HOME BANCSHARES INC 10-Q

Item 1: Financial Statements Home BancShares, Inc. Consolidated Balance Sheets (In thousands, except share data) September 30, 2022 December 31, 2021 (Unaudited) Assets Cash and due from banks $ 268,929 $ 119,908 Interest-bearing deposits with other banks 1,311,492 3,530,407 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 Investment securities — held-to-maturity, net of allowance for credit losses 1,251,007 — Total investment securities 5,336,109 3,119,807 Loans receivable 13,829,311 9,836,089 Allowance for credit losses ( 289,203 ) ( 236,714 ) Loans receivable, net 13,540,108 9,599,375 Bank premises and equipment, net 411,479 275,760 Foreclosed assets held for sale 365 1,630 Cash value of life insurance 212,619 105,135 Accrued interest receivable 88,671 46,736 Deferred tax asset, net 228,979 78,290 Goodwill 1,394,353 973,025 Core deposit intangibles 60,932 25,045 Other assets 300,634 177,020 Total assets $ 23,157,370 $ 18,052,138 Liabilities and Stockholders’ Equity Deposits: Demand and non-interest-bearing $ 5,540,539 $ 4,127,878 Savings and interest-bearing transaction accounts 11,968,519 9,251,805 Time deposits 1,033,266 880,887 Total deposits 18,542,324 14,260,570 Securities sold under agreements to repurchase 121,555 140,886 FHLB and other borrowed funds 400,000 400,000 Accrued interest payable and other liabilities 192,908 113,868 Subordinated debentures 440,568 371,093 Total liabilities 19,697,355 15,286,417 Stockholders’ equity: Common stock, par value $ 0.01 ; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 204,219,052 in 2022 and 163,699,282 in 2021 2,042 1,637 Capital surplus 2,404,388 1,487,373 Retained earnings 1,361,040 1,266,249 Accumulated other comprehensive (loss) income ( 307,455 ) 10,462 Total stockholders’ equity 3,460,015 2,765,721 Total liabilities and stockholders’ equity $ 23,157,370 $ 18,052,138 See Condensed Notes to Consolidated Financial Statements. 4 Table of Contents Home BancShares, Inc. Consolidated Statements of Income Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share data) 2022 2021 2022 2021 (Unaudited) Interest income: Loans $ 195,841 $ 142,609 $ 507,062 $ 435,210 Investment securities Taxable 28,273 8,495 58,294 21,933 Tax-exempt 8,069 4,839 20,501 14,815 Deposits – other banks 10,763 1,117 19,001 2,234 Federal funds sold 9 — 13 — Total interest income 242,955 157,060 604,871 474,192 Interest expense: Interest on deposits 23,347 5,642 38,970 19,781 Federal funds purchased — — 2 — FHLB and other borrowed funds 1,917 1,917 5,688 5,688 Securities sold under agreements to repurchase 434 102 729 399 Subordinated debentures 4,153 4,788 16,472 14,373 Total interest expense 29,851 12,449 61,861 40,241 Net interest income 213,104 144,611 543,010 433,951 Provision for credit losses on acquired loans — — 45,170 — Provision for credit losses on acquired unfunded commitments — — 11,410 — Provision for credit losses on unfunded commitments — — — ( 4,752 ) Provision for credit losses on acquired held-to-maturity investment securities — — 2,005 — Total credit loss expense (benefit) — — 58,585 ( 4,752 ) Net interest income after credit loss expense (benefit) 213,104 144,611 484,425 438,703 Non-interest income: Service charges on deposit accounts 10,756 5,941 26,980 16,059 Other service charges and fees 13,951 8,051 34,225 25,318 Trust fees 3,980 479 8,874 1,445 Mortgage lending income 4,179 5,948 14,091 20,317 Insurance commissions 601 586 1,739 1,556 Increase in cash value of life insurance 1,089 509 2,721 1,548 Dividends from FHLB, FRB, FNBB & other 1,741 2,661 6,384 13,916 Gain on sale of SBA loans 58 439 153 1,588 (Loss) gain on sale of branches, equipment and other assets, net ( 13 ) ( 34 ) 5 ( 86 ) Gain on OREO, net — 246 487 1,266 Gain on securities, net — — — 219 Fair value adjustment for marketable securities ( 2,628 ) 61 ( 2,304 ) 7,093 Other income 9,487 4,322 25,096 15,366 Total non-interest income 43,201 29,209 118,451 105,605 Non-interest expense: Salaries and employee benefits 65,290 42,469 174,636 126,990 Occupancy and equipment 15,133 9,305 38,533 27,584 Data processing expense 8,747 6,024 25,880 17,787 Merger and acquisition expenses — 1,006 49,594 1,006 Other operating expenses 25,176 16,815 68,081 48,100 Total non-interest expense 114,346 75,619 356,724 221,467 Income before income taxes 141,959 98,201 246,152 322,841 Income tax expense 33,254 23,209 56,577 77,177 Net income $ 108,705 $ 74,992 $ 189,575 $ 245,664 Basic earnings per share $ 0.53 $ 0.46 $ 0.99 $ 1.49 Diluted earnings per share $ 0.53 $ 0.46 $ 0.99 $ 1.49 See Condensed Notes to Consolidated Financial Statements. 5 Table of Contents Home BancShares, Inc. Consolidated Statements of Comprehensive (Loss) Income Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 (Unaudited) Net income $ 108,705 $ 74,992 $ 189,575 $ 245,664 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. 6 Table of Contents Home BancShares, Inc. Consolidated Statements of Stockholders’ Equity Three and Nine Months Ended September 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 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. 7 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 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 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. 8 Table of Contents Home BancShares, Inc. Consolidated Statements of Cash Flows Nine Months Ended September 30, (In thousands) 2022 2021 (Unaudited) Operating Activities Net income $ 189,575 $ 245,664 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 23,546 14,457 Decrease (increase) in value of equity securities 2,304 ( 7,093 ) Amortization of securities, net 17,324 21,018 Accretion of purchased loans ( 12,844 ) ( 16,150 ) Share-based compensation 6,843 6,640 Gain on assets ( 645 ) ( 2,987 ) Provision for credit losses - acquired loans & unfunded commitments 56,580 — Provision for credit losses - unfunded commitments — ( 4,752 ) Provision for credit losses - acquired held-to-maturity investment securities 2,005 — Deferred income tax effect ( 9,671 ) 6,936 Increase in cash value of life insurance ( 2,721 ) ( 1,548 ) Originations of mortgage loans held for sale ( 432,589 ) ( 599,787 ) Proceeds from sales of mortgage loans held for sale 418,576 632,721 Changes in assets and liabilities: Accrued interest receivable ( 9,945 ) 11,951 Other assets ( 2,170 ) 3,891 Accrued interest payable and other liabilities 22,999 ( 9,526 ) Net cash provided by operating activities 269,167 301,435 Investing Activities Net increase in federal funds sold ( 2,700 ) — Net (increase) decrease in loans, excluding purchased loans ( 84,995 ) 1,278,846 Purchases of investment securities – available-for-sale ( 1,200,812 ) ( 1,227,507 ) Purchases of investment securities - held-to-maturity ( 636,474 ) — Proceeds from maturities of investment securities – available-for-sale 458,291 487,242 Proceeds from maturities of investment securities – held-to-maturity 500,479 — Proceeds from sales of investment securities – available-for-sale — 18,112 Purchases of equity securities ( 49,975 ) ( 10,460 ) Proceeds from sales of equity securities 13,778 15,354 Purchase of other investments ( 38,224 ) ( 7,970 ) Proceeds from foreclosed assets held for sale 2,231 6,572 Proceeds from sale of SBA loans 3,745 16,722 Purchases of premises and equipment, net ( 4,158 ) ( 8,065 ) Return of investment on cash value of life insurance 277 418 Purchase of marine loan portfolio ( 242,617 ) — Net cash received - market acquisition 858,943 — Net cash (used in) provided by investing activities ( 422,211 ) 569,264 Financing Activities Net (decrease) increase in deposits ( 1,573,517 ) 1,277,581 Net decrease in securities sold under agreements to repurchase ( 19,331 ) ( 27,929 ) Net decrease in FHLB and other borrowed funds ( 78,330 ) — Retirement of subordinated debentures ( 300,000 ) — Proceeds from issuance of subordinated debentures 296,324 — Redemption of trust preferred securities ( 96,499 ) — Proceeds from exercise of stock options 156 2,322 Repurchase of common stock ( 50,869 ) ( 37,002 ) Dividends paid on common stock ( 94,784 ) ( 69,203 ) Net cash (used in) provided by financing activities ( 1,916,850 ) 1,145,769 Net change in cash and cash equivalents ( 2,069,894 ) 2,016,468 Cash and cash equivalents – beginning of year 3,650,315 1,263,788 Cash and cash equivalents – end of period $ 1,580,421 $ 3,280,256 See Condensed Notes to Consolidated Financial Statements. 9 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 basis. Accordingly, all of the banking services and branch locations are considered by management to be aggregated into one reportable operating segment. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, the valuation of investment securities, the valuation of foreclosed assets and the valuations of assets acquired, and liabilities assumed in business combinations. In connection with the determination of the allowance for credit losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties. Principles of Consolidation The consolidated financial statements include the accounts of HBI and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity. Interim financial information The accompanying unaudited consolidated financial statements as of September 30, 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. 10 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 2021 Form 10-K, filed with the Securities and Exchange Commission. Loans Receivable and Allowance for Credit Losses 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 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 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 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, 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. 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. 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 of the following applies: • 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. 11 Table of Contents 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. 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 accordance with ASC 326, the Company records both a discount or premium 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. Purchased loans that have experienced more than insignificant credit deterioration since origination are 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 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. 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 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. 12 Table of Contents Revenue Recognition Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as our loans, letters of credit, investment securities and mortgage lending income, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our significant revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our income statements as components of non-interest income are as follows: • Service charges on deposit accounts – These represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. • Other service charges and fees – These represent credit card interchange fees and Centennial Commercial Finance Group (“Centennial CFG”) loan fees. The interchange fees are recorded in the period the performance obligation is satisfied which is generally the cash basis based on agreed upon contracts. The Centennial CFG loan fees are based on loan or other negotiated agreements with customers and are accounted for under ASC Topic 310. • 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 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, 2022 2021 2022 2021 (In thousands) Net income $ 108,705 $ 74,992 $ 189,575 $ 245,664 Average shares outstanding 204,829 164,126 191,584 164,717 Effect of common stock options 306 477 357 333 Average diluted shares outstanding 205,135 164,603 191,941 165,050 Basic earnings per share $ 0.53 $ 0.46 $ 0.99 $ 1.49 Diluted earnings per share $ 0.53 $ 0.46 $ 0.99 $ 1.49 2. Business Combinations 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 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 brought complementary businesses together to drive synergies and growth. 13 Table of Contents 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. Happy formerly operated its banking business from 62 locations in Texas. The 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, deposits and intangible assets, and to evaluate the assumed tax positions and contingencies. The Company has determined that the acquisition of the net assets of Happy constitutes a business combination as defined by the ASC Topic 805. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the 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 assets acquired and liabilities assumed as of the acquisition date as adjusted during the measurement period: 14 Table of Contents Happy Bancshares, Inc. Acquired from Happy Fair Value Adjustments As Recorded by HBI (Dollars in thousands) Assets Cash and due from banks $ 112,999 $ ( 87 ) $ 112,912 Interest-bearing deposits with other banks 746,031 — 746,031 Cash and cash equivalents 859,030 ( 87 ) 858,943 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 ( 4,389 ) 3,652,620 Allowance for credit losses ( 42,224 ) 25,408 ( 16,816 ) Loans receivable, net 3,614,785 21,019 3,635,804 Bank premises and equipment, net 153,642 ( 6,977 ) 146,665 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 1,117 34,025 Goodwill 130,428 ( 130,428 ) — Core deposit and other intangibles 10,672 31,591 42,263 Other assets 43,330 7,233 50,563 Total assets acquired $ 6,755,152 $ ( 68,121 ) $ 6,687,031 Liabilities Deposits Demand and non-interest-bearing $ 1,932,756 $ 60 $ 1,932,816 Savings and interest-bearing transaction accounts 3,519,652 — 3,519,652 Time deposits 401,899 903 402,802 Total deposits 5,854,307 963 5,855,270 FHLB and other borrowed funds 74,212 4,118 78,330 Accrued interest payable and other liabilities 50,889 ( 6,258 ) 44,631 Subordinated debentures 159,965 7,625 167,590 Total liabilities assumed $ 6,139,373 $ 6,448 $ 6,145,821 Equity Total equity assumed 615,779 ( 615,779 ) — Total liabilities and equity assumed $ 6,755,152 $ ( 609,331 ) $ 6,145,821 Net assets acquired 541,210 Purchase price 962,538 Goodwill $ 421,328 15 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 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 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 current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. 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 $ 7.0 million adjustment to fair value. This represents the difference between current appraisals completed in connection with the acquisition and book value acquired. Foreclosed assets held for sale – These assets are presented at the 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 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 flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits. Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The $ 963,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be below the current market rates. FHLB borrowed funds – The fair value of FHLB borrowed funds is estimated based on borrowing rates currently available to the Company 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 be more or less than book value, such as certain accounts payable and other miscellaneous liabilities. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of 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. 16 Table of Contents 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 nine-month periods ended September 30, 2022 and 2021, assuming the acquisition was completed as of January 1, 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands, except per share data) Total interest income $ 242,955 $ 211,405 $ 662,273 $ 629,548 Total non-interest income 43,201 43,792 131,352 145,277 Net income available to all shareholders 108,705 90,846 291,262 220,499 Basic earnings per common share $ 0.53 $ 0.44 $ 1.42 $ 1.06 Diluted earnings per common share $ 0.53 $ 0.44 $ 1.41 $ 1.06 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 $ 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. 17 Table of Contents 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 allowance for credit losses on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the 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 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: September 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 $ 702,009 $ — $ 702,009 $ 3,024 $ ( 23,029 ) $ 682,004 Residential mortgage-backed securities 1,805,461 — 1,805,461 299 ( 207,313 ) 1,598,447 Commercial mortgage-backed securities 361,251 — 361,251 — ( 21,023 ) 340,228 State and political subdivisions 1,033,621 ( 842 ) 1,032,779 709 ( 133,334 ) 900,154 Other securities 594,369 — 594,369 — ( 30,100 ) 564,269 Total $ 4,496,711 $ ( 842 ) $ 4,495,869 $ 4,032 $ ( 414,799 ) $ 4,085,102 September 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. 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 Total $ 1,253,012 $ ( 2,005 ) $ 1,251,007 $ 19 $ ( 149,868 ) $ 1,101,158 18 Table of Contents 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 Company completed the acquisition of Happy. Including the effects of the known purchase accounting adjustments, as of the acquisition date, Happy had approximately $ 1.78 billion in 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. 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. Securities not due at a single maturity date are shown separately. Available-for-Sale Held-to-Maturity Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (In thousands) Due in one year or less $ 267,369 $ 266,669 $ — $ — Due after one year through five years 178,033 166,906 4,770 4,531 Due after five years through ten years 473,289 434,042 215,931 193,346 Due after ten years 1,405,700 1,273,224 933,781 806,286 Mortgage - backed securities: Residential 1,805,461 1,598,447 42,920 42,308 Mortgage - backed securities: Commercial 361,251 340,228 55,610 54,687 Other 5,608 5,586 — — Total $ 4,496,711 $ 4,085,102 $ 1,253,012 $ 1,101,158 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. 19 Table of Contents 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 30, 2022 and December 31, 2021. September 30, 2022 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (In thousands) Available-for-sale: U.S. government-sponsored enterprises $ 325,781 $ ( 5,292 ) $ 117,320 $ ( 17,737 ) $ 443,101 $ ( 23,029 ) Residential mortgage-backed securities 881,787 ( 60,886 ) 659,272 ( 146,427 ) 1,541,059 ( 207,313 ) Commercial mortgage-backed securities 250,331 ( 11,866 ) 74,932 ( 9,157 ) 325,263 ( 21,023 ) State and political subdivisions 726,799 ( 104,506 ) 109,019 ( 28,828 ) 835,818 ( 133,334 ) Other securities 388,583 ( 24,884 ) 41,184 ( 5,216 ) 429,767 ( 30,100 ) Total $ 2,573,281 $ ( 207,434 ) $ 1,001,727 $ ( 207,365 ) $ 3,575,008 $ ( 414,799 ) Held-to-maturity: U.S. 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 ) 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. 20 Table of Contents 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, $ 1.11 billion, or 88.7 % 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 government-sponsored enterprises and mortgage-backed securities all of which are guaranteed by the U.S. government. 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 September 30, 2022 December 31, 2021 (In thousands) Allowance for credit losses: Beginning balance $ 842 $ 842 Provision for credit loss — — Balance, September 30 $ 842 $ 842 Provision for credit loss — Balance, December 31, 2021 $ 842 Held-to-Maturity Investment Securities September 30, 2022 December 31, 2021 State and Political Subdivisions Other Securities State and Political Subdivisions Other Securities Allowance for credit losses: (In thousands) Beginning balance $ — $ — $ — $ — Provision for credit loss - acquired securities ( 2,005 ) — — — Securities charged-off — — — — Recoveries — — — — 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. In addition, approximately 31.7 % of the principal balance from the Company’s investment portfolio will mature or are expected to 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 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. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $ 23.0 million on 63 securities. The residential mortgage-backed securities portfolio contained $ 207.3 million of unrealized losses on 592 securities, and the commercial mortgage-backed securities portfolio contained $ 21.0 million of unrealized losses on 151 securities. The state and political subdivisions portfolio contained $ 133.3 million of unrealized losses on 533 securities. In addition, the other securities portfolio contained $ 30.1 million of unrealized losses on 100 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, 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 September 30, 2022. 21 Table of Contents 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. 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. 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 September 30, 2022: State and Political Subdivisions Other Securities Total (In thousands) Aaa/AAA $ 233,398 $ 42,950 $ 276,348 Aa/AA 846,155 — 846,155 A 30,381 — 30,381 Baa/BBB — — — 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 nine months ended September 30, 2022 and 2021, is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands) Taxable Available-for-sale $ 21,873 $ 8,495 $ 45,110 $ 21,933 Held-to-maturity 6,400 — 13,184 — Non-taxable Available-for-sale 5,002 4,839 14,461 14,815 Held-to-maturity 3,067 — 6,040 — Total $ 36,342 $ 13,334 $ 78,795 $ 36,748 22 Table of Contents 4. Loans Receivable The various categories of loans receivable are summarized as follows: September 30, 2022 December 31, 2021 (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 5,156,438 $ 3,889,284 Construction/land development 2,232,906 1,850,050 Agricultural 330,748 130,674 Residential real estate loans Residential 1-4 family 1,704,850 1,274,953 Multifamily residential 525,110 280,837 Total real estate 9,950,052 7,425,798 Consumer 1,120,250 825,519 Commercial and industrial 2,268,750 1,386,747 Agricultural 313,693 43,920 Other 176,566 154,105 Total loans receivable 13,829,311 9,836,089 Allowance for credit losses ( 289,203 ) ( 236,714 ) Loans receivable, net $ 13,540,108 $ 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 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. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are considered mandatory forward commitments. Because these commitments are structured on a mandatory basis, the Company is required to substitute another loan or to buy back the commitment if the original loan does not fund. These commitments are derivative instruments and their fair values at September 30, 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. 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 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. 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. 23 Table of Contents 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. 5. Allowance for Credit Losses, Credit Quality and Other 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 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 September 30, 2022 and December 31, 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 (%) 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. 24 Table of Contents The combination of adjustments for credit expectations (default and loss) and time expectations prepayment, curtailment, and time to recovery produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis. Construction/Land Development and Other Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30 year period with balloon payments due at the end of one to five years . These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85 % of the value of improved property, 65 % of the value of raw land and 75 % of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis. Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Residential real estate loans generally have a loan-to-value ratio of up to 90 %. These loans are underwritten by giving consideration to many factors including the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio. Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50 % and 80 % of accounts receivable less than 60 days past due. Inventory financing will range between 50 % and 80 % (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans. Consumer & Other Loans. Our consumer & other loans are primarily composed of loans to finance USCG registered high-end sail and power boats. The performance of consumer & other loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics. Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit loss on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company uses the DCF method to estimate expected losses for all of 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. 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. As a result, the Company recorded $ 4.4 million in net loan discounts and a $ 16.8 million increase in the allowance for credit losses related to PCD loans. 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. 25 Table of Contents 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/ Land Development Other Commercial Real Estate Residential Real Estate Commercial & Industrial Consumer & Other Total (In thousands) Allowance for credit losses: Beginning balance $ 36,689 $ 115,195 $ 51,146 $ 68,309 $ 22,928 $ 294,267 Loans charged off ( 11 ) — ( 48 ) ( 4,536 ) ( 1,718 ) ( 6,313 ) Recoveries of loans previously charged off 8 778 45 189 229 1,249 Net loans recovered (charged off) ( 3 ) 778 ( 3 ) ( 4,347 ) ( 1,489 ) ( 5,064 ) Provision for credit losses ( 1,999 ) ( 23,560 ) ( 1,322 ) 25,459 1,422 — Balance, September 30 $ 34,687 $ 92,413 $ 49,821 $ 89,421 $ 22,861 $ 289,203 Nine Months Ended September 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 ( 11 ) — ( 337 ) ( 5,952 ) ( 5,588 ) ( 11,888 ) Recoveries of loans previously charged off 325 856 94 519 597 2,391 Net loans recovered (charged off) 314 856 ( 243 ) ( 5,433 ) ( 4,991 ) ( 9,497 ) 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, 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/ 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 26 Table of Contents Nine Months Ended September 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 — ( 646 ) ( 543 ) ( 5,892 ) ( 1,458 ) ( 8,539 ) Recoveries of loans previously charged off 47 112 554 382 644 1,739 Net loans recovered (charged off) 47 ( 534 ) 11 ( 5,510 ) ( 814 ) ( 6,800 ) Provision for credit loss - loans ( 6,925 ) 579 ( 2,324 ) 11,582 ( 2,912 ) — Balance, September 30 25,983 88,498 50,903 52,602 20,687 238,673 Loans charged off — — ( 2 ) ( 2,350 ) ( 770 ) ( 3,122 ) Recoveries of loans previously charged off 11 673 129 209 141 1,163 Net loans recovered (charged off) 11 673 127 ( 2,141 ) ( 629 ) ( 1,959 ) Provision for credit loss - loans 2,421 ( 1,953 ) ( 2,572 ) 2,601 ( 497 ) — Balance, December 31 $ 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 September 30, 2022 and December 31, 2021: September 30, 2022 Nonaccrual Nonaccrual with Reserve Loans Past Due Over 90 Days Still Accruing (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 18,621 $ 8,341 $ 290 Construction/land development 1,895 — 34 Agricultural 772 — — Residential real estate loans Residential 1-4 family 16,549 — 1,445 Multifamily residential 156 — — Total real estate 37,993 8,341 1,769 Consumer 1,778 — 15 Commercial and industrial 16,431 — 2,901 Agricultural & other 594 — 213 Total $ 56,796 $ 8,341 $ 4,898 27 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 $ 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 Commercial Real Estate Residential Real Estate Other (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 168,432 $ — $ — Construction/land development 1,928 — — Agricultural 772 — — Residential real estate loans Residential 1-4 family — 19,268 — Multifamily residential — 4,275 — Total real estate 171,132 23,543 — Consumer — — 1,804 Commercial and industrial — — 31,631 Agricultural & other — — 1,229 Total $ 171,132 $ 23,543 $ 34,664 28 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 $ 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 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. 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. 29 Table of Contents The following is an aging analysis for loans receivable as of September 30, 2022 and December 31, 2021: September 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 (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 16,357 $ 2,084 $ 18,911 $ 37,352 $ 5,119,086 $ 5,156,438 $ 290 Construction/land development 745 226 1,929 2,900 2,230,006 2,232,906 34 Agricultural 169 331 772 1,272 329,476 330,748 — Residential real estate loans Residential 1-4 family 2,583 6,296 17,994 26,873 1,677,977 1,704,850 1,445 Multifamily residential 738 — 156 894 524,216 525,110 — Total real estate 20,592 8,937 39,762 69,291 9,880,761 9,950,052 1,769 Consumer 1,528 222 1,793 3,543 1,116,707 1,120,250 15 Commercial and industrial 4,199 5,209 19,332 28,740 2,240,010 2,268,750 2,901 Agricultural & other 1,864 42 807 2,713 487,546 490,259 213 Total $ 28,183 $ 14,410 $ 61,694 $ 104,287 $ 13,725,024 $ 13,829,311 $ 4,898 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 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. 30 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 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification. • Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound. • Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. • Risk rating 5 – Other Loans Especially Mentioned (“OLEM”) . A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification. • Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets. • Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan. • Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible. The Company’s classified loans include loans in risk ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $ 2.0 million that are rated 5 – 8 are individually assessed for impairment on a quarterly basis. Loans rated 5 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans. 31 Table of Contents 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 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential Risk rating 1 $ — $ — $ — $ 239 $ — $ 154 $ — $ 393 Risk rating 2 — — — 120 — 4,096 — 4,216 Risk rating 3 326,768 520,983 273,891 261,599 338,921 901,012 193,296 2,816,470 Risk rating 4 300,030 335,119 230,462 162,360 334,828 428,104 174,325 1,965,228 Risk rating 5 1,895 — 4,890 14,558 36,406 218,232 95 276,076 Risk rating 6 876 196 10,394 27,350 5,575 49,405 112 93,908 Risk rating 7 147 — — — — — — 147 Risk rating 8 — — — — — — — — Total non-farm/non-residential 629,716 856,298 519,637 466,226 715,730 1,601,003 367,828 5,156,438 Construction/land development Risk rating 1 $ — $ 12 $ — $ — $ — $ — $ — $ 12 Risk rating 2 682 — — — — 216 — 898 Risk rating 3 336,055 303,919 108,525 97,837 22,763 37,966 126,452 1,033,517 Risk rating 4 404,746 498,212 125,985 78,634 14,272 45,042 20,652 1,187,543 Risk rating 5 1,761 — — 332 — 1,164 — 3,257 Risk rating 6 — 14 125 755 709 6,076 — 7,679 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total construction/land development 743,244 802,157 234,635 177,558 37,744 90,464 147,104 2,232,906 Agricultural Risk rating 1 $ — $ — $ — $ — $ — $ — $ — $ — Risk rating 2 — 2,074 — — — — — 2,074 Risk rating 3 39,533 42,315 33,486 16,015 10,950 40,385 4,833 187,517 Risk rating 4 21,802 25,791 21,038 14,552 2,822 43,899 4,940 134,844 Risk rating 5 400 — — 331 — 603 — 1,334 Risk rating 6 — 1,630 2,232 — — 1,117 — 4,979 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total agricultural 61,735 71,810 56,756 30,898 13,772 86,004 9,773 330,748 Total commercial real estate loans $ 1,434,695 $ 1,730,265 $ 811,028 $ 674,682 $ 767,246 $ 1,777,471 $ 524,705 $ 7,720,092 Residential real estate loans Residential 1-4 family Risk rating 1 $ — $ — $ — $ — $ — $ 117 $ 36 $ 153 Risk rating 2 — — — — — 54 108,286 108,340 Risk rating 3 286,537 252,191 183,157 112,297 101,389 331,731 64,516 1,331,818 Risk rating 4 33,876 39,168 62,626 11,561 18,702 63,964 345 230,242 Risk rating 5 825 — — 3,064 415 1,536 1,392 7,232 Risk rating 6 245 2,482 2,943 4,344 1,954 14,948 — 26,916 Risk rating 7 — — — — — — — — Risk rating 8 — — 148 — — 1 — 149 Total residential 1-4 family 321,483 293,841 248,874 131,266 122,460 412,351 174,575 1,704,850 32 Table of Contents September 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 37,574 15,929 14,229 14,080 14,051 54,479 39,356 189,698 Risk rating 4 36,695 92,839 145,561 20,945 12,010 13,530 24 321,604 Risk rating 5 — — — — 3,162 7,936 — 11,098 Risk rating 6 — — — 738 — 1,816 — 2,554 Risk rating 7 — — — — — 156 — 156 Risk rating 8 — — — — — — — — Total multifamily residential 74,269 108,768 159,790 35,763 29,223 77,917 39,380 525,110 Total real estate $ 1,830,447 $ 2,132,874 $ 1,219,692 $ 841,711 $ 918,929 $ 2,267,739 $ 738,660 $ 9,950,052 Consumer Risk rating 1 $ 4,996 $ 4,500 $ 1,302 $ 760 $ 612 $ 1,250 $ 1,453 $ 14,873 Risk rating 2 — — — 200 622 — — 822 Risk rating 3 203,762 296,512 167,387 137,420 124,442 143,068 10,484 1,083,075 Risk rating 4 12,740 1,671 455 1,664 490 1,888 72 18,980 Risk rating 5 14 12 109 — 10 374 17 536 Risk rating 6 113 93 111 170 8 1,389 — 1,884 Risk rating 7 — — — — — — — — Risk rating 8 — — 2 1 — 77 — 80 Total consumer 221,625 302,788 169,366 140,215 126,184 148,046 12,026 1,120,250 Commercial and industrial Risk rating 1 $ 1,145 $ 11,993 $ 283 $ 284 $ 25 $ 21,561 $ 8,410 $ 43,701 Risk rating 2 734 309 29 198 — 227 626 2,123 Risk rating 3 223,596 140,093 81,114 74,943 61,724 94,954 291,151 967,575 Risk rating 4 142,731 223,367 71,312 112,569 83,835 50,257 494,761 1,178,832 Risk rating 5 421 9,600 2,050 356 7,211 9,230 621 29,489 Risk rating 6 871 1,266 11,278 4,299 5,237 10,062 4,965 37,978 Risk rating 7 — — 1,061 — 7,742 249 — 9,052 Risk rating 8 — — — — — — — — Total commercial and industrial 369,498 386,628 167,127 192,649 165,774 186,540 800,534 2,268,750 Agricultural and other Risk rating 1 $ 135 $ 267 $ 115 $ — $ — $ 5 $ 710 $ 1,232 Risk rating 2 16 78 — 2,338 34 152 2,138 4,756 Risk rating 3 99,036 38,861 31,404 5,404 9,205 47,816 136,353 368,079 Risk rating 4 9,780 12,561 3,550 13,123 1,925 11,268 60,585 112,792 Risk rating 5 — 8 204 — — 740 1,278 2,230 Risk rating 6 — 61 157 32 304 602 14 1,170 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total agricultural and other 108,967 51,836 35,430 20,897 11,468 60,583 201,078 490,259 Total $ 2,530,537 $ 2,874,126 $ 1,591,615 $ 1,195,472 $ 1,222,355 $ 2,662,908 $ 1,752,298 $ 13,829,311 33 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 34 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 35 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 30, 2022 and December 31, 2021. September 30, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential Performing $ 629,716 $ 856,298 $ 514,747 $ 440,000 $ 711,405 $ 1,468,064 $ 367,776 $ 4,988,006 Non-performing — — 4,890 26,226 4,325 132,939 52 168,432 Total non-farm/non-residential 629,716 856,298 519,637 466,226 715,730 1,601,003 367,828 5,156,438 Construction/land development Performing $ 743,244 $ 802,143 $ 234,460 $ 176,959 $ 36,886 $ 90,182 $ 147,104 $ 2,230,978 Non-performing — 14 175 599 858 282 — 1,928 Total construction/ land development 743,244 802,157 234,635 177,558 37,744 90,464 147,104 2,232,906 Agricultural Performing $ 61,735 $ 71,810 $ 56,189 $ 30,898 $ 13,772 $ 85,799 $ 9,773 $ 329,976 Non-performing — — 567 — — 205 — 772 Total agricultural 61,735 71,810 56,756 30,898 13,772 86,004 9,773 330,748 Total commercial real estate loans $ 1,434,695 $ 1,730,265 $ 811,028 $ 674,682 $ 767,246 $ 1,777,471 $ 524,705 $ 7,720,092 Residential real estate loans Residential 1-4 family Performing $ 321,236 $ 291,693 $ 246,007 $ 127,719 $ 120,756 $ 404,001 $ 174,170 $ 1,685,582 Non-performing 247 2,148 2,867 3,547 1,704 8,350 405 19,268 Total residential 1-4 family 321,483 293,841 248,874 131,266 122,460 412,351 174,575 1,704,850 Multifamily residential Performing $ 74,269 $ 108,768 $ 159,790 $ 35,763 $ 26,061 $ 76,804 $ 39,380 $ 520,835 Non-performing — — — — 3,162 1,113 — 4,275 Total multifamily residential 74,269 108,768 159,790 35,763 29,223 77,917 39,380 525,110 Total real estate $ 1,830,447 $ 2,132,874 $ 1,219,692 $ 841,711 $ 918,929 $ 2,267,739 $ 738,660 $ 9,950,052 Consumer Performing $ 221,525 $ 302,713 $ 169,266 $ 140,065 $ 126,157 $ 146,711 $ 12,009 $ 1,118,446 Non-performing 100 75 100 150 27 1,335 17 1,804 Total consumer 221,625 302,788 169,366 140,215 126,184 148,046 12,026 1,120,250 Commercial and industrial Performing $ 368,767 $ 384,257 $ 162,938 $ 188,867 $ 152,608 $ 182,885 $ 796,797 $ 2,237,119 Non-performing 731 2,371 4,189 3,782 13,166 3,655 3,737 31,631 Total commercial and industrial 369,498 386,628 167,127 192,649 165,774 186,540 800,534 2,268,750 Agricultural and other Performing $ 108,967 $ 51,836 $ 35,370 $ 20,865 $ 11,468 $ 59,996 $ 200,528 $ 489,030 Non-performing — — 60 32 — 587 550 1,229 Total agricultural and other 108,967 51,836 35,430 20,897 11,468 60,583 201,078 490,259 Total $ 2,530,537 $ 2,874,126 $ 1,591,615 $ 1,195,472 $ 1,222,355 $ 2,662,908 $ 1,752,298 $ 13,829,311 36 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 $ 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. 37 Table of Contents The following is a presentation of troubled debt restructurings (“TDRs”) by class as of September 30, 2022 and December 31, 2021: September 30, 2022 Number of Loans Pre- Modification Outstanding Balance Rate Modification Term Modification Rate & Term Modification Post- Modification Outstanding Balance (Dollars in thousands) Real estate: Commercial real estate loans Non-farm/non-residential 12 $ 6,444 $ 3,203 $ 601 $ 438 $ 4,242 Construction/land development 1 216 193 — — 193 Residential real estate loans Residential 1-4 family 14 2,307 814 111 282 1,207 Multifamily residential 1 1,130 957 — — 957 Total real estate 28 10,097 5,167 712 720 6,599 Consumer 2 18 12 — 1 13 Commercial and industrial 13 3,183 841 60 79 980 Total 43 $ 13,298 $ 6,020 $ 772 $ 800 $ 7,592 December 31, 2021 Number of Loans Pre- Modification Outstanding Balance Rate Modification Term Modification Rate & Term Modification Post- Modification Outstanding Balance (Dollars in thousands) Real estate: Commercial real estate loans Non-farm/non-residential 12 $ 6,119 $ 3,581 $ 623 $ 85 $ 4,289 Construction/land development 2 240 210 1 — 211 Agricultural 1 282 262 — — 262 Residential real estate loans Residential 1-4 family 15 2,328 844 117 332 1,293 Multifamily residential 1 1,130 1,144 — — 1,144 Total real estate 31 10,099 6,041 741 417 7,199 Consumer 4 22 13 — 3 16 Commercial and industrial 9 2,353 172 65 74 311 Total 44 $ 12,474 $ 6,226 $ 806 $ 494 $ 7,526 38 Table of Contents 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 Number of Loans Recorded Balance Number of Loans Recorded Balance (Dollars in thousands) Real estate: Commercial real estate loans Non-farm/non-residential 1 $ 5 2 $ 7 Construction/land development 1 193 1 210 Agricultural — — 1 262 Residential real estate loans Residential 1-4 family 5 338 5 388 Total real estate 7 536 9 867 Consumer 1 1 3 3 Commercial and industrial 11 897 6 206 Total 19 $ 1,434 18 $ 1,076 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) Commercial real estate loans Non-farm/non-residential $ 49 $ 536 Construction/land development 47 834 Residential real estate loans Residential 1-4 family 269 260 Total foreclosed assets held for sale $ 365 $ 1,630 The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. 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 . 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 30, 2022 and December 31, 2021, were as follows: September 30, 2022 December 31, 2021 (In thousands) Goodwill Balance, beginning of period $ 973,025 $ 973,025 Acquisition of Happy Bancshares 421,328 — Balance, end of period $ 1,394,353 $ 973,025 39 Table of Contents September 30, 2022 December 31, 2021 (In thousands) Core Deposit Intangibles Balance, beginning of period $ 25,045 $ 30,728 Acquisition of Happy Bancshares 42,263 — Amortization expense ( 6,376 ) ( 4,262 ) Balance, September 30 60,932 26,466 Amortization expense ( 1,421 ) Balance, end of year $ 25,045 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) Gross carrying basis $ 128,888 $ 86,625 Accumulated amortization ( 67,956 ) ( 61,580 ) Net carrying amount $ 60,932 $ 25,045 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; 2023 – $ 9.7 million; 2024 – $ 8.5 million; 2025 – $ 8.1 million; 2026 – $ 7.8 million. 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. 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 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 $ 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 $ 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 . 40 Table of Contents 8. Deposits 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. 9. Securities Sold Under Agreements to Repurchase 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 Total Overnight and Continuous Total (In thousands) Securities sold under agreements to repurchase: U.S. government-sponsored enterprises $ 6,968 $ 6,968 $ 8,433 $ 8,433 Mortgage-backed securities 6,076 6,076 7,920 7,920 State and political subdivisions 104,968 104,968 122,173 122,173 Other securities 3,543 3,543 2,360 2,360 Total borrowings $ 121,555 $ 121,555 $ 140,886 $ 140,886 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 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 %. 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 September 30, 2022 and December 31, 2021 was zero . 41 Table of Contents 11. Subordinated Debentures 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 As of December 31, 2021 (In thousands) Trust preferred securities Subordinated debentures, issued in 2005, due 2035, floating rate of 2.15 % above the three-month LIBOR rate, reset quarterly, currently callable without penalty — 4,501 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 143,732 — 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 296,836 — 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 $ 440,568 $ 371,093 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 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 . 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 excluding 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. 42 Table of Contents 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 “2027 Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $ 297.0 million. 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. 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. 43 Table of Contents 12. Income Taxes 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 (In thousands) Current: Federal $ 19,211 $ 14,693 $ 52,418 $ 52,771 State 5,068 4,864 13,830 17,470 Total current 24,279 19,557 66,248 70,241 Deferred: Federal 7,101 2,744 ( 7,652 ) 5,211 State 1,874 908 ( 2,019 ) 1,725 Total deferred 8,975 3,652 ( 9,671 ) 6,936 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 nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Statutory federal income tax rate 21.00 % 21.00 % 21.00 % 21.00 % Effect of non-taxable interest income ( 1.07 ) ( 1.08 ) ( 1.69 ) ( 1.00 ) Stock compensation 0.02 0.16 0.25 0.23 State income taxes, net of federal benefit 3.40 3.50 3.04 4.00 Executive officer compensation & other 0.08 0.05 0.38 ( 0.32 ) Effective income tax rate 23.43 % 23.63 % 22.98 % 23.91 % 44 Table of Contents 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, 2021 (In thousands) Deferred tax assets: Allowance for credit losses $ 83,337 $ 68,644 Deferred compensation 6,483 5,342 Stock compensation 6,071 5,044 Non-accrual interest income 1,854 694 Real estate owned 108 109 Unrealized loss on investment securities, available-for-sale 104,452 — Loan discounts 7,813 4,169 Tax basis premium/discount on acquisitions 1,767 3,220 Investments 29,609 263 Other 12,694 5,283 Gross deferred tax assets 254,188 92,768 Deferred tax liabilities: Accelerated depreciation on premises and equipment 5,869 761 Unrealized gain on securities — 4,220 Core deposit intangibles 14,582 5,736 FHLB dividends 2,781 2,820 Other 1,977 941 Gross deferred tax liabilities 25,209 14,478 Net deferred tax assets $ 228,979 $ 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, 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 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 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. 45 Table of Contents 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 2022 Plan replaced the Company’s Amended and Restated 2006 Stock Option and Performance Incentive Plan (the “2006 Plan” and, together with the 2022 Plan, the “Plans”), which expired on February 27, 2022. 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 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 . 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 $ 5.3 million as of September 30, 2022. 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 Shares (000) Weighted- Average Exercisable Price Shares (000) Weighted- Average Exercisable Price Outstanding, beginning of year 3,015 $ 20.06 3,254 $ 19.77 Granted 181 21.09 15 21.68 Forfeited/Expired ( 69 ) 21.87 ( 57 ) 22.44 Exercised ( 25 ) 12.00 ( 197 ) 14.78 Outstanding, end of period 3,102 20.14 3,015 20.06 Exercisable, end of period 1,944 $ 18.47 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 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 Nine Months Ended September 30, 2022 For the Year Ended December 31, 2021 Expected dividend yield 3.14 % 2.59 % Expected stock price volatility 31.21 % 70.13 % Risk-free interest rate 2.81 % 0.75 % Expected life of options 6.5 years 6.5 years 46 Table of Contents The following is a summary of currently outstanding and exercisable options at September 30, 2022: 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 $ 6.56 to $ 8.62 140 0.30 $ 8.62 140 $ 8.62 $ 9.54 to $ 14.71 140 1.80 13.23 140 13.23 $ 16.77 to $ 16.86 130 1.89 16.80 130 16.80 $ 17.12 to $ 17.36 86 2.54 17.12 87 17.12 $ 17.40 to $ 18.46 871 2.88 18.45 871 18.45 $ 18.50 to $ 20.16 41 6.53 19.05 23 19.05 $ 20.46 to $ 21.25 263 5.95 20.83 149 21.10 $ 21.31 to $ 22.22 132 6.43 22.18 82 22.21 $ 22.70 to $ 23.32 1,198 5.81 23.32 245 23.32 $ 23.51 to $ 25.96 101 5.67 25.37 77 25.74 3,102 1,944 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: As of September 30, 2022 As of December 31, 2021 (In thousands) Beginning of year 1,231 1,371 Issued 399 216 Vested ( 177 ) ( 320 ) Forfeited ( 65 ) ( 36 ) End of period 1,388 1,231 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 $ 16.7 million as of September 30, 2022. 47 Table of Contents 14. Non-Interest Expense 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 (In thousands) Salaries and employee benefits $ 65,290 $ 42,469 $ 174,636 $ 126,990 Occupancy and equipment 15,133 9,305 38,533 27,584 Data processing expense 8,747 6,024 25,880 17,787 Merger and acquisition expenses — 1,006 49,594 1,006 Other operating expenses: Advertising 2,024 1,204 5,407 3,444 Amortization of intangibles 2,477 1,421 6,376 4,262 Electronic banking expense 3,828 2,521 9,718 7,375 Directors’ fees 354 395 1,133 1,192 Due from bank service charges 316 265 982 787 FDIC and state assessment 2,146 1,648 6,204 4,119 Insurance 959 749 2,702 2,317 Legal and accounting 1,581 1,050 3,439 2,954 Other professional fees 2,466 1,787 6,329 5,196 Operating supplies 681 474 2,430 1,426 Postage 614 301 1,476 931 Telephone 593 371 1,314 1,082 Other expense 7,137 4,629 20,571 13,015 Total other operating expenses 25,176 16,815 68,081 48,100 Total non-interest expense $ 114,346 $ 75,619 $ 356,724 $ 221,467 15. Leases The Company leases land and office facilities under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 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. In accordance with ASU 2018-11, the Company does not separate nonlease components from the associated lease component of our operating leases. As a result, 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 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 . 48 Table of Contents 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 2023 8,170 6,574 2024 7,296 6,001 2025 6,568 5,510 2026 6,308 5,389 Thereafter 30,335 24,999 Total future minimum lease payments $ 60,924 $ 56,187 Discount effect of cash flows ( 13,890 ) ( 13,778 ) Present value of net future minimum lease payments $ 47,034 $ 42,409 Additional information (dollar amounts in thousands): For the Three Months Ended Nine Months Ended Lease expense: September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Operating lease expense $ 2,052 $ 1,971 $ 5,991 $ 5,961 Short-term lease expense 2 1 2 5 Variable lease expense 215 250 658 759 Total lease expense $ 2,269 $ 2,222 $ 6,651 $ 6,725 Other information: Cash paid for amounts included in the measurement of lease liabilities $ 2,096 $ 1,988 $ 6,078 $ 5,956 Weighted-average remaining lease term (in years) 9.21 9.67 9.35 9.78 Weighted-average discount rate 3.48 % 3.42 % 3.42 % 3.49 % The Company currently leases three properties from three related parties. 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. 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 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. 49 Table of Contents 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. 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 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 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; 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 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. 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 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. 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. 50 Table of Contents 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. 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. 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 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: 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 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. 19. Additional Cash Flow Information 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. 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 following is a summary of the Company’s additional cash flow information during the nine-month periods ended: September 30, 2022 2021 (In thousands) Interest paid $ 65,123 $ 36,757 Income taxes paid 69,204 82,245 Assets acquired by foreclosure 327 2,058 51 Table of Contents 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. 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. 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. 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. 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. 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. 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 $ 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 $ 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. 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 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. 52 Table of Contents 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. 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. 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, 2022 Carrying Amount Fair Value Level (In thousands) Financial assets: 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 1,251,007 1,101,158 2 Loans receivable, net of impaired loans and allowance 13,340,436 13,754,133 3 Accrued interest receivable 88,671 88,671 1 FHLB, FRB & FNBB Bank stock; other equity investments 193,287 193,287 3 Marketable equity securities 51,003 51,003 1 Financial liabilities: Deposits: Demand and non-interest bearing $ 5,540,539 $ 5,540,539 1 Savings and interest-bearing transaction accounts 11,968,519 11,968,519 1 Time deposits 1,033,266 1,004,283 3 Securities sold under agreements to repurchase 121,555 121,555 1 FHLB and other borrowed funds 400,000 399,793 2 Accrued interest payable 3,316 3,376 1 Subordinated debentures 440,568 415,052 3 53 Table of Contents 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 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. 54 Table of Contents 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. 55 Table of Contents 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 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. 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, 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 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, 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/ FORVIS, LLP (Formerly BKD, LLP) Little Rock, Arkansas November 4, 2022 56 Table of Contents