What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-09 · 289 added, 260 removed, 1604 unchanged (25% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

(In thousands, except share data) June 30, 2022 December 31, 2021

(In thousands, except share data) September 30, 2022 December 31, 2021

Cash and due from banks $ 268,929 $ 119,908

1 unchanged sentence

Cash and cash equivalents 1,580,421 3,650,315

Fed funds sold 2,700 —

Investment securities – available-for-sale, net of allowance for credit losses 4,085,102 3,119,807

10 unchanged sentences

Goodwill 1,394,353 973,025

Core deposit and other intangibles 63,410 25,045

Core deposit intangibles 60,932 25,045

Other assets 300,634 177,020

23 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands, except per share data) 2022 2021 2022 2021

30 unchanged sentences

Gain on sale of SBA loans 58 439 153 1,588

Gain (loss) on sale of branches, equipment and other assets, net 2 ( 23 ) 18 ( 52 )

(Loss) gain on sale of branches, equipment and other assets, net ( 13 ) ( 34 ) 5 ( 86 )

Gain on OREO, net — 246 487 1,266

19 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2022 2021 2022 2021

Net income $ 108,705 $ 74,992 $ 189,575 $ 245,664

Net unrealized (loss) gain on available-for-sale securities ( 146,888 ) 13,091 ( 302,603 ) ( 20,309 )

Other comprehensive (loss) income before tax effect ( 146,888 ) 13,091 ( 302,603 ) ( 20,309 )

Tax effect on other comprehensive loss (income) 35,540 ( 3,421 ) 76,236 5,308

Other comprehensive (loss) income ( 111,348 ) 9,670 ( 226,367 ) ( 15,001 )

Comprehensive (loss) income $ ( 95,370 ) $ 88,740 $ ( 145,497 ) $ 155,671

Net unrealized loss on available-for-sale securities ( 122,307 ) ( 4,218 ) ( 424,910 ) ( 24,527 )

Other comprehensive loss before tax effect ( 122,307 ) ( 4,218 ) ( 424,910 ) ( 24,527 )

Tax effect on other comprehensive loss 30,757 1,102 106,993 6,410

Other comprehensive loss ( 91,550 ) ( 3,116 ) ( 317,917 ) ( 18,117 )

Comprehensive income (loss) $ 17,155 $ 71,876 $ ( 128,342 ) $ 227,547

See Condensed Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2022

Three and Nine Months Ended September 30, 2022

(In thousands, except share data) Common

28 unchanged sentences

Balances at June 30, 2022 (unaudited) $ 2,053 $ 2,426,271 $ 1,286,146 $ ( 215,905 ) $ 3,498,565

Comprehensive income:

Net Income — — 108,705 — 108,705

Other comprehensive loss — — — ( 91,550 ) ( 91,550 )

Net issuance of 1,574 shares of common stock from exercise of stock options

Repurchase of 1,045,799 shares of common stock

( 10 ) ( 24,278 ) — — ( 24,288 )

Share-based compensation net forfeiture of 27,250 shares of restricted stock

( 1 ) 2,395 — — 2,394

Cash dividends – Common Stock, $ 0.165 per share

— — ( 33,811 ) — ( 33,811 )

Balances at September 30, 2022 (unaudited) $ 2,042 $ 2,404,388 $ 1,361,040 $ ( 307,455 ) $ 3,460,015

See Condensed Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2021

For the Three and Nine Months Ended September 30, 2021

(In thousands, except share data) Common

25 unchanged sentences

Balances at June 30, 2021 (unaudited) $ 1,645 $ 1,501,615 $ 1,163,810 $ 29,119 $ 2,696,189

Comprehensive income:

Net income — — 74,992 — 74,992

Other comprehensive loss — — — ( 3,116 ) ( 3,116 )

Repurchase of 476,500 shares of common stock

( 5 ) ( 11,274 ) — — ( 11,279 )

Share-based compensation net forfeiture of 4,000 shares of restricted stock

— 2,247 — — 2,247

Cash dividends – Common Stock, $ 0.14 per share

— — ( 22,971 ) — ( 22,971 )

Balances at September 30, 2021 (unaudited) $ 1,640 $ 1,492,588 $ 1,215,831 $ 26,003 $ 2,736,062

See Condensed Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2022

Nine Months Ended September 30,

(In thousands) 2022 2021

3 unchanged sentences

Depreciation & amortization 23,546 14,457

Increase in value of equity securities ( 324 ) ( 7,032 )

Decrease (increase) in value of equity securities 2,304 ( 7,093 )

Amortization of securities, net 17,324 21,018

2 unchanged sentences

Gain on assets ( 645 ) ( 2,987 )

Provision for credit losses - acquired loans 45,170 —

Provision for credit losses - acquired unfunded commitments 11,410 —

Provision for credit losses - acquired loans & unfunded commitments 56,580 —

Provision for credit losses - unfunded commitments — ( 4,752 )

10 unchanged sentences

Investing Activities

Net increase in federal funds sold ( 2,700 ) —

Net (increase) decrease in loans, excluding purchased loans ( 84,995 ) 1,278,846

59 unchanged sentences

Interim financial information

The accompanying unaudited consolidated financial statements as of June 30, 2022 and 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.

The accompanying unaudited consolidated financial statements as of September 30, 2022 and 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.

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.

10 unchanged sentences

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, commercial real estate price index, housing price index and national retail sales index.

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, national retail sales index, housing price indices and rental vacancy rate index.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics.

72 unchanged sentences

The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310.

• Trust fees - The Company enters into contracts with its customers to manage assets for investment, and/or transact on their accounts.

The Company generally satisfies its performance obligations as services are rendered.

The management fees are percentage based, flat, percentage of income or a fixed percentage calculated upon the average balance of assets depending upon account type.

Fees are collected on a monthly or annual basis.

Earnings per Share

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

12 unchanged sentences

In 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.

The acquisition added new markets for expansion and brings complementary businesses together to drive synergies and growth.

The acquisition added new markets for expansion and brought complementary businesses together to drive synergies and growth.

Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 6.69 billion in total assets, $ 3.65 billion in loans and $ 5.86 billion in customer deposits.

6 unchanged sentences

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 assets acquired and liabilities assumed as of the acquisition date:

The following schedule is a preliminary breakdown of the assets acquired and liabilities assumed as of the acquisition date as adjusted during the measurement period:

Happy Bancshares, Inc.

53 unchanged sentences

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.

During the third quarter of 2022, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities and received updated information resulting in the revised fair values displayed below.

We updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill.

The changes are gross of taxes and reflected in the following table:

Acquired Asset or Liability Balance Sheet Line Item Provisional Estimate Revised Estimate Increase (Decrease)

(In thousands)

Cash and due from banks Cash and due from banks 112,867 112,912 45

Loans receivable Loans receivable 3,652,706 3,652,620 ( 86 )

Bank premises and equipment, net Bank premises and equipment, net 142,067 146,665 4,598

Deferred tax asset, net Deferred tax asset, net 35,414 34,025 ( 1,389 )

Equity method investments & other receivables Other assets 49,752 50,563 811

Goodwill Goodwill 425,375 421,328 ( 4,047 )

Demand and non-interest bearing deposits Demand and non-interest bearing deposits 1,932,756 1,932,816 60

Accrued expense Accrued interest payable and other liabilities 44,759 44,631 ( 128 )

All measurement period adjustments made during third quarter of 2022 have been deemed insignificant individually and in the aggregate.

The Company will finalize its valuation of the Happy acquisition within the measurement period (no later than April 1, 2023).

The impact to the income statement resulting from the changes to the estimated fair values was insignificant.

We continue to analyze the assumptions and related valuation results associated with the acquired assets and assumed liabilities, and accordingly, the valuations of these assets and liabilities are not final as of September 30, 2022.

However, the valuations will be finalized no later than April 1, 2023.

As the valuations remain provision and subject to updates, the purchase accounting accretion/amortization are also subject to adjustments.

The unaudited pro-forma combined consolidated financial information presents how the combined financial information of HBI and Happy 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:

The following schedule represents the unaudited pro forma combined financial information as of the three and nine-month periods ended September 30, 2022 and 2021, assuming the acquisition was completed as of January 1, 2021:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

6 unchanged sentences

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 beginning of the 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 three and six months ended June 30, 2022 and 2021, respectively.

Pro-forma results include Happy merger expenses of $ 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 nine months ended September 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.

11 unchanged sentences

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

September 30, 2022

Available-for-Sale

7 unchanged sentences

Total $ 4,496,711 $ ( 842 ) $ 4,495,869 $ 4,032 $ ( 414,799 ) $ 4,085,102

June 30, 2022

September 30, 2022

Held-to-Maturity

1 unchanged sentence

(In thousands)

Treasuries $ 277,688 $ — $ 277,688 $ — $ ( 1,659 ) $ 276,029

government-sponsored enterprises $ 42,950 $ — $ 42,950 $ — $ ( 3,092 ) $ 39,858

Residential mortgage-backed securities 42,920 — 42,920 — ( 612 ) 42,308

Commercial mortgage-backed securities 55,610 — 55,610 — ( 923 ) 54,687

State and political subdivisions 1,111,532 ( 2,005 ) 1,109,527 19 ( 145,241 ) 964,305

13 unchanged sentences

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

Assets, principally investment securities, having a carrying value of approximately $ 2.77 billion and $ 1.15 billion at June 30, 2022 and December 31, 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 $ 118.6 million and $ 140.9 million at June 30, 2022 and December 31, 2021, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at June 30, 2022, by contractual maturity, are shown below.

Assets, principally investment securities, having a carrying value of approximately $ 2.27 billion and $ 1.15 billion at September 30, 2022 and December 31, 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 $ 121.6 million and $ 140.9 million at September 30, 2022 and December 31, 2021, respectively.

The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at September 30, 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.

12 unchanged sentences

Total $ 4,496,711 $ 4,085,102 $ 1,253,012 $ 1,101,158

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

During the three months ended June 30, 2021, no available-for-sale securities were sold.

There were no realized gains or losses recorded on sales for the three months ended June 30, 2021.

During the six months ended 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 six months ended June 30, 2021.

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 June 30, 2022 and December 31, 2021.

June 30, 2022

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

During the three months ended September 30, 2021, no available-for-sale securities were sold.

There were no realized gains or losses recorded on sales for the three months ended September 30, 2021.

During the nine months ended September 30, 2021, $ 17.9 million in available-for-sale securities were sold.

The gross realized gains on the sales totaled $ 219,000 for the nine months ended September 30, 2021.

September 30, 2022

Less Than 12 Months 12 Months or More Total

8 unchanged sentences

Held-to-maturity:

Treasuries 276,029 ( 1,659 ) — — 276,029 ( 1,659 )

government-sponsored enterprises 39,858 ( 3,092 ) — — 39,858 ( 3,092 )

State and political subdivisions 957,918 ( 145,241 ) — — 957,918 ( 145,241 )

Residential mortgage-backed securities 14,973 ( 612 ) — — 14,973 ( 612 )

Commercial mortgage-backed securities 16,513 ( 923 ) — — 16,513 ( 923 )

Total $ 1,029,262 $ ( 149,868 ) $ — $ — $ 1,029,262 $ ( 149,868 )

21 unchanged sentences

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 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 held-to-maturity portfolio resulting from the Happy acquisition was considered adequate.

The remainder of investments classified as held-to-maturity are U.S government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S.

Due to the inherent low risk in these U.S.

government guaranteed securities, no provision for credit loss was established on this portion of the portfolio.

At September 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 held-to-maturity portfolio was considered adequate.

No additional provision for credit losses was considered necessary for the portfolio.

Available-for-Sale Investment Securities

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

2 unchanged sentences

Provision for credit loss — —

Balance, June 30

Balance, September 30

Provision for credit loss —

1 unchanged sentence

Held-to-Maturity Investment Securities

June 30, 2022 December 31, 2021

State and Political Subdivisions U.S.

Treasuries State and Political Subdivisions U.S.

September 30, 2022 December 31, 2021

State and Political Subdivisions Other Securities State and Political Subdivisions Other Securities

Allowance for credit losses:

4 unchanged sentences

Recoveries — — — —

Balance, June 30, 2022 $ ( 2,005 ) $ — $ — $ —

For the six months ended June 30, 2022, the Company had investment securities with approximately $ 63.2 million in unrealized losses, which have been in continuous loss positions for more than twelve months.

Balance, September 30, 2022 $ ( 2,005 ) $ — $ — $ —

For the nine months ended September 30, 2022, the Company had available-for-sale investment securities with approximately $ 207.4 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.

1 unchanged sentence

As a result, the Company has the ability and intent to hold such securities until maturity.

As of June 30, 2022, the Company's available-for-sale securities portfolio consisted of 1,644 investment securities, 1,333 of which were in an unrealized loss position.

As of September 30, 2022, the Company's available-for-sale securities portfolio consisted of 1,659 investment securities, 1,439 of which were in an unrealized loss position.

As noted in the table above, the total amount of the unrealized loss was $ 414.8 million.

5 unchanged sentences

The Company expects to recover the amortized cost basis over the term of the securities.

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, 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 consisted of 482 investment securities, 480 of which were in an unrealized loss position.

As of September 30, 2022, the Company's held-to-maturity securities portfolio consisted of 501 investment securities, 487 of which were in an unrealized loss position.

As noted in the table above, the total amount of the unrealized loss was $ 149.9 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

government-sponsored enterprises portfolio contained unrealized losses of $ 3.1 million on 5 securities.

The state and political subdivisions portfolio contained $ 145.2 million of unrealized losses on 477 securities.

The residential mortgage-backed securities portfolio contained 612,000 of unrealized losses on 3 securities, and the commercial mortgage-backed securities portfolio contained 923,000 of unrealized losses on 2 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.

Because the decline in market value was attributable to changes in interest rates and not credit quality, the Company has determined that an additional provision for credit losses is not necessary as of September 30, 2022.

State and Political Subdivisions Other Securities Total

(In thousands)

4 unchanged sentences

Not rated 1,598 — 1,598

Agency Backed — 98,530 98,530

Total $ 1,111,532 $ 141,480 $ 1,253,012

Income earned on securities for the three and six months ended June 30, 2022 and 2021, is as follows:

Income earned on securities for the three and nine months ended September 30, 2022 and 2021, is as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

7 unchanged sentences

The various categories of loans receivable are summarized as follows:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

16 unchanged sentences

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 months ended June 30, 2022, the Company did no t sell any guaranteed portions of certain SBA loans.

During the six months ended June 30, 2022, the Company sold $ 2.8 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $ 95,000 .

During the three months ended June 30, 2021, the Company did not sell any guaranteed portions of certain SBA loans.

During the six months ended June 30, 2021, the Company sold $ 11.1 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $ 1.1 million.

Mortgage loans held for sale of approximately $ 137.8 million and $ 72.7 million at June 30, 2022 and December 31, 2021, respectively, are included in residential 1-4 family loans.

During the three months ended September 30, 2022, the Company sold $ 826,524 of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $ 58,000 .

During the nine months ended September 30, 2022, the Company sold $ 3.6 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $ 153,000 .

During the three months ended September 30, 2021, the Company sold $ 3.9 million guaranteed portions of certain SBA loans, which resulted in a gain of $ 439,000 .

During the nine months ended September 30, 2021, the Company sold $ 15.0 million of the guaranteed portions of certain SBA loans, which resulted in a gain of approximately $ 1.6 million.

Mortgage loans held for sale of approximately $ 86.7 million and $ 72.7 million at September 30, 2022 and December 31, 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.

4 unchanged sentences

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 June 30, 2022 and December 31, 2021 were not material.

These commitments are derivative instruments and their fair values at September 30, 2022 and December 31, 2021 were not material.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans.

5 unchanged sentences

Subsequent changes to the allowance for credit losses are recorded through the provision 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.

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

The Company held approximately $ 146.0 million and $ 448,000 in PCD loans, as of September 30, 2022 and December 31, 2021, respectively.

This balance, as of September 30, 2022, consisted of $ 145.5 million resulting from the acquisition of Happy and $ 422,000 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 2021 Form 10-K filed with the SEC on February 24, 2022.

28 unchanged sentences

Based on this analysis during the second quarter of 2022, management determined 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 both June 30, 2022 and December 31, 2021.

The identified loss drivers by segment are included below as of both September 30, 2022 and December 31, 2021.

Loss Driver Segment Call Report Segment(s) Modeled Economic Factors

44 unchanged sentences

The off-balance sheet credit exposures exhibit similar risk characteristics as loans currently in the Company’s loan portfolio.

ASC 326 requires that both a discount and allowance for credit losses be recorded on loans during an acquisition.

ASC 326 requires that both a discount and an allowance for credit losses be recorded on loans during an acquisition.

The Company completed the acquisition of Happy on April 1, 2022.

1 unchanged sentence

In addition, 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.

The following table presents the activity in the allowance for credit losses for the three and six months ended June 30, 2022:

Three Months Ended June 30, 2022

The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2022:

Three Months Ended September 30, 2022

Construction/

7 unchanged sentences

Beginning balance $ 36,689 $ 115,195 $ 51,146 $ 68,309 $ 22,928 $ 294,267

Allowance for credit losses on PCD loans - Happy acquisition 950 9,283 980 5,596 7 16,816

Loans charged off ( 11 ) — ( 48 ) ( 4,536 ) ( 1,718 ) ( 6,313 )

Recoveries of loans previously charged off

Recoveries of loans previously charged

8 778 45 189 229 1,249

1 unchanged sentence

( 3 ) 778 ( 3 ) ( 4,347 ) ( 1,489 ) ( 5,064 )

Provision for credit losses - acquired loans 7,205 18,711 7,380 11,303 571 45,170

Provision for credit losses ( 1,999 ) ( 23,560 ) ( 1,322 ) 25,459 1,422 —

Balance, June 30

Balance, September 30

$ 34,687 $ 92,413 $ 49,821 $ 89,421 $ 22,861 $ 289,203

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Construction/

3 unchanged sentences

Allowance for credit losses on PCD loans - Happy acquisition

950 9,283 980 5,596 7 16,816

Loans charged off ( 11 ) — ( 337 ) ( 5,952 ) ( 5,588 ) ( 11,888 )

Recoveries of loans previously charged off

Recoveries of loans previously charged

325 856 94 519 597 2,391

2 unchanged sentences

Provision for credit losses - acquired loans

7,205 18,711 7,380 11,303 571 45,170

Provision for credit losses ( 2,197 ) ( 23,655 ) ( 6,754 ) 24,893 7,713 —

Balance, June 30 $ 36,689 $ 115,195 $ 51,146 $ 68,309 $ 22,928 $ 294,267

The following table presents the balances in the allowance for credit losses for the six-month period ended June 30, 2021 and the year ended December 31, 2021:

Six Months Ended June 30, 2021 and Year Ended December 31, 2021

Balance, September 30 $ 34,687 $ 92,413 $ 49,821 $ 89,421 $ 22,861 $ 289,203

The following table presents the activity in the allowance for credit losses for the three and nine-months ended September 30, 2021 and the year ended December 31, 2021:

Three Months Ended September 30, 2021

Construction/

(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

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 and Year Ended December 31, 2021

Construction/

Development Other

11 unchanged sentences

Provision for credit loss - loans ( 6,925 ) 579 ( 2,324 ) 11,582 ( 2,912 ) —

Balance, June 30

Balance, September 30

25,983 88,498 50,903 52,602 20,687 238,673

7 unchanged sentences

$ 28,415 $ 87,218 $ 48,458 $ 53,062 $ 19,561 $ 236,714

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

June 30, 2022

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

September 30, 2022

Nonaccrual Nonaccrual

31 unchanged sentences

Total $ 47,158 $ 9,230 $ 3,035

The Company had $ 44.2 million and $ 47.2 million in nonaccrual loans for the periods ended June 30, 2022 and December 31, 2021, respectively.

In addition, the Company had $ 16.4 million and $ 3.0 million in loans past due 90 days or more and still accruing for the periods ended June 30, 2022 and December 31, 2021, respectively.

The Company had $ 4.4 million and $ 9.2 million in nonaccrual loans with a specific reserve as of June 30, 2022 and December 31, 2021, respectively.

The Company did not recognize any interest income on nonaccrual loans during the period ended June 30, 2022 or June 30, 2021.

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

June 30, 2022

The Company had $ 56.8 million and $ 47.2 million in nonaccrual loans for the periods ended September 30, 2022 and December 31, 2021, respectively.

In addition, the Company had $ 4.9 million and $ 3.0 million in loans past due 90 days or more and still accruing for the periods ended September 30, 2022 and December 31, 2021, respectively.

The Company had $ 8.3 million and $ 9.2 million in nonaccrual loans with a specific reserve as of September 30, 2022 and December 31, 2021, respectively.

The Company did not recognize any interest income on nonaccrual loans during the period ended September 30, 2022 or September 30, 2021.

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

September 30, 2022

Real Estate Residential

29 unchanged sentences

Total $ 289,591 $ 21,075 $ 20,872

The Company had $ 385.1 million and $ 331.5 million in collateral-dependent impaired loans for the periods ended June 30, 2022 and December 31, 2021, respectively.

The Company had $ 229.3 million and $ 331.5 million in collateral-dependent impaired loans for the periods ended September 30, 2022 and December 31, 2021, respectively.

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.

For collateral-dependent impaired loans, excluding assisted living loans which are evaluated using a market price valuation methodology, 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.

1 unchanged sentence

The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

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

June 30, 2022

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

September 30, 2022

30-59 Days Loans

35 unchanged sentences

Total $ 4,764 $ 5,153 $ 50,193 $ 60,110 $ 9,775,979 $ 9,836,089 $ 3,035

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

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and six months ended June 30, 2022 was approximately $ 4.8 million and $ 9.5 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and six months ended June 30, 2021 was approximately $ 3.6 million and $ 7.1 million, respectively.

Non-accruing loans at September 30, 2022 and December 31, 2021 were $ 56.8 million and $ 47.2 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2022 was approximately $ 2.8 million and $ 8.2 million, respectively.

Interest recognized on impaired loans, including those loans with a specific reserve, during the three and nine months ended September 30, 2021 was approximately $ 3.3 million and $ 9.8 million, respectively.

The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis.

46 unchanged sentences

(2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

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

June 30, 2022

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

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

43 unchanged sentences

Total residential 1-4 family 321,483 293,841 248,874 131,266 122,460 412,351 174,575 1,704,850

June 30, 2022

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

135 unchanged sentences

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 June 30, 2022 and December 31, 2021.

June 30, 2022

The following tables present the amortized cost of performing and nonperforming loans as of September 30, 2022 and December 31, 2021.

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

85 unchanged sentences

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 $ 13.8 million or 83 total revolving loans convert to term loans for the six months ended June 30, 2022 compared to $ 21.7 million or 140 total revolving loans convert to term loans for the six months ended June 30, 2021.

The Company had approximately $ 17.6 million or 136 total revolving loans convert to term loans for the nine months ended September 30, 2022 compared to $ 27.8 million or 201 total revolving loans convert to term loans for the nine months ended September 30, 2021.

These loans were considered immaterial for vintage disclosure inclusion.

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

June 30, 2022

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

September 30, 2022

of Loans Pre-

6 unchanged sentences

Construction/land development 1 216 193 — — 193

Agricultural — — — — — —

Residential real estate loans

22 unchanged sentences

Total 44 $ 12,474 $ 6,226 $ 806 $ 494 $ 7,526

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

June 30, 2022 December 31, 2021

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

September 30, 2022 December 31, 2021

Loans Recorded

12 unchanged sentences

Total 19 $ 1,434 18 $ 1,076

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

June 30, 2022 December 31, 2021

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

September 30, 2022 December 31, 2021

(In thousands)

6 unchanged sentences

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

As of June 30, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $ 152.3 million and $ 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 .

As of September 30, 2022 and December 31, 2021, the balance of purchase credit deteriorated loans was approximately $ 146.0 million and $ 448,000 , respectively.

This balance, as of September 30, 2022, consisted of $ 145.5 million resulting from the acquisition of Happy and $ 422,000 from the acquisition of LH-Finance .

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 June 30, 2022 and December 31, 2021, were as follows:

June 30, 2022 December 31, 2021

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

September 30, 2022 December 31, 2021

(In thousands)

2 unchanged sentences

Balance, end of period $ 1,394,353 $ 973,025

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

Core Deposit and Other Intangibles

Core Deposit Intangibles

Balance, beginning of period $ 25,045 $ 30,728

1 unchanged sentence

Amortization expense ( 6,376 ) ( 4,262 )

Balance, June 30

Balance, September 30

60,932 26,466

1 unchanged sentence

Balance, end of year $ 25,045

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

June 30, 2022 December 31, 2021

The carrying basis and accumulated amortization of core deposit intangibles at September 30, 2022 and December 31, 2021 were :

September 30, 2022 December 31, 2021

(In thousands)

2 unchanged sentences

Net carrying amount $ 60,932 $ 25,045

Core deposit and other intangible amortization expense was approximately $ 2.5 million and $ 1.4 million for the three months ended June 30, 2022 and 2021, respectively.

Core deposit and other intangible amortization expense was approximately $ 3.9 million and $ 2.8 million for the six months ended June 30, 2022 and 2021, respectively.

The Company’s estimated amortization expense of core deposits and other intangibles for each of the years 2022 through 2026 is approximately:

Core deposit intangible amortization expense was approximately $ 2.5 million and $ 1.4 million for the three months ended September 30, 2022 and 2021, respectively.

Core deposit intangible amortization expense was approximately $ 6.4 million and $ 4.3 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company’s estimated amortization expense of core deposits intangibles for each of the years 2022 through 2026 is approximately:

2022 – $ 8.9 million;

3 unchanged sentences

2026 – $ 7.8 million.

The carrying amount of the Company’s goodwill was $ 1.40 billion and $ 973.0 million at June 30, 2022 and December 31, 2021, respectively.

The carrying amount of the Company’s goodwill was $ 1.39 billion and $ 973.0 million at September 30, 2022 and December 31, 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.

2 unchanged sentences

Other assets consist primarily of equity securities without a readily determinable fair value and other miscellaneous assets.

As of June 30, 2022 and December 31, 2021, other assets were $ 271.0 million and $ 177.0 million, respectively.

As of September 30, 2022 and December 31, 2021, other assets were $ 300.6 million and $ 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 $ 112.1 million and $ 88.2 million at June 30, 2022 and December 31, 2021, and are accounted for at cost.

These equity securities without a readily determinable fair value were $ 120.7 million and $ 88.2 million at September 30, 2022 and December 31, 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 $ 70.3 million and $ 36.4 million at June 30, 2022 and December 31, 2021.

These equity securities without a readily determinable fair value were $ 72.6 million and $ 36.4 million at September 30, 2022 and December 31, 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 .

The aggregate amount of time deposits with a minimum denomination of $250,000 was $ 353.2 million and $ 321.6 million at June 30, 2022 and December 31, 2021.

The aggregate amount of time deposits with a minimum denomination of $100,000 was $ 688.2 million and $ 537.4 million at June 30, 2022 and December 31, 2021, respectively.

Interest expense applicable to certificates in excess of $100,000 totaled $ 661,000 and $ 2.0 million for the three months ended June 30, 2022 and 2021.

Interest expense applicable to certificates in excess of $100,000 totaled $ 1.4 million and $ 4.4 million for the six months ended June 30, 2022 and 2021.

As of June 30, 2022 and December 31, 2021, brokered deposits were $ 626.9 million and $ 625.7 million, respectively.

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

Securities Sold Under Agreements to Repurchase

At June 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $ 118.6 million and $ 140.9 million, respectively.

For the three-month periods ended June 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 123.1 million and $ 157.6 million, respectively.

For the six-month periods ended June 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 130.2 million and $ 158.6 million, respectively.

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

June 30, 2022

Overnight and

Up to 30 Days 30-90

Days Greater than

90 Days Total

(In thousands)

The aggregate amount of time deposits with a minimum denomination of $250,000 was $ 303.2 million and $ 321.6 million at September 30, 2022 and December 31, 2021, respectively.

The aggregate amount of time deposits with a minimum denomination of $100,000 was $ 615.1 million and $ 537.4 million at September 30, 2022 and December 31, 2021, respectively.

Interest expense applicable to certificates in excess of $100,000 totaled $ 615,000 and $ 1.7 million for the three months ended September 30, 2022 and 2021, respectively.

Interest expense applicable to certificates in excess of $100,000 totaled $ 2.0 million and $ 6.1 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and December 31, 2021, brokered deposits were $ 546.6 million and $ 625.7 million, respectively.

Deposits totaling approximately $ 2.56 billion and $ 1.91 billion at September 30, 2022 and December 31, 2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

Securities Sold Under Agreements to Repurchase

government-sponsored enterprises $ 6,540 $ — $ — $ — $ 6,540

Mortgage-backed securities 3,300 — — — 3,300

State and political subdivisions 105,319 — — — 105,319

Other securities 3,414 — — — 3,414

Total borrowings $ 118,573 $ — $ — $ — $ 118,573

December 31, 2021

At September 30, 2022 and December 31, 2021, securities sold under agreements to repurchase totaled $ 121.6 million and $ 140.9 million, respectively.

For the three-month periods ended September 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 126.8 million and $ 143.9 million, respectively.

For the nine-month periods ended September 30, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 129.1 million and $ 153.7 million, respectively.

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

September 30, 2022 December 31, 2021

Overnight and

Continuous Up to 30 Days 30-90

Days Greater than

90 Days Total

Total Overnight and

(In thousands)

6 unchanged sentences

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 400.0 million at both June 30, 2022 and December 31, 2021.

The Company had no other borrowed funds as of June 30, 2022 or December 31, 2021.

At June 30, 2022 and December 31, 2021, all of the outstanding balances were classified as long-term advances.

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 400.0 million at both September 30, 2022 and December 31, 2021 .

The Company had no other borrowed funds as of September 30, 2022 or December 31, 2021.

At September 30, 2022 all of the outstanding balances were classified as short-term advances as the FHLB has provided notice of their intention to call all of the Company's FHLB borrowed funds within a year due to the low interest rates on the advances.

At December 31, 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 $ 1.09 billion and $ 1.07 billion at June 30, 2022 and December 31, 2021, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at June 30, 2022 and December 31, 2021, respectively.

As noted above, 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 $ 1.09 billion and $ 1.07 billion at September 30, 2022 and December 31, 2021, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at September 30, 2022 and December 31, 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 June 30, 2022 and December 31, 2021 was zero .

The balance on this line of credit at September 30, 2022 and December 31, 2021 was zero .

Subordinated Debentures

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

As of June 30, 2022

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

As of September 30, 2022

December 31, 2021

2 unchanged sentences

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

Subordinated debentures, issued in 2003, due 2034, floating rate of 2.95 % above the three-month LIBOR rate, reset quarterly, currently callable without penalty

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

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

9 unchanged sentences

Trust Preferred Securities.

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 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 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.

During the second and third quarters of 2022, the Company redeemed, without penalty, the $ 23.2 million of the trust preferred securities acquired from Happy.

In addition, during the second and third quarters, the Company also redeemed, without penalty, the $ 73.3 million of trust preferred securities held prior to the Happy acquisition.

As a result, the Company no longer holds any trust preferred securities.

Subordinated Debt Securities .

12 unchanged sentences

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 “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 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 2027 Notes were unsecured, subordinated debt obligations and would have matured on April 15, 2027.

From and including the date of issuance to, but excluding April 15, 2022, the 2027 Notes bore 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 were to 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 was less than zero, then three-month LIBOR would have been 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, 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.

2 unchanged sentences

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.

The following is a summary of the components of the provision for income taxes for the three and six months ended June 30, 2022 and 2021:

For the Three Months Ended June 30, For the Six Months Ended June 30,

The following is a summary of the components of the provision for income taxes for the three and nine months ended September 30, 2022 and 2021:

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

7 unchanged sentences

Income tax expense $ 33,254 $ 23,209 $ 56,577 $ 77,177

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

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

6 unchanged sentences

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,

2022 December 31,

10 unchanged sentences

Investments 29,609 263

Deposits 207 —

Other 12,694 5,283

17 unchanged sentences

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 six months of 2022, the Company repurchased a total of 1,212,732 shares with a weighted-average stock price of $ 21.89 per share.

Shares repurchased under the program as of June 30, 2022 since its inception total 18,874,067 shares.

The remaining balance available for repurchase is 20,877,933 shares at June 30, 2022.

During the first nine months of 2022, the Company repurchased a total of 2,258,531 shares with a weighted-average stock price of $ 22.50 per share.

Shares repurchased under the program as of September 30, 2022 since its inception total 19,919,866 shares.

The remaining balance available for repurchase is 19,832,134 shares at September 30, 2022.

Stock Compensation Plans

3 unchanged sentences

The purpose of the 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 June 30, 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 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 June 30, 2022, the Company had 2,617,211 shares of common stock available for future grants under 2022 Plan, subject to shareholder approval of the 2022 Plan.

As of June 30, 2022, a total of 5,761,527 shares of common stock were reserved for issuance pursuant to the Plans.

The intrinsic value of the stock options outstanding and stock options vested at June 30, 2022 was $ 5.7 million and $ 5.4 million, respectively.

The intrinsic value of stock options exercised during the six months ended June 30, 2022 was approximately $ 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 $ 5.5 million as of June 30, 2022.

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

For the Six Months Ended June 30, 2022 For the Year Ended

As of September 30, 2022, the maximum total number of shares of the Company’s common stock available for issuance under the 2022 Plan was 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 30, 2022, the Company had 2,685,187 shares of common stock available for future grants under 2022 Plan.

As of September 30, 2022, a total of 5,787,203 shares of common stock were reserved for issuance pursuant to the Plans.

The intrinsic value of the stock options outstanding and stock options vested at September 30, 2022 was $ 8.6 million and $ 8.3 million, respectively.

The intrinsic value of stock options exercised during the nine months ended September 30, 2022 was approximately $ 259,000 .

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

For the Nine Months Ended September 30, 2022 For the Year Ended

December 31, 2021

12 unchanged sentences

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 six months ended June 30, 2022 was $ 5.17 per share.

There were 178,000 options granted during the six months ended June 30, 2022.

The weighted-average fair value of options granted during the nine months ended September 30, 2022 was $ 5.19 per share.

There were 180,500 options granted during the nine months ended September 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 2022 and 2021 stock option grants were as follows:

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

For the Year Ended December 31, 2021

3 unchanged sentences

Expected life of options 6.5 years 6.5 years

The following is a summary of currently outstanding and exercisable options at June 30, 2022:

The following is a summary of currently outstanding and exercisable options at September 30, 2022:

Options Outstanding Options Exercisable

24 unchanged sentences

101 5.67 25.37 77 25.74

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

June 30, 2022

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

September 30, 2022

December 31, 2021

5 unchanged sentences

End of period 1,388 1,231

Amount of expense for six months and twelve months ended, respectively

Amount of expense for nine months and twelve months ended, respectively

$ 5,663 $ 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 $ 19.2 million as of June 30, 2022.

Non-Interest Expense

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

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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In addition, equipment leases were determined to be immaterial and a related ROU asset and liability for such leases is not recorded.

As of 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 $ 39.6 million and $ 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 .

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

June 30, 2022 December 31, 2021

As of September 30, 2022, the balances of the right-of-use asset and lease liability were $ 44.0 million and $ 47.0 million, respectively.

As of December 31, 2021, the balances of the right-of-use asset and lease liability were $ 39.6 million and $ 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 .

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

September 30, 2022 December 31, 2021

2022 $ 2,247 $ 7,714

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Additional information (dollar amounts in thousands):

For the Three Months Ended Six Months Ended

For the Three Months Ended Nine Months Ended

Lease expense:

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Operating lease expense $ 2,052 $ 1,971 $ 5,991 $ 5,961

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The Company currently leases three properties from three related parties.

Total rent expense from the leases was $ 36,000 or 1.56 % of total lease expense and $ 73,000 or 1.66 % of total lease expense for the three and six months ended June 30, 2022.

Total rent expense from the leases was $ 36,000 or 1.78 % of total lease expense and $ 103,000 or 1.54 % of total lease expense for the three and nine months ended September 30, 2022.

Significant Estimates and Concentrations of Credit Risks

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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 June 30, 2022 and December 31, 2021, commercial real estate loans represented 57.6 % and 59.7 % of total loans receivable, respectively, and 229.2 % and 212.2 % of total stockholders’ equity at June 30, 2022 and December 31, 2021, respectively.

Residential real estate loans represented 15.1 % and 15.8 % of total loans receivable and 60.0 % and 56.3 % of total stockholders’ equity at June 30, 2022 and December 31, 2021, respectively.

Approximately 78.0 % of the Company’s total loans and 82.1 % of the Company’s real estate loans as of June 30, 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.

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 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 June 30, 2022.

In addition, excluding the impact of the acquisition of Happy Bancshares, the Company determined no additional provision for unfunded commitments was necessary as of June 30, 2022.

Although the Company has a diversified loan portfolio, at September 30, 2022 and December 31, 2021, commercial real estate loans represented 55.8 % and 59.7 % of total loans receivable, respectively, and 223.1 % and 212.2 % of total stockholders’ equity at September 30, 2022 and December 31, 2021, respectively.

Residential real estate loans represented 16.1 % and 15.8 % of total loans receivable and 64.4 % and 56.3 % of total stockholders’ equity at September 30, 2022 and December 31, 2021, respectively.

Approximately 79.4 % of the Company’s total loans and 84.1 % of the Company’s real estate loans as of September 30, 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.

As of September 30, 2022, 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, 2022.

In addition, the Company determined no additional provision for unfunded commitments was necessary as of September 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.

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The collateral obtained is based on the assessed creditworthiness of the borrower.

At June 30, 2022 and December 31, 2021, commitments to extend credit of $ 4.47 billion and $ 3.05 billion, respectively, were outstanding.

At September 30, 2022 and December 31, 2021, commitments to extend credit of $ 4.67 billion and $ 3.05 billion, respectively, were outstanding.

A percentage of these balances are participated out to other banks;

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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 June 30, 2022 and December 31, 2021, was $ 164.9 million and $ 110.8 million, respectively.

The maximum amount of future payments the Company could be required to make under these guarantees at September 30, 2022 and December 31, 2021, was $ 192.0 million and $ 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.

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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 six months of 2022, the Company requested approximately $ 53.1 million in regular dividends from its banking subsidiary.

During the first nine months of 2022, the Company requested approximately $ 129.8 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.

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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 June 30, 2022, the Company meets all capital adequacy requirements to which it is subject.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, Tier 1 common 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 30, 2022, the Company meets all capital adequacy requirements to which it is subject.

On December 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.

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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.

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 .

Basel III 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 is 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:

Under Basel III, the criteria for a well-capitalized institution are:

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.

As of June 30, 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 12.78 %, 9.77 %, 12.88 %, and 16.61 %, respectively, as of June 30, 2022.

As of September 30, 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 13.03 %, 10.36 %, 13.03 %, and 16.75 %, respectively, as of September 30, 2022.

Additional Cash Flow Information

In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $ 6.68 billion in assets, including $ 858.9 million in 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 April 1, 2022.

In connection with the Happy acquisition, accounted for under ASC Topic 805, the Company acquired approximately $ 6.69 billion in assets, including $ 858.9 million in cash and cash equivalents, assumed $ 6.15 billion in liabilities, and issued approximately 42.4 million shares of its common stock valued at approximately $ 958.8 million as of April 1, 2022.

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

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

September 30,

(In thousands)

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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.

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.

Available-for-sale securities - the Company's available-for-sale securities are considered to be Level 2 securities.

The Level 2 securities consist primarily of U.S.

3 unchanged sentences

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 June 30, 2022 and December 31, 2021, Level 3 securities were immaterial.

In addition, there were no material transfers between hierarchy levels during 2022 and 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.

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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

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.

Held-to-maturity securities – the Company's held-to-maturity securities are considered to be Level 2 securities.

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.

1 unchanged sentence

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.

Impaired loans - 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.

The fair value of loans with specific allocated losses was $ 323.1 million and $ 280.0 million as of June 30, 2022 and December 31, 2021, respectively.

The fair value of loans with specific allocated losses was $ 169.7 million and $ 280.0 million as of September 30, 2022 and December 31, 2021, respectively.

This valuation is considered Level 3, consisting of appraisals of underlying collateral.

The Company reversed approximately $ 77,000 and $ 126,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended June 30, 2022 and 2021, respectively.

The Company reversed approximately $ 149,000 and $ 184,000 of accrued interest receivable when impaired loans were put on non-accrual status during the six months ended June 30, 2022 and 2021, respectively.

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.

The Company reversed approximately $ 693,000 and $ 92,000 of accrued interest receivable when impaired loans were put on non-accrual status during the three months ended September 30, 2022 and 2021, respectively.

The Company reversed approximately $ 842,000 and $ 276,000 of accrued interest receivable when impaired loans were put on non-accrual status during the nine months ended September 30, 2022 and 2021, respectively.

Foreclosed assets held for sale - Foreclosed assets held for sale 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.

1 unchanged sentence

The fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on appraisals of underlying collateral.

As of June 30, 2022 and December 31, 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 373,000 and $ 1.6 million, respectively.

No foreclosed assets held for sale were remeasured during the six months ended June 30, 2022.

As of September 30, 2022 and December 31, 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 365,000 and $ 1.6 million, respectively.

No foreclosed assets held for sale were remeasured during the nine months ended September 30, 2022.

Regulatory guidelines require the Company to reevaluate the fair value of foreclosed assets held for sale on at least an annual basis.

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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 10 % to 60 % for commercial and residential real estate collateral.

Fair Values of Financial Instruments

1 unchanged sentence

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 .

June 30, 2022

September 30, 2022

Amount Fair Value Level

2 unchanged sentences

Cash and cash equivalents $ 1,580,421 $ 1,580,421 1

Federal funds sold 2,700 2,700 1

Investment securities - available for sale 4,085,102 4,085,102 2

Investment securities - held-to-maturity (U.S.

Treasuries) 277,688 276,029 1

Investment securities - held-to-maturity (state and political subdivisions) 1,089,093 997,251 2

Investment securities - held-to-maturity 1,251,007 1,101,158 2

Loans receivable, net of impaired loans and allowance 13,340,436 13,754,133 3

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We have reviewed the condensed consolidated balance sheet of Home BancShares, Inc.

and subsidiaries (the “Company”) as of June 30, 2022, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’ equity for the three-month and six-month periods ended June 30, 2022 and 2021 and cash flows for the six month periods ended June 30, 2022 and 2021, and the related notes (collectively referred to as the “interim financial information” or “statements”).

and subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of income, comprehensive (loss) income and stockholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021 and cash flows for the nine month periods ended September 30, 2022 and 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.

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Little Rock, Arkansas

August 9, 2022

November 4, 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements