adjustment for marketable securities is due to a reduction in the increase of the fair market values of marketable securities held by the Company.

•The $4.6 million increase in other income is primarily due to a $2.8 million increase in additional income for items previously charged off and a $1.4 million increase in investment brokerage fee income related to the acquisition of Happy.

Table of Contents

Non-Interest Expense

Non-interest expense primarily consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, merger and acquisition expenses, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees and other professional fees.

Table 7 below sets forth a summary of non-interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, as well as changes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020.~~

2021.

Table 7: Non-Interest Expense

	Three Months Ended									Nine Months Ended
	September 30,				2021 Change					September 30,				2020 Change						Three Months Ended June 30,				2022 Change from 2021								Six Months Ended June 30,								2022 Change from 2021
	2021		2020		from 2020					2021		2020		from 2019						2022		2021								2022				2021						2022 Change from 2021
	(Dollars in thousands)																			(Dollars in thousands)
Salaries and employee benefits	$	42,469	$	41,511	$	958		2.3	%	$	126,990	$	120,928	$	6,062		5.0	%	Salaries and employee benefits	$	65,795	$	42,462	2022 Change from 2021		$	23,333			55.0	%			$	109,346			$	84,521			$	24,825			29.4	%
Occupancy and equipment		9,305		9,566		(261	)	(2.7	)		27,584		28,611		(1,027	)	(3.6	)	Occupancy and equipment	14,256		9,042		5,214				57.7				23,400				18,279				5,121				28.0
Data processing expense		6,024		4,921		1,103		22.4			17,787		13,861		3,926		28.3		Data processing expense	10,094		5,893		4,201				71.3				17,133				11,763				5,370				45.7
Merger and acquisition expense		1,006		—		1,006		100.0			1,006		711		295		41.5
Merger and acquisition expenses																			Merger and acquisition expenses	48,731		—		48,731				100.0				49,594				—				49,594				100.0
Other operating expenses:																			Other operating expenses:
Advertising		1,204		902		302		33.5			3,444		2,923		521		17.8		Advertising	2,117		1,194		923				77.3				3,383				2,240				1,143				51.0
Amortization of intangibles		1,421		1,420		1		0.1			4,262		4,423		(161	)	(3.6	)	Amortization of intangibles	2,477		1,421		1,056				74.3				3,898				2,842				1,056				37.2
Electronic banking expense		2,521		2,426		95		3.9			7,375		6,195		1,180		19.0		Electronic banking expense	3,352		2,616		736				28.1				5,890				4,854				1,036				21.3
Directors’ fees		395		429		(34	)	(7.9	)		1,192		1,265		(73	)	(5.8	)
Directors' fees																			Directors' fees	375		414		(39)				(9.4)				779				797				(18)				(2.3)
Due from bank service charges		265		259		6		2.3			787		721		66		9.2		Due from bank service charges	396		273		123				45.1				666				522				144				27.6
FDIC and state assessment		1,648		1,607		41		2.6			4,119		5,001		(882	)	(17.6	)	FDIC and state assessment	2,390		1,108		1,282				115.7				4,058				2,471				1,587				64.2
Insurance		749		766		(17	)	(2.2	)		2,317		2,223		94		4.2		Insurance	973		787		186				23.6				1,743				1,568				175				11.2
Legal and accounting		1,050		1,235		(185	)	(15.0	)		2,954		3,432		(478	)	(13.9	)	Legal and accounting	1,061		1,058		3				0.3				1,858				1,904				(46)				(2.4)
Other professional fees		1,787		1,661		126		7.6			5,196		6,622		(1,426	)	(21.5	)	Other professional fees	2,254		1,796		458				25.5				3,863				3,409				454				13.3
Operating supplies		474		460		14		3.0			1,426		1,548		(122	)	(7.9	)	Operating supplies	995		465		530				114.0				1,749				952				797				83.7
Postage		301		328		(27	)	(8.2	)		931		968		(37	)	(3.8	)	Postage	556		292		264				90.4				862				630				232				36.8
Telephone		371		321		50		15.6			1,082		955		127		13.3		Telephone	384		365		19				5.2				721				711				10				1.4
Other expense		4,629		3,900		729		18.7			13,015		12,757		258		2.0		Other expense	9,276		3,796		5,480				144.4				13,435				8,385				5,050				60.2
Total non-interest expense	$	75,619	$	71,712	$	3,907		5.4	%	$	221,467	$	213,144	$	8,323		3.9	%	Total non-interest expense	$	165,482	$	72,982	$	92,500			126.7	%			$	242,378			$	145,848			$	96,530			66.2	%

Non-interest expense increased ~~$3.9~~$92.5 million, or ~~5.4%~~126.7%, to ~~$75.6~~$165.5 million for the three months ended ~~September~~June 30, ~~2021~~2022 from ~~$71.7~~$73.0 million for the same period in 2020. The primary factors that resulted in this increase were the changes related to data processing expense and merger and acquisition expense. Other factors were changes related to salary and employee benefits.

~~Additional details for the three months ended September 30, 2021 on some of the more significant changes are as follows:~~

•

~~The $958,000 increase in salaries and employee benefits expense is primarily due to increased salary expenses related to the normal increased cost of doing business.~~

•

The $1.1 million increase in data processing expense is primarily related to an increase in software, licensing, core processing expenses, telecommunication services, internet banking and cash management expenses and bill pay expenses.

•

~~The $1.0 million increase in merger and acquisition expense is related to costs associated with the anticipated acquisition of Happy Bancshares, Inc.~~

~~Non-interest expense increased $8.3 million, or 3.9%, to $221.5 million for the nine months ended September 30, 2021 from $213.1 million for the same period in 2020.~~2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and ~~data processing~~merger and acquisition expense. Other factors were changes related to occupancy and equipment, data processing expense, amortization of intangibles, FDIC and state assessment fees and other expenses.

Additional details for the three months ended June 30, 2022 on some of the more significant changes are as follows:

•The $23.3 million increase in salaries and employee benefits expense is primarily due to increased salary expenses and insurance expenses related to the acquisition of Happy.

•The $5.2 million increase in occupancy and equipment expenses is primarily due to increases in depreciation on buildings, machinery and equipment, increases in utility expenses and increases in property taxes related to the acquisition of Happy.

•The $4.2 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fee and increases in internet banking and cash management expenses related to the acquisition of Happy.

•The $48.7 increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.

Table of Contents

•The $923,000 increase in advertising expense is related to the acquisition of Happy.

•The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.

•The $736,000 increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.

•The $1.3 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.

•The $5.5 million increase in other expenses is primarily related to the acquisition of Happy as well as $2.1 million in TRUPS redemption fees.

Non-interest expense increased $96.5 million, or 66.2%, to $242.4 million for the three months ended June 30, 2022 from $145.8 million for the same period in 2021. The primary factors that resulted in this increase were the changes related to salaries and employee benefits and merger and acquisition expense. Other factors were changes related to occupancy and equipment expense, data processing expense, advertising, amortization of intangibles, electronic banking expense, FDIC and state assessment fees and other ~~professional fees~~

expenses.

Additional details for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 on some of the more significant changes are as follows:

•

The $6.1 million increase in salaries and employee benefits expense is primarily due to increased salary expenses related to the normal increased cost of doing business and an increase in salary expense incentives and bonuses.

•The $24.8 million increase in salaries and employee benefits expense is primarily due to the acquisition of Happy.•

The $1.0 million decrease in occupancy and equipment expense is primarily related to a decrease in depreciation - building and improvements. During the second quarter of 2020, the Company made the strategic decision to demolish and rebuild the Marathon, Florida branch office at its existing location. This increased depreciation expense during the second quarter of 2020 as the building was written off. This decrease was offset by an increase in equipment maintenance contracts.

•The $5.1 million increase in occupancy and equipment expense is primarily due to increases in depreciation on buildings, machinery and equipment, increases in utility expenses and increases in property taxes related to the acquisition of Happy.•

The $3.9 million increase in data processing expense is primarily related to an increase in software, licensing, core processing expenses, telecommunication services, internet banking and cash management expenses and bill pay expenses.

•The $5.4 million increase in data processing expense is primarily due to increases in telecommunication fees, computer software fees, licensing fee and increases in internet banking and cash management expenses related to the acquisition of Happy.•

~~The $521,000 increase in advertising expense is due primarily to an increase in advertising campaigns during the current year.~~

•The $49.6 million increase in merger and acquisition expense is related to costs associated with the acquisition of Happy.•

~~The $1.2 million increase in electronic banking expenses is primarily to an increase in fees charged for network expenses and debit card processing fees.~~

•The $1.1 million increase in advertising expense is related to the acquisition of Happy.•

The $882,000 decrease in FDIC and state assessment expense is primarily due to an improvement in the FDIC assessment rate resulting from the most recent safety and soundness exam. In addition, the State of Arkansas announced a 25% reduction in assessments for January 1, 2021 through June 30, 2021.

•The $1.1 million increase in amortization of intangibles is due to the acquisition of Happy.•

~~The $1.4 million decrease in other professional fees is primarily due to a reduction in outsourced special projects and professional fees for the Bank.~~

•The $1.0 million increase in electronic banking expense is due to increased debit card processing fees and interchange network expenses resulting from the acquisition of Happy.

•The $1.6 million increase in FDIC and state assessment expense is primarily due to FDIC assessment reductions for 2021 and the acquisition of Happy during the second quarter of 2022.

•The $5.1 million increase in other expenses is primarily related to the acquisition of Happy. as well as $2.1 million in TRUPS redemption fees.

Income Taxes

Income tax expense ~~increased $2.2~~decreased $21.8 million, or ~~10.2%~~86.9%, to ~~$23.2~~$3.3 million for the three-month period ended ~~September~~June 30, ~~2021,~~2022, from ~~$21.1~~$25.1 million for the same period in ~~2020.~~2021. Income tax expense ~~increased $39.8~~decreased $30.6 million, or ~~106.5%~~56.8%, to ~~$77.2~~$23.3 million for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2021,~~2022, from ~~$37.4~~$54.0 million for the same period in ~~2020.~~2021. The effective income tax rate was ~~23.63%~~17.09% and ~~23.91%~~22.38% for the three and ~~nine-month period~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~23.30%~~24.07% and ~~21.98%~~24.02% for the same periods in ~~2020.~~

2021. The marginal tax rate was 25.1475% and 25.74% 2022 and 2021, respectively.

Table of Contents

Financial Condition as of and for the Period Ended ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021

2022.

Loan Portfolio

Loans Receivable

Our loan portfolio averaged ~~$10.04~~$13.84 billion and ~~$11.76~~$10.54 billion during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our loan portfolio averaged ~~$10.53~~$11.90 billion and ~~$11.52~~$10.78 billion during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Loans receivable were ~~$9.90~~$13.92 billion and ~~$11.22~~$9.84 billion as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act includes an allocation for loans to be issued by financial institutions through the SBA. This program is known as the PPP. PPP loans are forgivable, in whole or in part, so long as employee and compensation levels of the borrower are maintained, and the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1.00% to 5.00%, based on the size of the loan. The PPP/HCEA Act was enacted on April 24, 2020. The PPP/HCEA Act authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA. The CAA was signed into law on December 27, 2020. The CAA also authorizes additional funds under the CARES Act for PPP loans to be issued by financial institutions through the SBA with a term of 5 years. As of September 30, 2021, the Company had $241.5 million of PPP loans.~~This balance consists of $230.5 million in commercial and industrial loans and $11.0 million in other loans.~~

From December 31, ~~2020~~2021 to ~~September~~June 30, ~~2021,~~2022, the Company experienced ~~a decline~~an increase of approximately ~~$1.32~~$4.09 billion in loans.The ~~decrease~~increase in ~~the loan portfolio is~~loans was primarily due to ~~$885.9~~the acquisition of $3.65 billion in loans, net of purchase accounting adjustments, from Happy in the second quarter of 2022 and $242.2 million in marine loans from LendingClub Bank during the first quarter of 2022, as well as $192.9 million in organic loan ~~decline as well as $433.7 million in PPP loan decline.~~growth. The ~~$885.9~~$192.9 million in organic loan ~~decline~~growth included ~~$99.6~~$498.6 million in loan growth for Centennial CFG ~~while the remaining footprint experienced $985.5~~which was partially offset by $177.9 million in loan decline ~~during~~within the ~~first nine months of 2021. The $433.7~~remaining footprint as well as $127.8 million in PPP loan ~~decline was~~decline. As of June 30, 2022, the ~~result of $781.4~~Company had $37.2 million of PPP ~~loans being forgiven during the first nine months of 2021, partially offset by $347.7 million in new PPP loans during the first nine months of 2021.~~

loans.

The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, ~~South~~Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately ~~$3.21~~$3.03 billion, ~~$3.99~~$3.49 billion, ~~$228.3~~$3.66 billion, $202.5 million, ~~$837.0 million~~$1.12 billion and ~~$1.64~~$2.42 billion as of ~~September~~June 30, ~~2021~~2022 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.

As of ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$402.7 million~~$1.05 billion of construction land development loans which were collateralized by land. This consisted of approximately ~~$34.7~~$136.8 million for raw land and approximately ~~$368.0~~$912.5 million for land with commercial ~~and~~ and/or residential lots.

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Table 8 presents our loans receivable balances by category as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Table 8: Loans Receivable

	As of		As of
	September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
	(In thousands)					(In thousands)
Real estate:					Real estate:
Commercial real estate loans:					Commercial real estate loans:
Non-farm/non-residential	$	4,005,841	$	4,429,060	Non-farm/non-residential	$	5,092,539	$	3,889,284
Construction/land development		1,742,687		1,562,298	Construction/land development	2,595,384		1,850,050
Agricultural		138,881		114,431	Agricultural	329,106		130,674
Residential real estate loans:					Residential real estate loans:
Residential 1-4 family		1,273,988		1,536,257	Residential 1-4 family	1,708,221		1,274,953
Multifamily residential		274,131		536,538	Multifamily residential	389,633		280,837
Total real estate		7,435,528		8,178,584	Total real estate	10,114,883		7,425,798
Consumer		814,732		864,690	Consumer	1,106,343		825,519
Commercial and industrial		1,414,079		1,896,442	Commercial and industrial	2,187,771		1,386,747
Agricultural		68,272		66,869	Agricultural	324,630		43,920
Other		168,489		214,136	Other	190,246		154,105
Total loans receivable	$	9,901,100	$	11,220,721	Total loans receivable	$	13,923,873	$	9,836,089

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

As of ~~September~~June 30, ~~2021,~~2022, commercial real estate loans totaled ~~$5.89~~$8.02 billion, or ~~59.5%~~57.6%, of loans receivable, as compared to ~~$6.11~~$5.87 billion, or ~~54.4%~~59.7%, of loans receivable, as of December 31, ~~2020.~~2021. Commercial real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were ~~$2.01~~$1.97 billion, ~~$2.50~~$2.27 billion, ~~$111.6~~$2.14 billion, $87.9 million, zero and ~~$1.26~~$1.55 billion at ~~September~~June 30, ~~2021,~~2022, respectively.

Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately ~~36.2%~~38.6% and ~~51.7%~~51.6% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of ~~September~~June 30, ~~2021,~~2022, with the remaining ~~12.1%~~9.8% relating to condos and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

As of ~~September~~June 30, ~~2021,~~2022, residential real estate loans totaled ~~$1.55~~$2.10 billion, or ~~15.6%~~15.1%, of loans receivable, compared to ~~$2.07~~$1.56 billion, or ~~18.5%~~15.8%, of loans receivable, as of December 31, ~~2020.~~2021. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were ~~$516.3~~$416.6 million, ~~$910.8~~$862.2 million, ~~$62.4~~$562.8 million, $49.3 million, zero and ~~$58.6~~$206.9 million at ~~September~~June 30, ~~2021,~~2022, respectively.

Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance USCG registered high-end sail and power boats ~~as a result of~~within our ~~acquisition of~~ SPF ~~on June 30, 2018 as well as our acquisition of LH-Finance on February 29, 2020.~~division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

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As of ~~September~~June 30, ~~2021,~~2022, consumer loans totaled ~~$814.7 million,~~$1.11 billion, or ~~8.2%~~7.9%, of loans receivable, compared to ~~$864.7~~$825.5 million, or ~~7.7%~~8.4%, of loans receivable, as of December 31, ~~2020.~~2021. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were ~~$25.2~~$23.2 million, ~~$8.3~~$7.8 million, ~~$835,000, $780.4~~$31.3 million, $977,000, $1.04 billion and zero at ~~September~~June 30, ~~2021,~~2022, respectively.

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

As of ~~September~~June 30, ~~2021,~~2022, commercial and industrial loans totaled ~~$1.41~~$2.19 billion, or ~~14.2%~~15.7%, of loans receivable, compared to ~~$1.90~~$1.39 billion, or ~~16.9%~~14.1%, of loans receivable, as of December 31, ~~2020.~~2021. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were ~~$506.7~~$453.9 million, ~~$497.2~~$288.4 million, ~~$39.7~~$653.0 million, ~~$56.6~~$56.4 million, $73.1 million and ~~$313.9~~$662.9 million at ~~September~~June 30, ~~2021,~~2022, respectively.

Non-Performing Assets

We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status.

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

for credit losses. The Company held approximately $152.3 million and $448,000 in PCD loans, as of June 30, 2022 and December 31, 2021, respectively.

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Table 9 sets forth information with respect to our non-performing assets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. As of these dates, all non-performing restructured loans are included in non-accrual loans.

Table 9: Non-performing Assets

	As of			As of
	September 30, 2021			December 31, 2020				As of June 30, 2022			As of December 31, 2021
	(Dollars in thousands)							(Dollars in thousands)
Non-accrual loans	$	47,604		$	64,528		Non-accrual loans	$	44,170		$	47,158
Loans past due 90 days or more (principal or interest payments)		3,311			9,610		Loans past due 90 days or more (principal or interest payments)	16,432			3,035
Total non-performing loans		50,915			74,138		Total non-performing loans	60,602			50,193
Other non-performing assets							Other non-performing assets
Foreclosed assets held for sale, net		1,171			4,420		Foreclosed assets held for sale, net	373			1,630
Other non-performing assets							Other non-performing assets	104			—
Total other non-performing assets							Total other non-performing assets	477			1,630
Total non-performing assets	$	52,086		$	78,558		Total non-performing assets	$	61,079		$	51,823
Allowance for credit losses to non-accrual loans							Allowance for credit losses to non-accrual loans	666.21		%	501.96		%
Allowance for credit losses to non-performing loans		468.77	%		331.10	%	Allowance for credit losses to non-performing loans	485.57			471.61
Non-accrual loans to total loans							Non-accrual loans to total loans	0.32			0.48
Non-performing loans to total loans		0.51			0.66		Non-performing loans to total loans	0.44			0.51
Non-performing assets to total assets		0.29			0.48		Non-performing assets to total assets	0.25			0.29

Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. 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.

Total non-performing loans were ~~$50.9~~$60.6 million and ~~$74.1~~$50.2 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Non-performing loans at ~~September~~June 30, ~~2021~~2022 were ~~$15.5~~$15.0 million, ~~$25.2~~$33.3 million, ~~$523,000, $1.9~~$5.5 million, $813,000, $1.3 million and ~~$7.8~~$4.7 million in the Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets, respectively.

The ~~$7.8~~$4.7 million balance of non-accrual loans for our Centennial CFG market consists of ~~two loans~~one loan that ~~are~~is assessed for credit risk by the Federal Reserve under the Shared National Credit Program. The decision to place ~~these loans~~this loan on non-accrual status was made by the Federal Reserve and not the Company. The ~~loans~~loan that ~~make~~makes up the total balance is still current on both principal and interest. However, all interest payments are currently being applied to the principal balance. Because the Federal Reserve required us to place ~~these loans~~this loan on non-accrual status, we have reversed any interest that had accrued subsequent to the non-accrual date designated by the Federal Reserve.

~~As of September 30, 2021,~~ the Company remains optimistic that the markets in which it operates will experience continued economic recovery as long as unemployment rates continue to decline, more COVID-19 vaccinations are administered, and communities continue to reopen for business activity. Uncertainty remains about the duration of the pandemic as well as the timing and extent of the economic recovery. The Company determined that an additional provision for credit losses on loans was not necessary as the current level of the allowance for credit losses was considered adequate as of September 30, 2021. During the nine-month period ended September 30, 2021, the Company recorded a negative provision for unfunded commitments of $4.8 million. This was primarily due to a single commercial & industrial loan for which a reserve was no longer considered necessary due to the borrower’s current cash flow position. The $129.3 million of total credit loss expense for the nine-month period ended September 30, 2020 was primarily due to the COVID-19 pandemic, with $9.3 million for the acquisition of LH-Finance on February 29, 2020. The Company’s provisioning model is closely tied to unemployment rate projections which have continued to improve since the fourth quarter of 2020.

Troubled debt restructurings (“TDRs”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our TDRs that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan. ~~Only non-performing restructured loans are included in our non-performing~~ ~~loans.~~ As of ~~September~~June 30, ~~2021,~~2022, we had ~~$5.6~~$5.9 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual in Table 9. Our Florida market contains ~~$3.9~~$3.6 million and our Arkansas market contains ~~$1.7~~$2.3 million of these restructured loans.

A loan modification that might not otherwise be considered may be granted resulting in classification as a TDR. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of nine months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status.

~~Section 4013~~

Table of the CARES Act enacted in March 2020 provides financial institutions optional temporary relief from the TDR classification requirements for certain COVID-19 related loan modifications. Specifically, financial institutions may elect to suspend TDR classification for certain loan modifications related to COVID-19 made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after termination of the President’s national emergency declaration for COVID-19. Contents

~~On December 28, 2020, an extension of section 4013 of the CARES Act, provided institutions with an extension of the temporary option to not apply ASC Subtopic 310-40 until January 1, 2022.~~ Further, financial institutions do not need to determine impairment associated with certain loan concessions that would otherwise have been required for TDRs (e.g., interest rate concessions, payment deferrals, or loan extensions). On April 7, 2020, the Federal Reserve Board and the other federal bank regulatory agencies issued an interagency statement clarifying the relationship between the Section 4013 of the CARES Act and previous guidance issued by the agencies on March 22, 2020. This interagency statement encourages financial institutions to work prudently with borrowers who are or may be unable to meet their payment obligations because of COVID-19 and states that the agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The Company relied on Section 4013 of the CARES Act in accounting for loan modifications as of September 30, 2021. As of September 30, 2021, our loan deferrals decreased to $228.2 million on 38 loans, as of September 30, 2021, from the December 31, 2020 balance of $330.7 million on 56 loans. All of the customers currently on deferment totaling $228.2 million chose principal deferment only and now have returned to paying interest monthly.

The majority of the Bank’s loan modifications relates to commercial lending and involves reducing the interest rate, changing from a principal and interest payment to interest-only, lengthening the amortization period, or a combination of some or all of the three. In addition, it is common for the Bank to seek additional collateral or guarantor support when modifying a loan. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the amount of TDRs was ~~$6.7~~$6.6 million and ~~$12.3~~$7.5 million, respectively.As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, 82.9%~~2021, 88.9% and ~~87.1%~~85.7%, respectively, of all restructured loans were performing to the terms of the restructure.

Total foreclosed assets held for sale were ~~$1.2 million~~$373,000 as of ~~September~~June 30, ~~2021,~~2022, compared to ~~$4.4~~$1.6 million as of December 31, ~~2020~~2021 for a decrease of ~~$3.2~~$1.3 million. The foreclosed assets held for sale as of ~~September~~June 30, ~~2021~~2022 are comprised of ~~$563,000~~$8,000 of assets located in Arkansas, ~~$608,000~~$260,000 located in Florida, $105,000 located in Texas and zero from Alabama, SPF and Centennial CFG.

Table 10 shows the summary of foreclosed assets held for sale as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Table 10: Foreclosed Assets Held For Sale

	As of		As of
	September 30, 2021		December 31, 2020			As of June 30, 2022		As of December 31, 2021
	(In thousands)					(In thousands)
Real estate:
Commercial real estate loans					Commercial real estate loans
Non-farm/non-residential	$	261	$	438	Non-farm/non-residential	$	49	$	536
Construction/land development		835		3,189	Construction/land development	55		834
Residential real estate loans					Residential real estate loans
Residential 1-4 family		75		793	Residential 1-4 family	269		260
Multifamily residential					Multifamily residential	—		—
Total foreclosed assets held for sale	$	1,171	$	4,420	Total foreclosed assets held for sale	$	373	$	1,630

A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and non-accrual loans), criticized and/or classified loans with a specific allocation, loans categorized as TDRs and certain other loans identified by management that are still performing (loans included in multiple categories are only included ~~once~~)once). As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, impaired loans were ~~$300.1~~$385.1 million and ~~$112.7~~$331.5 million, respectively.The amortized cost balance for loans with a specific allocation increased from ~~$39.5~~$284.0 million to ~~$290.3~~$323.1 million, and the specific allocation for impaired loans increased by approximately ~~$42.8~~$6.6 million for the period ended ~~September~~June 30, ~~2021~~2022 compared to the period ended December 31, ~~2020.~~2021. The increase in collateral-dependent impaired loans was primarily due to the Company changing the valuation method for lodging and assisted living loans to a market price valuation methodology. This involved assigning a 15% discount of par for these impaired loans. ~~The 15% figure was derived based on knowledge of current hotel and assisted living offerings in the loan sale market.~~ ~~In the event of default, liquidation would be achieved through a loan sale.~~ The Company is continuing to monitor these impaired loans and will adjust the discount as necessary. As of ~~September~~June 30, ~~2021,~~2022, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately ~~$180.3~~$176.3 million, ~~$109.7~~$145.0 million, ~~$523,000, $1.9~~$57.1 million, $813,000, $1.3 million and ~~$7.8~~$4.7 million of the impaired loans, respectively.

~~The Company has purchased loans, some~~

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

changes to the allowance for credit losses are recorded through the provision for credit losses. As a result of the acquisition of LH-Finance in 2020, the Company held approximately $454,000 and $760,000 in PCD loans, as of September 30, 2021 and December 31, 2020, respectively.

Past Due and Non-Accrual Loans

Table 11 shows the summary of non-accrual loans as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:

Table 11: Total Non-Accrual Loans

	As of		As of
	September 30, 2021		December 31, 2020			As of June 30, 2022		As of December 31, 2021
	(In thousands)					(In thousands)
Real estate:					Real estate:
Commercial real estate loans					Commercial real estate loans
Non-farm/non-residential	$	8,819	$	20,947	Non-farm/non-residential	$	14,247	$	11,923
Construction/land development		1,870		1,381	Construction/land development	1,050		1,445
Agricultural		743		879	Agricultural	194		897
Residential real estate loans					Residential real estate loans
Residential 1-4 family		17,495		19,334	Residential 1-4 family	17,210		16,198
Multifamily residential		161		173	Multifamily residential	156		156
Total real estate		29,088		42,714	Total real estate	32,857		30,619
Consumer		1,921		3,506	Consumer	1,321		1,648
Commercial and industrial		15,989		17,251	Commercial and industrial	8,698		13,875
Agricultural		352		1,057
Other		254		—
Agricultural & other					Agricultural & other	1,294		1,016
Total non-accrual loans	$	47,604	$	64,528	Total non-accrual loans	$	44,170	$	47,158

If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately ~~$662,000~~$672,000 and ~~$944,000,~~$795,000, respectively, would have been recorded for the three-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately ~~$2.0~~$1.3 million and ~~$2.8~~$1.6 million, respectively, would have been recorded for the ~~nine-month~~six month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The interest income recognized on non-accrual loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was considered immaterial.

Table 12 shows the summary of accruing past due loans 90 days ormore as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Table 12: Loans Accruing Past Due 90 Days or More

	As of		As of
	September 30, 2021		December 31, 2020			As of June 30, 2022		As of December 31, 2021
	(In thousands)					(In thousands)
Real estate:					Real estate:
Commercial real estate loans					Commercial real estate loans
Non-farm/non-residential	$	2,413	$	6,088	Non-farm/non-residential	$	10,712	$	2,225
Construction/land development		—		1,296	Construction/land development	246		—
Agricultural					Agricultural	711		—
Residential real estate loans					Residential real estate loans
Residential 1-4 family		855		1,821	Residential 1-4 family	2,378		701
Multifamily residential					Multifamily residential	—		—
Total real estate		3,268		9,205	Total real estate	14,047		2,926
Consumer		2		174	Consumer	43		2
Commercial and industrial		41		231	Commercial and industrial	2,342		107
Other					Other	—		—
Total loans accruing past due 90 days or more	$	3,311	$	9,610	Total loans accruing past due 90 days or more	$	16,432	$	3,035

Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.44% and 0.51% ~~and 0.66%~~ at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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Allowance for Credit Losses

~~The Company adopted ASU 2016-13,~~

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

~~Overview.~~ The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and national retail sales index.

~~The allowance for credit losses is measured based on call report segment as these types of loan exhibit similar risk characteristics. The identified loan segments are as follows:~~

•

~~1-4 family construction~~

•

~~All other construction~~

•

~~1-4 family revolving HELOC & junior liens~~

•

~~1-4 family senior liens~~

•

~~Multifamily~~

•

~~Owner occupied commercial real estate~~

•

~~Non-owner occupied commercial real estate~~

•

~~Commercial & industrial, agricultural, non-depository financial institutions, purchase/carry securities, other~~

•

~~Consumer auto~~

•

~~Other consumer~~

•

~~Other consumer - SPF~~

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

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The allowance for credit losses for each segment is measured through the use of the discounted cash flow method. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless ~~either~~Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower or

the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

•

~~Management has a reasonable expectation at the reporting date that troubled debt restructuring will be executed with an individual borrower.~~

portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

•

~~The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.~~

Table of Contents

~~The Company has purchased~~

Purchased loans ~~some of which~~that have experienced more than insignificant credit deterioration since ~~origination.~~origination are PCD ~~loans are recorded at the amount paid.~~loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for impairment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a ~~noncredit~~non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit ~~loss.~~

losses.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Specific Allocations. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. Typically, when it becomes evident through the payment history or a financial statement review that a loan or relationship is no longer supported by the cash flows of the asset and/or borrower and has become collateral dependent, we will use appraisals or other collateral analysis to determine if collateral impairment has occurred. The amount or likelihood of loss on this credit may not yet be evident, so a charge-off would not be prudent. However, if the analysis indicates that an impairment has occurred, then a specific allocation will be determined for this loan. If our existing appraisal is outdated or the collateral has been subject to significant market changes, we will obtain a new appraisal for this impairment analysis. The majority of our impaired loans are collateral dependent at the present time, so third-party appraisals were used to determine the necessary impairment for these loans. Cash flow available to service debt was used for the other impaired loans. This analysis is performed each quarter in connection with the preparation of the analysis of the adequacy of the allowance for credit losses, and if necessary, adjustments are made to the specific allocation provided for a particular loan.

Table of Contents

For collateral dependent loans, we do not consider an appraisal outdated simply due to the passage of time. However, if an appraisal is older than 13 months and if market or other conditions have deteriorated and we believe that the current market value of the property is not within approximately 20% of the appraised value, we will consider the appraisal outdated and order either a new appraisal or an internal validation report for the impairment analysis. The recognition of any provision or related charge-off on a collateral dependent loan is either through annual credit analysis or, many times, when the relationship becomes delinquent. If the borrower is not current, we will update our credit and cash flow analysis to determine the borrower's repayment ability. If we determine this ability does not exist and it appears that the collection of the entire principal and interest is not likely, then the loan could be placed on non-accrual status. In any case, loans are classified as non-accrual no later than 105 days past due. If the loan requires a quarterly impairment analysis, this analysis is completed in conjunction with the completion of the analysis of the adequacy of the allowance for credit losses. Any exposure identified through the impairment analysis is shown as a specific reserve on the individual impairment. If it is determined that a new appraisal or internal validation report is required, it is ordered and will be taken into consideration during completion of the next impairment analysis.

In estimating the net realizable value of the collateral, management may deem it appropriate to discount the appraisal based on the applicable circumstances. In such case, the amount charged off may result in loan principal outstanding being below fair value as presented in the appraisal.

Between the receipt of the original appraisal and the updated appraisal, we monitor the loan's repayment history. If the loan is $3.0 million or greater or the total loan relationship is $5.0 million or greater, our policy requires an annual credit review. For these loans, our policy requires financial statements from the borrowers and guarantors at least annually. In addition, we calculate the global repayment ability of the borrower/guarantors at least annually on these loans.

As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or by law at 105 days past due, we will reflect that loan as non-performing. It will remain non-performing until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest.

When the amount or likelihood of a loss on a loan has been determined, a charge-off should be taken in the period it is determined. If a partial charge-off occurs, the quarterly impairment analysis will determine if the loan is still impaired, and thus continues to require a specific allocation.

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

Loans Collectively Evaluated for Impairment. Loans receivable collectively evaluated for impairment ~~decreased~~increased by approximately ~~$1.12~~$4.04 billion from ~~$10.76~~$9.54 billion at December 31, ~~2020~~2021 to ~~$9.64~~$13.57 billion at ~~September~~June 30, ~~2021.~~2022. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for impairment to the total loans collectively evaluated for impairment was ~~1.99%~~1.74% and ~~2.18%~~1.94% at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~ 2021, respectively

Charge-offs and ~~Recoveries~~.Recoveries. Total charge-offs increased to ~~$2.5~~$3.3 million for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$4.6~~$3.0 million for the same period in ~~2020.~~2021. Total charge-offs decreased to ~~$8.5~~$5.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$11.4~~$6.1 million for the same period in ~~2020.~~2021. Total recoveries ~~increased to $691,000~~were $778,000 and $542,000 for the three months ended ~~September~~June 30, 2022 and 2021, ~~compared to $483,000 for the same period in 2020.~~respectively. Total recoveries were ~~$1.7~~$1.1 million and ~~$1.8~~$1.0 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.For the three months ended ~~September~~June 30, ~~2021,~~2022, net charge-offs were ~~$334,000~~$262,000 for Arkansas, $1.5 million for Florida, ~~$5,000~~$724,000 for ~~Alabama, $5,000~~Texas, $35,000 for ~~SPF~~Alabama and zero for Centennial ~~CFG.~~CFG, partially offset by net recoveries of $63,000 for SPF. These equal a net charge-off position of ~~$1.8~~$2.5 million. Forthe ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net charge-offs were ~~$1.7 million~~$530,000 for Arkansas, ~~$5.0~~$2.7 million for Florida, ~~$8,000~~$724,000 for Texas, $36,000 for Alabama, ~~$99,000~~$395,000 for SPF and zero for Centennial CFG. These equal a net charge-off position of ~~$6.8~~$4.4 million.

We have not charged off an amount less than what was determined to be the fair value of the collateral as presented in the appraisal, less estimated costs to sell (for collateral dependent loans), for any period presented. Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance.

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Table 13 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

2021.

Table 13: Analysis of Allowance for Credit Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020				Three Months Ended June 30,						Six Months Ended June 30,
	(Dollars in thousands)													2022			2021			2022			2021
Balance, beginning of period	$	240,451		$	238,340		$	245,473		$	102,122
Impact of adopting ASC 326		—			—			—			43,988
Allowance for credit losses on acquired loans		—			—			—			357
														(Dollars in thousands)
Balance, beginning of year													Balance, beginning of year	$	234,768		$	242,932		$	236,714		$	245,473

Allowance for credit losses on PCD loans - Happy acquisition													Allowance for credit losses on PCD loans - Happy acquisition	16,816			—			16,816			—
Loans charged off													Loans charged off
Real estate:													Real estate:
Commercial real estate loans:													Commercial real estate loans:
Non-farm/non-residential		9			994			604			3,003		Non-farm/non-residential	—			576			—			595
Construction/land development		—			—			—			443		Construction/land development	—			—			—			—
Agricultural		—			—			42			—		Agricultural	—			42			—			42
Residential real estate loans:													Residential real estate loans:
Residential 1-4 family		220			93			543			450		Residential 1-4 family	39			97			289			323
Multifamily residential													Multifamily residential	—			—			—			—
Total real estate		229			1,087			1,189			3,896		Total real estate	39			715			289			960
Consumer		21			133			143			161		Consumer	2,174			55			2,237			122
Commercial and industrial		1,682			3,057			5,892			6,207		Commercial and industrial	—			1,931			1,416			4,210
Agricultural													Agricultural	—			—			—			—
Other		537			322			1,315			1,182		Other	1,052			322			1,633			778
Total loans charged off		2,469			4,599			8,539			11,446		Total loans charged off	3,265			3,023			5,575			6,070
Recoveries of loans previously charged off													Recoveries of loans previously charged off
Real estate:													Real estate:
Commercial real estate loans:													Commercial real estate loans:
Non-farm/non-residential		44			129			112			614		Non-farm/non-residential	52			54			78			68
Construction/land development		8			79			47			94		Construction/land development	302			17			317			39
Agricultural													Agricultural	—			—			—			—
Residential real estate loans:													Residential real estate loans:
Residential 1-4 family		388			59			554			296		Residential 1-4 family	23			104			49			166
Multifamily residential		—			9			—			9		Multifamily residential	—			—			—			—
Total real estate		440			276			713			1,013		Total real estate	377			175			444			273
Consumer		19			24			51			77		Consumer	37			(14)			48			32
Commercial and industrial		80			36			382			142		Commercial and industrial	221			226			330			302
Agricultural													Agricultural	—			—			—			—
Other		152			147			593			549		Other	143			155			320			441
Total recoveries		691			483			1,739			1,781		Total recoveries	778			542			1,142			1,048
Net loans charged off (recovered)		1,778			4,116			6,800			9,665
Provision for credit losses		—			14,000			—			111,422
Balance, September 30	$	238,673		$	248,224		$	238,673		$	248,224
Net charge-offs (recoveries) to average loans receivable		0.07	%		0.14	%		0.09	%		0.11	%
Net loans charged off													Net loans charged off	2,487			2,481			4,433			5,022
Provision for credit loss - acquired loans													Provision for credit loss - acquired loans	45,170			—			45,170			—

Balance, June 30													Balance, June 30	$	294,267		$	240,451		$	294,267		$	240,451
Net charge-offs to average loans receivable													Net charge-offs to average loans receivable	0.07		%	0.09		%	0.08		%	0.09		%
Allowance for credit losses to total loans		2.41			2.12			2.41			2.12		Allowance for credit losses to total loans	2.11			2.36			2.11			2.36
Allowance for credit losses to net charge-offs (recoveries)		3,384			1,516			2,625			1,923
Allowance for credit losses to net charge-offs													Allowance for credit losses to net charge-offs	2,949.95			2,416.29			3,291.77			2,374.30

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Table 14 presents the allocation of allowance for credit losses as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Table 14: Allocation of Allowance for Credit Losses


	As of September 30, 2021					As of December 31, 2020						As of June 30, 2022				As of December 31, 2021
	Allowance Amount		% of loans⁽¹⁾			Allowance Amount		% of loans⁽¹⁾				Allowance Amount		% of loans(1)		Allowance Amount		% of loans(1)
	(Dollars in thousands)											(Dollars in thousands)
Real estate:											Real estate:
Commercial real estate loans:											Commercial real estate loans:
Non-farm/non-residential	$	88,199		40.5	%	$	87,043		39.5	%
Non-farm/non- residential											Non-farm/non- residential	$	113,645	36.6	%	$	86,910	39.5	%
Construction/land development		25,983		17.6			32,861		13.9		Construction/land development	36,689		18.6		28,415		18.8
Agricultural		299		1.4			1,410		1.0
Agricultural residential real estate loans											Agricultural residential real estate loans	1,550		2.4		308		1.3
Residential real estate loans:											Residential real estate loans:
Residential 1-4 family		47,635		12.9			47,754		13.7		Residential 1-4 family	47,343		12.3		45,364		13.0
Multifamily residential		3,268		2.8			5,462		4.8		Multifamily residential	3,803		2.8		3,094		2.9
Total real estate		165,384		75.2			174,530		72.9		Total real estate	203,030		72.7		164,091		75.5
Consumer		17,389		8.2			21,905		7.7		Consumer	20,460		7.9		16,612		8.4
Commercial and industrial		52,401		14.2			46,061		16.9		Commercial and industrial	66,894		15.7		52,910		14.1
Agricultural		201		0.7			469		0.6		Agricultural	1,415		2.3		152		0.4
Other		3,298		1.7			2,508		1.9		Other	2,468		1.4		2,949		1.6
Total allowance for credit losses	$	238,673		100.0	%	$	245,473		100.0	%
Total											Total	$	294,267	100.0	%	$	236,714	100.0	%

(1)

Percentage of loans in each category to total loans receivable.

Investment 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 held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was ~~3.5~~5.2 years as of ~~September~~June 30, ~~2021.~~

2022.

Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. As of June 30, 2022, we had $1.37 billion of held-to-maturity securities. Of the $1.37 billion of held-to-maturity securities as of June 30, 2022, $1.09 billion, or 79.7%, is invested in obligations of state and political subdivisions and the other $277.7 million, or 20.3%, is invested in U.S. Treasury securities.

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. ~~Securities that are held as available-for-sale are used as a part of our asset/liability management strategy.~~ Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were ~~$3.15~~$3.79 billion and ~~$2.47~~$3.12 billion as ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

As of ~~September~~June 30, ~~2021, $1.61~~2022, $1.98 billion, or ~~51.0%~~52.2%, of our available-for-sale securities were invested in mortgage-backed securities, compared to ~~$1.18~~$1.54 billion, or ~~47.6%~~49.3%, of our available-for-sale securities as of December 31, ~~2020.~~2021. To reduce our income tax burden, ~~$991.1~~$934.5 million, or ~~31.5%~~24.6%, of our available-for-sale securities portfolio as of ~~September~~June 30, ~~2021,~~2022, were primarily invested in tax-exempt obligations of state and political subdivisions, compared to ~~$927.9~~$997.0 million, or ~~37.5%~~32.0%, of our available-for-sale securities as of December 31, ~~2020.~~2021. We had ~~$440.2~~$451.5 million, or ~~14.0%~~11.9%, invested in obligations of U.S. Government-sponsored enterprises as of ~~September~~June 30, ~~2021,~~2022, compared to ~~$327.0~~$433.0 million, or ~~13.2%~~13.9%, of our available-for-sale securities as of December 31, ~~2020.~~2021. Also, we had approximately ~~$110.0~~$427.3 million, or ~~3.5%~~11.3%, invested in other securities as of ~~September~~June 30, ~~2021,~~2022, compared to ~~$41.0~~$151.9 million, or ~~1.7%~~4.9% of our available-for-sale securities as of December 31, ~~2020.~~

2021.

Table of Contents

The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments. The Company first assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

At ~~September~~June 30, ~~2021,~~2022, the Company determined that the allowance for credit losses of $842,000, resulting from economic ~~uncertainties related to the COVID-19 pandemic,~~uncertainty, was adequate for the available-for-sale investment ~~portfolio.~~portfolio, and the allowance for credit losses for the HTM portfolio resulting from the Happy acquisition was considered adequate. No additional provision for credit losses was considered necessary for the portfolio.

See Note 3 ~~“Investment Securities” in~~to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged ~~$13.95~~$19.94 billion and ~~$13.59~~$17.17 billion for the three and ~~nine~~six months ended ~~September~~June 30, 2022, respectively. Our deposits averaged $13.77 billion and $13.40 billion for the three and six months ended June 30, 2021, respectively. Total deposits were ~~$14.00~~$19.58 billion as of ~~September~~June 30, ~~2021,~~2022, and ~~$12.73~~$14.26 billion as of December 31, ~~2020~~.2021. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.

Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep (“ICS”) service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.

Table of Contents

Table 15 reflects the classification of the brokered deposits as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Table 15: Brokered Deposits


	September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
	(In thousands)					(In thousands)
Time Deposits	$	—	$	10,000	Time Deposits	$	—	$	—
CDARS					CDARS	—		—
Insured Cash Sweep and Other Transaction Accounts		625,690		625,681	Insured Cash Sweep and Other Transaction Accounts	626,929		625,704
Total Brokered Deposits	$	625,690	$	635,681	Total Brokered Deposits	$	626,929	$	625,704

The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. ~~The~~In 2020, the Federal ~~reserve~~Reserve lowered the target rate ~~two times~~to 0.00% to 0.25%. This remained in ~~2020. First,~~effect throughout all of 2021. On March 16, 2022, the target rate was ~~lowered to 1.00% to 1.25% on March 3, 2020; second, the rate was lowered to 0.00%~~increased to 0.25% ~~on March 15, 2020. The target rate is currently at 0.00%~~ to ~~0.25% as of September 30, 2021, which remains unchanged from~~0.50%. On May 4, 2022, the target rate ~~as of September 30, 2020.~~was increased to 0.75% to 1.00%. On June 15, 2022, the target rate was increased to 1.50% to 1.75%. Presently, the Federal Reserve has indicated they are anticipating multiple rate increases for 2022.

Table 16 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

2021.

Table 16: Average Deposit Balances and Rates

	Three Months Ended September 30,
	2021					2020
	Average Amount		Average Rate Paid			Average Amount		Average Rate Paid
	(Dollars in thousands)
Non-interest-bearing transaction accounts	$	4,091,174		—	%	$	3,259,501		—	%
Interest-bearing transaction accounts		7,895,663		0.18			7,197,123		0.36
Savings deposits		898,994		0.06			740,289		0.09
Time deposits:
$100,000 or more		708,524		0.94			1,340,508		1.66
Other time deposits		354,976		0.40			404,771		0.94
Total	$	13,949,331		0.16	%	$	12,942,192		0.41	%

	Nine Months Ended September 30,											Three Months Ended June 30,
	2021					2020						2022				2021
	Average Amount		Average Rate Paid			Average Amount		Average Rate Paid				Average Amount		Average Rate Paid		Average Amount		Average Rate Paid
	(Dollars in thousands)											(Dollars in thousands)
Non-interest-bearing transaction accounts	$	3,848,302		—	%	$	2,904,159		—	%	Non-interest-bearing transaction accounts	$	6,138,497	—	%	$	3,966,968	—	%
Interest-bearing transaction accounts		7,754,622		0.21			6,852,251		0.58		Interest-bearing transaction accounts	10,999,598		0.35		7,816,822		0.20
Savings deposits		853,106		0.06			692,512		0.14		Savings deposits	1,633,014		0.07		867,904		0.06
Time deposits:											Time deposits:
$100,000 or more		767,594		1.06			1,430,542		1.76		$100,000 or more	731,761		0.36		761,017		1.06
Other time deposits		363,944		0.51			417,291		1.10		Other time deposits	439,099		0.27		362,270		0.51
Total	$	13,587,568		0.19	%	$	12,296,755		0.57	%	Total	$	19,941,969	0.22	%	$	13,774,981	0.19	%


	Six Months Ended June 30,
	2022				2021
	Average Amount		Average Rate Paid		Average Amount		Average Rate Paid
	(Dollars in thousands)
Non-interest-bearing transaction accounts	$	5,152,673	—	%	$	3,724,854	—	%
Interest-bearing transaction accounts	9,701,529		0.27		7,682,933		0.22
Savings deposits	1,305,703		0.07		829,781		0.06
Time deposits:
$100,000 or more	625,901		0.46		797,619		1.12
Other time deposits	387,699		0.29		368,502		0.56
Total	$	17,173,505	0.18	%	$	13,403,689	0.21	%

Table of Contents

Securities Sold Under Agreements to Repurchase

We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased ~~$27.9~~$22.3 million, or ~~16.5%~~15.8%, from ~~$168.9~~$140.9 million as of December 31, ~~2020~~2021 to ~~$141.0~~$118.6 million as of ~~September~~June 30, ~~2021.~~

2022.

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $400.0 million at ~~September~~both June 30, ~~2021~~2022 and December 31, ~~2020~~2021.. The Company had no other borrowed funds as of ~~September~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021. At ~~September~~June 30, ~~2021,~~2022 and December 31, ~~2020~~2021, all of the outstanding balances were classified as long-term advances. ~~Our remaining FHLB borrowing capacity was $2.69 billion and $3.32 billion as of September 30, 2021 and December 31, 2020, respectively.~~The FHLB advances mature in 2033 with fixed interest rates ranging from 1.76% to 2.26%. Expected maturities could differ from contractual maturities because FHLB may have the right to call or the Company may have the right to prepay certain obligations.

Subordinated Debentures

Subordinated debentures, which consist of subordinated debt securities and guaranteed payments on trust preferred securities, were ~~$370.9~~$458.5 million and ~~$370.3~~$371.1 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The Company holds trust preferred securities with a face amount of $17.6 million which are currently callable without penalty based on the terms of the specific agreements. The trust preferred securities are tax-advantaged issues that ~~qualify~~previously qualified for Tier 1 capital treatment subject to certain limitations. However, now that the Company has exceeded $15 billion in assets and has completed the acquisition of Happy Bancshares, the Tier 1 treatment of the Company’s outstanding trust preferred securities has been eliminated, and these securities are now treated as Tier 2 capital. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in ~~our~~the Company’s subordinated debentures, the sole asset of each trust. The trust 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 subordinated debentures held by the trust. WeThe Company wholly ~~own~~owns the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon ~~our~~the Company making payment on the related subordinated debentures. ~~Our~~The Company’s obligations under the subordinated securities and other relevant trust agreements, in ~~the~~ aggregate, constitute a full and unconditional guarantee by usthe Company of each respective trust’s obligations under the trust securities issued by each respective trust. The Company has received approval from the Federal Reserve to redeem the trust preferred securities, and is in the process of redeeming all of its trust preferred securities.

During the second quarter, the Company chose to redeem an additional $68.1 million in trust preferred securities held prior to the acquisition of Happy. As of June 30, 2022, the Company's remaining balance of trust preferred securities which were held prior to the acquisition of Happy was $5.1 million.

On April 1, 2022, the Company acquired $140.0 million of subordinated notes from Happy. These notes have a maturity date of July 31, 2030 and carry a fixed rate of 5.500% for the first five years. Thereafter, the notes bear interest at 3-month Secured Overnight Funding Rate (SOFR) plus 5.345% resetting quarterly. Interest payments are due semi-annually and the notes include a right of prepayment without penalty on or after July 31, 2025.

January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

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On April 3, 2017, the Company completed an underwritten public offering of ~~$300~~$300.0 million in aggregate principal amount of its 5.625% Fixed-to-Floating Rate Subordinated Notes due 2027 (the ~~“Notes”~~“2027 Notes”)~~. The Notes were issued at 99.997% of par, resulting in~~ for net proceeds, after underwriting discounts and issuance costs, of approximately $297.0 million. The 2027 Notes are unsecured, subordinated debt obligations ~~of the Company~~ and ~~will~~ mature on April 15, 2027. From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bear interest at an initial rate of 5.625% per annum. From and including April 15, 2022 to, but excluding the maturity date or earlier redemption, the 2027 Notes bear interest at a floating rate equal to three-month LIBOR as calculated on each applicable date of determination plus a spread of 3.575%; provided, however, that in the event three-month LIBOR is less than zero, then three-month LIBOR shall be deemed to be zero.

The Company, beginning with the interest payment date of April 15, 2022, and on any interest payment date thereafter, was permitted to redeem the 2027 Notes, ~~qualify~~in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as ~~Tier 2 capital~~supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for ~~regulatory purposes.~~

the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

Stockholders’ Equity

Stockholders’ equity ~~was $2.74~~increased $732.8 million to $3.50 billion ~~at September~~as of June 30, ~~2021~~2022, compared to ~~$2.61~~$2.77 billion atas of December 31, ~~2020~~. 2021. The ~~$130.3~~$732.8 million increase in stockholders’ equity is primarily associated with the ~~$245.7~~$961.3 million in common stock issued to Happy shareholders for the acquisition of Happy on April 1, 2022 and the $80.9 million in net income for the ~~nine~~six months ended ~~September~~June 30, ~~2021, which was~~2022, partially offset by the ~~$18.1~~$226.4 million in other comprehensive loss, ~~for~~ the ~~nine months ended September 30, 2021, the $69.2~~$61.0 million of shareholder dividends paid and stock repurchases of ~~$37.0~~$26.6 million in ~~2021.~~ 2022. ~~The annualized increase in stockholders’ equity for the first nine months of 2021 was 6.7%.~~ As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, our equity to asset ratio was ~~15.40%~~14.43% and ~~15.89%~~15.32%, respectively. Book value per share was ~~$16.68~~$17.04 as of ~~September~~June 30, ~~2021,~~2022, compared to ~~$15.78~~$16.90 as of December 31, ~~2020,~~2021, a ~~7.6%~~3.5% annualized increase.

Common Stock Cash Dividends. We declared cash dividends on our common stock of ~~$0.14 per~~ ~~share~~$0.165 and ~~$0.13~~$0.14 per share for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The common stock dividend payout ratio for the three months ended ~~September~~June 30, 2022 and 2021 was 212.4% and ~~2020~~ ~~was~~ ~~30.6%~~ ~~and 31.0%~~29.2%, respectively. The common stock dividend payout ratio for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 was 75.4% and ~~2020 was 28.2% and 48.7%~~27.1%, respectively. On ~~October~~July 22, ~~2021,~~2022, the Board of Directors declared a regular ~~$0.14~~$0.165 per share quarterly cash dividend payable ~~December 8, 2021,~~September 7, 2022, to shareholders of record ~~November~~August 17, ~~2021.~~

2022.

Stock Repurchase Program. On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase ~~program, which brought the amount of authorized shares available to repurchase to 23,843,665 shares.~~program. We repurchased a total of ~~1,441,500~~1,212,732 shares with a weighted-average stock price of ~~$25.64~~$21.89 per share during the first ~~nine~~six months of ~~2021.~~2022. The remaining balance available for repurchase was ~~22,402,165~~20,877,933 shares at ~~September~~June 30, ~~2021.~~2022.

Liquidity and Capital Adequacy Requirements

Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, 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 as to components, risk weightings and other factors.

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ratio.

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 and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we met all regulatory capital adequacy requirements to which we were subject.

On January 18, 2022, the Company completed an underwritten public offering of the 2032 Notes in aggregate principal amount of $300.0 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On April 3, 2017, the Company completed an underwritten public offering of the 2027 Notes in aggregate principal amount of $300.0 million. The 2027 Notes are unsecured, subordinated debt obligations and mature on April 15, 2027. On April 15, 2022, the Company completed the payoff of the 2027 Notes in aggregate principal amount of $300.0 million. Each 2027 Note was redeemed pursuant to the terms of the Subordinated Indenture, as supplemented by the First Supplemental Indenture, each dated as of April 3, 2017, between the Company and U.S. Bank Trust Company, National Association, the Trustee for the 2027 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

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On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below.

Table 17 presents our risk-based capital ratios on a consolidated basis as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Table 17: Risk-Based Capital


	As of September 30, 2021			As of December 31, 2020				As of June 30, 2022			As of December 31, 2021
	(Dollars in thousands)							(Dollars in thousands)
Tier 1 capital							Tier 1 capital
Stockholders’ equity	$	2,736,062		$	2,605,758		Stockholders’ equity	$	3,498,565		$	2,765,721
ASC 326 transitional period adjustment		55,633			57,333		ASC 326 transitional period adjustment	24,369			55,143
Goodwill and core deposit intangibles, net		(999,026	)		(1,003,288	)	Goodwill and core deposit intangibles, net	(1,461,362)			(997,605)
Unrealized gain on available-for-sale securities		(26,003	)		(44,120	)
Unrealized (gain) loss on available-for-sale securities							Unrealized (gain) loss on available-for-sale securities	215,905			(10,462)
Total common equity Tier 1 capital		1,766,666			1,615,683		Total common equity Tier 1 capital	2,277,477			1,812,797
Qualifying trust preferred securities		71,234			71,127		Qualifying trust preferred securities	17,630			71,270
Total Tier 1 capital		1,837,900			1,686,810		Total Tier 1 capital	2,295,107			1,884,067
Tier 2 capital							Tier 2 capital
Allowance for credit losses		238,673			245,473		Allowance for credit losses	294,267			236,714
ASC 326 transitional period adjustment		(55,633	)		(57,333	)	ASC 326 transitional period adjustment	(24,369)			(55,143)
Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets)		(36,687	)		(36,911	)	Disallowed allowance for credit losses (limited to 1.25% of risk weighted assets)	(46,178)			(33,514)
Qualifying allowance for credit losses		146,353			151,229		Qualifying allowance for credit losses	223,720			148,057
Qualifying subordinated notes		299,666			299,199		Qualifying subordinated notes	440,825			299,824
Total Tier 2 capital		446,019			450,428		Total Tier 2 capital	664,545			447,881
Total risk-based capital	$	2,283,919		$	2,137,238		Total risk-based capital	$	2,959,652		$	2,331,948
Average total assets for leverage ratio	$	16,715,705		$	15,547,111		Average total assets for leverage ratio	$	23,482,743		$	16,960,683
Risk weighted assets	$	11,682,394		$	12,039,156		Risk weighted assets	$	17,817,635		$	11,793,539
Ratios at end of period							Ratios at end of period
Common equity Tier 1 capital		15.12	%		13.42	%	Common equity Tier 1 capital	12.78		%	15.37		%
Leverage ratio		11.00			10.85		Leverage ratio	9.77			11.11
Tier 1 risk-based capital		15.73			14.01		Tier 1 risk-based capital	12.88			15.98
Total risk-based capital		19.55			17.75		Total risk-based capital	16.61			19.77
Minimum guidelines – Basel III							Minimum guidelines – Basel III
Common equity Tier 1 capital		7.00	%		7.00	%	Common equity Tier 1 capital	7.00		%	7.00		%
Leverage ratio		4.00			4.00		Leverage ratio	4.00			4.00
Tier 1 risk-based capital		8.50			8.50		Tier 1 risk-based capital	8.50			8.50
Total risk-based capital		10.50			10.50		Total risk-based capital	10.50			10.50
Well-capitalized guidelines							Well-capitalized guidelines
Common equity Tier 1 capital		6.50	%		6.50	%	Common equity Tier 1 capital	6.50		%	6.50		%
Leverage ratio		5.00			5.00		Leverage ratio	5.00			5.00
Tier 1 risk-based capital		8.00			8.00		Tier 1 risk-based capital	8.00			8.00
Total risk-based capital		10.00			10.00		Total risk-based capital	10.00			10.00

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As of the most recent notification from regulatory agencies, our bank subsidiary was “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” we, as well as our banking subsidiary, must maintain minimum common equity Tier 1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.

Non-GAAP Financial Measurements

Our accounting and reporting policies conform to generally accepted accounting principles in the United States (“GAAP”) and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.

We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.

The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per ~~share, return on average assets (including return on average assets, as adjusted, and~~share; return on average assets, excluding intangible ~~amortization),~~amortization; return on average ~~equity (including~~assets, as adjusted; return on average common equity, as ~~adjusted, return on average tangible equity,~~adjusted; return on average tangible equity excluding intangible ~~amortization and~~amortization; return on average tangible equity, as ~~adjusted),~~adjusted; tangible equity to tangible ~~assets~~assets; and ~~the~~ efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.

Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain ~~non-interest income~~gains and ~~expenses that management believes are not indicative of our primary business operating results.~~losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our ~~business.~~

business, because management does not consider these items to be relevant to ongoing financial performance.

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In Table 18 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 18: Earnings, As Adjusted

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

(Dollars in thousands)

GAAP net income available to common shareholders (A)

$
74,992

$
69,320

$
245,664

$
132,654

Adjustments:

Outsourced special project

—

—

—

1,092

Merger and acquisition expense

1,006

—

1,006

711

Fair value adjustment for marketable securities

(61
)

1,350

(7,093
)

6,249

Special dividend from equity investments

(2,227
)

(3,181
)

(12,500
)

(10,185
)
Branch write-off expense

—

—

—

981

Gain on securities

—

—

(219
)

—

Recoveries on historic losses

—

—

(5,107
)

—

Total adjustments

(1,282
)

(1,831
)

(23,913
)

(1,152
)
Tax-effect of adjustments

(587
)

(479
)

(6,412
)

(301
)
Total adjustments after-tax (B)

(695
)

(1,352
)

(17,501
)

(851
)
Earnings, as adjusted (C)

$
74,297

$
67,968

$
228,163

$
131,803

Average diluted shares outstanding (D)

164,603

165,200

165,050

165,458

GAAP diluted earnings per share: A/D

$
0.46

$
0.42

$
1.49

$
0.80

Adjustments after-tax B/D

(0.01
)

(0.01
)

(0.11
)

—

Diluted earnings per common share, as adjusted: C/D

$
0.45

$
0.41

$
1.38

$
0.80


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars in thousands)
GAAP net income available to common shareholders (A)	$	15,978	$	79,070	$	80,870	$	170,672
Pre-tax adjustments:
Merger and acquisition expenses	48,731		—		49,594		—
Initial provision for credit losses - acquisition	58,585		—		58,585		—
Fair value adjustment for marketable securities	1,801		(1,250)		(324)		(7,032)
Special dividend from equity investment	(1,434)		(2,200)		(1,434)		(10,273)
TRUPS redemption fees	2,081		—		2,081		—
Recoveries on historic losses	(2,353)		—		(5,641)		(5,107)
Gain on securities	—		—		—		(219)
Total pre-tax adjustments	107,411		(3,450)		102,861		(22,631)
Tax-effect of adjustments(1)	26,396		(888)		25,176		(5,825)
Total adjustments after-tax (B)	81,015		(2,562)		77,685		(16,806)
Earnings, as adjusted (C)	$	96,993	$	76,508	$	158,555	$	153,866
Average diluted shares outstanding (D)	206,015		165,226		185,223		165,314
GAAP diluted earnings per share: A/D	$	0.08	$	0.48	$	0.44	$	1.03
Adjustments after-tax: B/D	0.39		(0.02)		0.42		(0.10)
Diluted earnings per common share excluding adjustments: C/D	$	0.47	$	0.46	$	0.86	$	0.93

(1) Blended statutory rate of 25.1475% for 2022 and 25.74% for 2021

We had ~~$999.5~~$1.46 billion, $998.1 million, ~~$1.00 billion,~~ and ~~$1.01~~$1.00 billion total goodwill, core deposit intangibles and other intangible assets as of ~~September~~June 30, ~~2021,~~2022, December 31, ~~2020~~2021 and ~~September~~June 30, ~~2020,~~2021, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 19 through 22, respectively.

Table 19: Tangible Book Value Per Share


	As of September 30, 2021		As of December 31, 2020			As of June 30, 2022		As of December 31, 2021
	(In thousands, except per share data)					(In thousands, except per share data)
Book value per share: A/B	$	16.68	$	15.78	Book value per share: A/B	$	17.04	$	16.90
Tangible book value per share: (A-C-D)/B		10.59		9.70	Tangible book value per share: (A-C-D)/B	9.92		10.80
(A) Total equity	$	2,736,062	$	2,605,758	(A) Total equity	$	3,498,565	$	2,765,721
(B) Shares outstanding		164,008		165,095	(B) Shares outstanding	205,291		163,699
(C) Goodwill		973,025		973,025	(C) Goodwill	1,398,400		973,025
(D) Core deposit and other intangibles		26,466		30,728	(D) Core deposit and other intangibles	63,410		25,045

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Table 20: Return on Average Assets


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020				2022			2021			2022			2021
	(Dollars in thousands)													(Dollars in thousands)
Return on average assets: A/D		1.68	%		1.66	%		1.90	%		1.11	%	Return on average assets: A/D	0.26		%	1.81		%	0.75		%	2.01		%
Return on average assets excluding intangible amortization: B/(D-E)		1.81			1.80			2.04			1.21
Return on average assets excluding fair value adjustment for marketable securities, special dividend from equity investments, gain on securities, recoveries on historic losses, outsourced special project expense, merger expenses and branch write-off expense: (ROA, as adjusted): (A+C)/D		1.67			1.63			1.76			1.10
Return on average assets excluding intangible amortization: (A+B)/(D-E)													Return on average assets excluding intangible amortization: (A+B)/(D-E)	0.31			1.95			0.83			2.16
Return on average assets, as adjusted: (A+C)/D													Return on average assets, as adjusted: (A+C)/D	1.57			1.75			1.48			1.81
(A) Net income	$	74,992		$	69,320		$	245,664		$	132,654		(A) Net income	$	15,978		$	79,070		$	80,870		$	170,672
Intangible amortization after-tax		1,055			1,049			3,164			3,268		Intangible amortization after-tax	1,854			1,055			2,903			2,110
(B) Earnings excluding intangible amortization	$	76,047		$	70,369		$	248,828		$	135,922		(B) Earnings excluding intangible amortization	$	17,832		$	80,125		$	83,773		$	172,782
(C) Adjustments after-tax	$	(695	)	$	(1,352	)	$	(17,501	)	$	(851	)	(C) Adjustments after-tax	$	81,015		$	(2,562)		$	77,685		$	(16,806)
(D) Average assets		17,695,226			16,594,495			17,305,402			16,017,838		(D) Average assets	24,788,365			17,491,359			21,608,387			17,107,259
(E) Average goodwill, core deposits and other intangible assets		1,000,175			1,005,864			1,001,585			1,004,065		(E) Average goodwill, core deposits and other intangible assets	1,423,466			1,001,598			1,211,580			1,002,301

Table 21: Return on Average Equity


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020				2022			2021			2022			2021
	(Dollars in thousands)													(Dollars in thousands)
Return on average equity: A/D		10.97	%		10.97	%		12.32	%		7.13	%	Return on average equity: A/D	1.78		%	11.92		%	5.14		%	13.02		%
Return on average common equity excluding fair value adjustment for marketable securities, special dividend from equity investments, gain on securities, recoveries on historic losses, outsourced special project expense, merger expenses and branch write-off expense: (ROE, as adjusted) ((A+C)/D)		10.87			10.76			11.44			7.08
Return on average tangible common equity: (A/(D-E))		17.39			18.29			19.74			11.96
Return on average common equity, as adjusted: (A+C)/D													Return on average common equity, as adjusted: (A+C)/D	10.83			11.54			10.08			11.74
Return on average tangible equity excluding intangible amortization: B/(D-E)		17.64			18.56			19.99			12.26		Return on average tangible equity excluding intangible amortization: B/(D-E)	3.30			19.38			8.62			21.24
Return on average tangible common equity excluding fair value adjustment for marketable securities, special dividend from equity investments, gain on securities, recoveries on historic losses, outsourced special project expense, merger expenses and branch write-off expense: (ROTCE, as adjusted) ((A+C)/(D-E))		17.23			17.93			18.33			11.89
Return on average tangible common equity, as adjusted: (A+C)/(D-E)													Return on average tangible common equity, as adjusted: (A+C)/(D-E)	17.94			18.50			16.31			18.91
(A) Net income	$	74,992		$	69,320		$	245,664		$	132,654		(A) Net income	$	15,978		$	79,070		$	80,870		$	170,672
(B) Earnings excluding intangible amortization		76,047			70,369			248,828			135,922		(B) Earnings excluding intangible amortization	17,832			80,125			83,773			172,782
(C) Adjustments after-tax		(695	)		(1,352	)		(17,501	)		(851	)	(C) Adjustments after-tax	81,015			(2,562)			77,685			(16,806)
(D) Average equity		2,710,953			2,513,792			2,665,886			2,485,051		(D) Average equity	3,591,758			2,660,147			3,172,200			2,642,978
(E) Average goodwill, core deposits and other intangible assets		1,000,175			1,005,864			1,001,585			1,004,065		(E) Average goodwill, core deposits and other intangible assets	1,423,466			1,001,598			1,211,580			1,002,301

Table 22: Tangible Equity to Tangible Assets


	As of June 30, 2021			As of December 31, 2020				As of June 30, 2022			As of December 31, 2021
	(Dollars in thousands)							(Dollars in thousands)
Equity to assets: B/A		15.40	%		15.89	%	Equity to assets: B/A	14.43		%	15.32		%
Tangible equity to tangible assets: (B-C-D)/(A-C-D)		10.36			10.41		Tangible equity to tangible assets: (B-C-D)/(A-C-D)	8.94			10.36
(A) Total assets	$	17,765,056		$	16,398,804		(A) Total assets	$	24,253,168		$	18,052,138
(B) Total equity		2,736,062			2,605,758		(B) Total equity	3,498,565			2,765,721
(C) Goodwill		973,025			973,025		(C) Goodwill	1,398,400			973,025
(D) Core deposit and other intangibles		26,466			30,728		(D) Core deposit and other intangibles	63,410			25,045

Table of Contents

The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 23 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 23: Efficiency Ratio, As Adjusted


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020				2022			2021			2022			2021
	(Dollars in thousands)													(Dollars in thousands)
Net interest income (A)	$	144,611		$	146,138		$	433,951		$	434,530		Net interest income (A)	$	198,758		$	141,252		$	329,906		$	289,340
Non-interest income (B)		29,209			29,951			105,605			77,901		Non-interest income (B)	44,581			31,120			75,250			76,396
Non-interest expense (C)		75,619			71,712			221,467			213,144		Non-interest expense (C)	165,482			72,982			242,378			145,848
FTE Adjustment (D)		1,748			1,576			5,343			4,237		FTE Adjustment (D)	2,471			1,774			4,209			3,595
Amortization of intangibles (E)		1,421			1,420			4,262			4,423		Amortization of intangibles (E)	2,477			1,421			3,898			2,842
Adjustments:													Adjustments:
Non-interest income:													Non-interest income:
Special dividend from equity investments	$	2,227		$	3,181		$	12,500		$	10,185
Fair value adjustment for marketable securities		61			(1,350	)		7,093			(6,249	)	Fair value adjustment for marketable securities	$	(1,801)		$	1,250		$	324		$	7,032
Special dividend from equity investment													Special dividend from equity investment	1,434			2,200			1,434			10,273
Gain on OREO, net		246			470			1,266			982		Gain on OREO, net	9			619			487			1,020
(Loss) gain on sale of branches, equipment and other assets, net		(34	)		(27	)		(86	)		109
Gain on securities		—			—			219			—
Gain (loss) on branches, equipment and other assets, net													Gain (loss) on branches, equipment and other assets, net	2			(23)			18			(52)
Gain on securities, net													Gain on securities, net	—			—			—			219
Recoveries on historic losses		—			—			5,107			—		Recoveries on historic losses	2,353			—			5,641			5,107
Total non-interest income adjustments (F)	$	2,500		$	2,274		$	26,099		$	5,027		Total non-interest income adjustments (F)	$	1,997		$	4,046		$	7,904		$	23,599
Non-interest expense:													Non-interest expense:
Branch write-off expense		—			—			—			981
Merger expense		1,006			—			1,006			711
Outsourced special project expense		—			—			—			1,092
Total non-interest expense adjustments (G)	$	1,006		$	—		$	1,006		$	2,784

Merger and acquisition expenses													Merger and acquisition expenses	48,731			—			49,594			—

Total non-core non-interest expense (G)													Total non-core non-interest expense (G)	$	50,812		$	—		$	51,675		$	—
Efficiency ratio (reported): ((C-E)/(A+B+D))		42.26	%		39.56	%		39.86	%		40.40	%	Efficiency ratio (reported): ((C-E)/(A+B+D))	66.31		%	41.09		%	58.26		%	38.72		%
Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F))		42.29			40.08			41.67			40.25		Efficiency ratio, as adjusted (non-GAAP): ((C-E-G)/(A+B+D-F))	46.02			42.07			46.53			41.36

Recently Issued Accounting Pronouncements

See Note 21 into the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Liquidity and Market Risk Management

~~Liquidity Management.~~

Liquidity refers to the ability or the financial flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows us to have sufficient funds available for reserve requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. Our primary source of liquidity at our holding company is dividends paid by our bank subsidiary. Applicable statutes and regulations impose restrictions on the amount of dividends that may be declared by our bank subsidiary. Further, any dividend payments are subject to the continuing ability of the bank subsidiary to maintain compliance with minimum federal regulatory capital requirements and to retain its characterization under federal regulations as a “well-capitalized” institution.

Our bank subsidiary has potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers. Many of these obligations and commitments to fund future borrowings to our loan customers are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

Due to the continuing effects of the COVID-19 pandemic, the Company continued to increase its liquidity position for the period ended September 30, 2021. Liquidity needs can be met from either assets or liabilities. On the asset side, our primary sources of liquidity include cash and due from banks, federal funds sold, unpledged available-for-sale investment securities and scheduled repayments and maturities of loans. We maintain adequate levels of cash and cash equivalents to meet our day-to-day needs. As of September 30, 2021, our cash and cash equivalents were $3.28 billion, or 18.5% of total assets, compared to $1.26 billion, or 7.7% of total assets, as of December 31, 2020. Our unpledged available-for-sale investment securities and federal funds sold were $1.98 billion ~~and $1.39 billion as of September 30, 2021 and December 31, 2020, respectively.~~

~~As of September 30, 2021, our investment portfolio was comprised of approximately $1.82 billion, or 58.6%, of securities which mature or are expected to paydown within five years.~~As of September 30, 2021 and December 31, 2020, $1.17 billion and $1.08 billion, respectively, were pledged to secure public deposits, as collateral for repurchase agreements, and for other purposes required or permitted by law. The Company defines the liquidity ratio as the sum of cash, unpledged securities and federal funds sold divided by total liabilities. The Company’s liquidity ratio was 35.00% as of September 30, 2021 compared to 19.22% as of December 31, 2020.

~~On the liability side, our~~ principal sources of liquidity are deposits, borrowed funds, and access to capital markets. Customer deposits are our largest sources of funds. As of September 30, 2021, our total deposits were $14.00 billion, or 78.8% of total assets, compared to $12.73 billion, or 77.6% of total assets, as of December 31, 2020. We attract our deposits primarily from individuals, business, and municipalities located in our market areas.

In the event that additional short-term liquidity is needed to temporarily satisfy our liquidity needs, we have established and currently maintain lines of credit with the Federal Reserve Bank (“Federal Reserve”) and First National Bankers Bank to provide short-term borrowings in the form of federal funds purchases. In addition, we maintain lines of credit with two other financial institutions.

~~As of September 30, 2021 and December 31, 2020, we could have borrowed under these lines of credit up to$421.3 millionand $441.8 million, respectively, on a secured basis from the Federal Reserve,~~ ~~up to~~ ~~$35.0 million and $30.0 million, respectively,~~ from First National Bankers’ Bank on an unsecured basis, up to $20.0 million from First National Bankers Bank on a secured basis and up to $45.0 million in the aggregate from other financial institutions on an unsecured basis. The unsecured lines may be terminated by the respective institutions at any time.

~~The lines of credit we maintain with the FHLB can provide us with both short-term and long-term forms of liquidity on a secured basis. FHLB borrowed funds were $400.0 million at~~ ~~September 30, 2021~~ and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, all of the outstanding balances were classified as long-term advances. Our FHLB borrowing capacity was $2.69 billion and $3.32 billion as of September 30, 2021 and December 31, 2020, respectively.

~~We believe that we have sufficient liquidity to satisfy our current operations.~~

~~Market Risk Management~~. Our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. We do not hold market risk sensitive instruments for trading purposes.

Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.

Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset liability management.

Table of Contents

Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available for sale investment portfolio as collateral to provide funds for an intermediate source of liquidity.

Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk.

One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and ~~proportionally~~proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly ~~usually changing less~~ than ~~the change in~~ market rates and changes at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, ~~respectively~~. respectively. At ~~September~~June 30, ~~2021,~~2022, our net interest margin exposure related to these hypothetical changes in market interest rates was within ~~our~~the current ~~guidelines.~~

guidelines established by us.

Table 24 presents our sensitivity to net interest income as of ~~September~~June 30, ~~2021.~~

2022.

Table 24: Sensitivity of Net Interest Income

	~~Percentage~~
		~~Change~~
Interest Rate Scenario		Percentage Change from Base
Up 200 basis points			12.10	~~18.90~~	%
Up 100 basis points			6.20	~~9.42~~
Down 100 basis points			(5.90)	~~(5.09~~	)
Down 200 basis points			(9.60)	~~(8.21~~	)

~~Interest Rate Sensitivity.~~

Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. Management’s goal is to maximize net interest income within acceptable levels

Table of ~~interest rate and liquidity risks.~~Contents

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use repricing gap and simulation modeling as the primary methods in analyzing and managing interest rate risk.

~~Gap analysis attempts to capture the amounts and timing of balances exposed to changes in interest rates at a given point in time.~~ ~~As of September 30, 2021, our gap position was asset sensitive with a one-year cumulative repricing gap as a percentage of total earning assets of 20.5%.~~ ~~During the COVID-19 pandemic, the Company has participated in the PPP loan program under the CARES Act. The Company had $241.5 million of PPP loans as of~~ ~~September 30, 2021. In addition, total deposits have increased by $1.28 billion, $872.4 million of which were demand and non-interest-bearing deposits, for the~~ ~~nine months ended September 30, 2021~~. This, along with the rise in demand and non-interest-bearing deposits and the resulting increase in cash on hand, has caused an uneven shift in the sensitivity of the repricing gap between short-term assets and liabilities. Although PPP loans have maturities of two years, a large percentage of these loans are anticipated to receive SBA forgiveness and be repaid in advance of stated maturities. The Company feels that funding these loans was both beneficial and necessary for our customers in light of the current economic environment and believes the one-year repricing gap increase is temporary in nature. The Company believes the repricing gap would have been more in line with historical experiences had it not been for the decrease in loans, and the excess liquidity that we have with the Federal Reserve.

~~We have a portion of our securities portfolio invested in mortgage-backed securities. Mortgage-backed securities are included~~ based on their final maturity date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

~~Table 25 presents a summary of the repricing schedule of our interest-earning assets and interest-bearing liabilities (gap) as of September 30, 2021.~~

~~Table 25: Interest Rate Sensitivity~~

Interest Rate Sensitivity Period

0-30
Days

31-90
Days

91-180
Days

181-365
Days

1-2
Years

2-5
Years

Over 5
Years

Total

(Dollars in thousands)

Earning assets

Interest-bearing deposits due from banks

$
3,133,878

$
—

$
—

$
—

$
—

$
—

$
—

$
3,133,878

Investment securities

483,800

94,710

100,621

223,513

365,084

822,230

1,060,650

3,150,608

Loans receivable

3,157,959

659,158

865,387

1,478,175

1,563,309

1,878,649

298,463

9,901,100

Total earning assets

6,775,637

753,868

966,008

1,701,688

1,928,393

2,700,879

1,359,113

16,185,586

Interest-bearing liabilities

Interest-bearing transaction and savings
   deposits

$
1,837,536

$
667,414

$
1,001,121

$
2,002,240

$
1,028,070

$
852,885

$
1,424,060

$
8,813,326

Time deposits

130,166

141,265

304,437

288,750

150,120

35,878

280

1,050,896

Securities sold under repurchase agreements

141,002

—

—

—

—

—

—

141,002

FHLB and other borrowed funds

—

—

—

—

—

—

400,000

400,000

Subordinated debentures

71,234

—

—

299,666

—

—

—

370,900

Total interest-bearing liabilities

2,179,938

808,679

1,305,558

2,590,656

1,178,190

888,763

1,824,340

10,776,124

Interest rate sensitivity gap

$
4,595,699

$
(54,811
)

$
(339,550
)

$
(888,968
)

$
750,203

$
1,812,116

$
(465,227
)

$
5,409,462

Cumulative interest rate sensitivity gap

$
4,595,699

$
4,540,888

$
4,201,338

$
3,312,370

$
4,062,573

$
5,874,689

$
5,409,462

Cumulative rate sensitive assets to rate
   sensitive liabilities

310.8
%

251.9
%

197.8
%

148.1
%

150.4
%

165.6
%

150.2
%

Cumulative gap as a % of total earning
   assets

28.4
%

28.1
%

26.0
%

20.5
%

25.1
%

36.3
%

33.4
%

Item 4:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

~~There have not been any~~

On April 1, 2022, we completed our acquisition of Happy Bancshares, Inc. ("Happy"), and as a result, we extended our oversight and monitoring processes that support our internal control over financial reporting during the second quarter of 2022, to include the operations of Happy. Otherwise, there were no changes in the Company’s internal controls over financial reporting during the quarter ended ~~September~~June 30, ~~2021,~~2022, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting~~.

reporting.

PART II: OTHER INFORMATION

Item 1: Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries are a party or of which any of their property is the subject.

Item 1A: Risk Factors

There were no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, ~~2020.~~2021. See the discussion of our risk factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

On January 22, 2021, the Company’s Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of its common stock under the previously approved stock repurchase program, which was last amended and approved on January 18, 2019. This authorization brought the total amount of authorized shares available to repurchase to 23,843,665 shares.

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:

Period

Number of
Shares
Purchased

Average Price
Paid Per Share
Purchased

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs⁽¹⁾

July 1 through July 31, 2021

400,000

23.86

400,000

22,478,665

August 1 through August 31, 2021

—

—

—

22,478,665

September 1 through September 30, 2021

76,500

22.49

76,500

22,402,165

Total

476,500

476,500


Period	Number of Shares Purchased	Average Price Paid Per Share Purchased		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1)
April 1 through April 30, 2022	572,732	$	22.22	572,732	21,337,933
May 1 through May 31, 2022	180,000	21.55		180,000	21,157,933
June 1 through June 30, 2022	280,000	20.92		280,000	20,877,933
Total	1,032,732			1,032,732

(1)

The above described stock repurchase program has no expiration date.

~~(1)~~

~~The above described stock repurchase program has no expiration date.~~

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

Not applicable.

Table of Contents

Item 6: Exhibits


Exhibit No.						Description of Exhibit
2.1 ~~2.2~~						Agreement and Plan of Merger, dated as of September 15, 2021, by and among Home BancShares, Inc., Centennial Bank, Happy Bancshares, Inc., and Happy State Bank (incorporated by reference to Exhibit 2.1 of Home BancShares’s Current Report on Form 8-K filed on September 15, 2021).**

2.2						Amendment and Joinder Agreement, dated as of October 18, 2021, by and among Home Bancshares, Inc., Centennial Bank, Happy Bancshares, Inc., Happy State Bank and HOMB Acquisition Sub III, Inc. (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446))., as amended)
~~3.1~~
2.3						Second Amendment to Agreement and Plan of Merger, dated as of November 8, 2021, by and among Home BancShares, Inc., Centennial Bank, HOMB Acquisition Sub III, Inc., Happy Bancshares, Inc. and Happy State Bank (incorporated by reference to Appendix A of Home BancShares’s registration statement on Form S-4 (File No. 333-260446), as amended)

3.1						Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

3.2						Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.2 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

3.3						Second Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.3 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

3.4						Third Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.4 of Home BancShares’s registration statement on Form S-1 (File No. 333-132427), as amended)

3.5						Fourth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed on August 8, 2007)

3.6						Fifth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 4.6 of Home BancShares’s registration statement on Form S-3 (File No. 333-157165))

3.7						Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, filed with the Secretary of State of the State of Arkansas on January 14, 2009 (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K, filed on January 21, 2009)

3.8						Seventh Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 19, 2013)

3.9						Eighth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 22, 2016)

3.10						Ninth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 23, 2019)

3.11						Tenth Amendment to the Restated Articles of Incorporation of Home BancShares, Inc. (incorporated by reference to Exhibit 4.11 of Home BancShares’s registration statement on Form S-8 (File No. 333-264409))

3.12						Amended and Restated Bylaws of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on January 28, 2021)

~~4.1~~ 3.13						Amendment to the Amended and Restated Bylaws of Home BancShares, Inc. (incorporated by reference to Exhibit 3.1 of Home BancShares’s Current Report on Form 8-K filed on April 22, 2022)

4.1						Specimen Stock Certificate representing Home BancShares, Inc. Common Stock (incorporated by reference to Exhibit ~~4.6~~4.1 2 of ~~Home BancShares’s~~the Company’s registration statement on Form ~~S-1~~S-3ASR (File No. ~~333-132427), as amended)~~333-261495))

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4.2						Instruments defining the rights of security holders including indentures. Home BancShares hereby agrees to furnish to the SEC upon request copies of instruments defining the rights of holders of long-term debt of Home BancShares and its consolidated subsidiaries. No issuance of debt exceeds ten percent of the assets of Home BancShares and its subsidiaries on a consolidated basis.

15 10.1						Employment Agreement by and between Mikel Williamson and Centennial Bank, effective April 1, 2022.***

15						Awareness of Independent Registered Public Accounting Firm*

31.1						CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)*


~~31.2~~
31.2						CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)*

32.1						CEO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*

32.2						CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002*

101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*

101.SCH						Inline XBRL Taxonomy Extension Schema Document*

101.CAL						InlineXBRL Taxonomy Extension Calculation Linkbase Document*

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
~~104~~
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	~~Filed herewith~~

**	The disclosure schedules referenced in the Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally a copy of any omitted disclosure schedule to the SEC upon request.

* Filed herewith

** The disclosure schedules referenced in the Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally a copy of any omitted disclosure schedule to the SEC upon request.

***Filed herewith. Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of SEC Regulation S-K. The Company hereby agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon request.

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SIGNATURES

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

HOME BANCSHARES, INC.

(Registrant)

~~Date:~~	~~November 4, 2021~~
Date:		August 9, 2022	/s/ John W. Allison
			John W. Allison, Chairman and Chief Executive Officer

Date:		~~November 4, 2021~~ August 9, 2022	/s/ Brian S. Davis
			Brian S. Davis, Chief Financial Officer

Date:		~~November 4, 2021~~ August 9, 2022	/s/ Jennifer C. Floyd
			Jennifer C. Floyd, Chief Accounting Officer

~~100~~

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

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

	As of September 30,		As of December 31,
	2021		2020
	(In thousands)
Trust preferred securities
Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75% during the first five years and at a floating rate of 1.85% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty	$	3,093	$	3,093
Subordinated debentures, issued in 2004, due 2034, fixed rate of 6.00% during the first five years and at a floating rate of 2.00% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty		15,464		15,464
Subordinated debentures, issued in 2005, due 2035, fixed rate of 5.84% during the first five years and at a floating rate of 1.45% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty		25,774		25,774
Subordinated debentures, issued in 2004, due 2034, fixed rate of 4.29% during the first five years and at a floating rate of 2.50% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty		16,495		16,495
Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15% above the three-month LIBOR rate, reset quarterly, currently callable without penalty		4,489		4,452
Subordinated debentures, issued in 2006, due 2036, fixed rate of 7.38% during the first five years and at a floating rate of 1.62% above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty		5,919		5,849
Subordinated debt securities
Subordinated notes, net of issuance costs, issued in 2017, due 2027, fixed rate of 5.625% during the first five years and at a floating rate of 3.575% above the then three-month LIBOR rate, reset quarterly, thereafter, callable in 2022 without penalty		299,666		299,199
Total	$	370,900	$	370,326

	Three Months Ended September 30,			Nine Months Ended September 30,
	2021 vs. 2020			2021 vs. 2020
	(In thousands)
Increase (decrease) in interest income due to change in earning assets	$	(18,909	)	$	(26,219	)
Increase (decrease) in interest income due to change in earning asset yields		9,508			(8,889	)
(Increase) decrease in interest expense due to change in interest-bearing liabilities		1,666			5,522
(Increase) decrease in interest expense due to change in interest rates paid on interest-bearing liabilities		6,380			30,113
Increase (decrease) in net interest income	$	(1,355	)	$	527

	Interest Rate Sensitivity Period
	0-30 Days			31-90 Days			91-180 Days			181-365 Days			1-2 Years			2-5 Years			Over 5 Years			Total
	(Dollars in thousands)
Earning assets
Interest-bearing deposits due from banks	$	3,133,878		$	—		$	—		$	—		$	—		$	—		$	—		$	3,133,878
Investment securities		483,800			94,710			100,621			223,513			365,084			822,230			1,060,650			3,150,608
Loans receivable		3,157,959			659,158			865,387			1,478,175			1,563,309			1,878,649			298,463			9,901,100
Total earning assets		6,775,637			753,868			966,008			1,701,688			1,928,393			2,700,879			1,359,113			16,185,586
Interest-bearing liabilities
Interest-bearing transaction and savings deposits	$	1,837,536		$	667,414		$	1,001,121		$	2,002,240		$	1,028,070		$	852,885		$	1,424,060		$	8,813,326
Time deposits		130,166			141,265			304,437			288,750			150,120			35,878			280			1,050,896
Securities sold under repurchase agreements		141,002		—			—			—			—			—			—				141,002
FHLB and other borrowed funds	—			—			—			—			—			—				400,000			400,000
Subordinated debentures		71,234		—			—				299,666		—			—			—				370,900
Total interest-bearing liabilities		2,179,938			808,679			1,305,558			2,590,656			1,178,190			888,763			1,824,340			10,776,124
Interest rate sensitivity gap	$	4,595,699		$	(54,811	)	$	(339,550	)	$	(888,968	)	$	750,203		$	1,812,116		$	(465,227	)	$	5,409,462
Cumulative interest rate sensitivity gap	$	4,595,699		$	4,540,888		$	4,201,338		$	3,312,370		$	4,062,573		$	5,874,689		$	5,409,462
Cumulative rate sensitive assets to rate sensitive liabilities		310.8	%		251.9	%		197.8	%		148.1	%		150.4	%		165.6	%		150.2	%
Cumulative gap as a % of total earning assets		28.4	%		28.1	%		26.0	%		20.5	%		25.1	%		36.3	%		33.4	%