HOME BANCSHARES INC 10-K

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Liquidity and Market Risk Management Asset/Liability Management . Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position. Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset liability management. Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available for sale investment portfolio as collateral to provide funds for an intermediate source of liquidity. Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks. A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk. One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion. This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income. For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At December 31, 2022, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us. 88 Table of Contents Table 31 presents our sensitivity to net interest income as of December 31, 2022. Table 31: Sensitivity of Net Interest Income Interest Rate Scenario Percentage Change from Base Up 200 basis points 7.48 % Up 100 basis points 3.77 Down 100 basis points (4.65) Down 200 basis points (10.21) Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Management’s Report on Internal Control Over Financial Reporting The management of Home BancShares, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Company’s consolidated financial statements for external purposes in accordance with U.S. GAAP. The Company's internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, the Company conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management's assessment and those criteria, which excluded the operations of Happy Bancshares, Inc. ("Happy") as noted below, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2022. In conducting the assessment of the effectiveness of its internal control over financial reporting as of December 31, 2022, the Company has excluded the operations of Happy as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). In conducting the assessment of the effectiveness of its disclosure controls and procedures as of December 31, 2022, the Company has excluded those disclosure controls and procedures of Happy that are subsumed by internal control over financial reporting. The acquisition was completed on April 1, 2022. As of December 31, 2022, Happy's assets represented approximately 16.9% of the Company's total consolidated assets. See "Note 2. Business Combinations" for further discussion of the merger and its impact on the Company's consolidated financial statements. FORVIS, LLP (formerly BKD, LLP), Little Rock, Arkansas, (U.S. PCAOB Auditor Firm I.D.: 686 ), the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, is included herein. 89 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders, Board of Directors and Audit Committee Home BancShares, Inc. Conway, Arkansas Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Home BancShares, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 90 Table of Contents Allowance for Credit Losses Critical Audit Matter Description As discussed in Note 5 , the Company uses the discounted cash flow (DCF) method to estimate expected losses for all of the Company’s loan pools that exhibit similar risk characteristics. For each loan pool, the Company generates cash flow projections at the instrument level adjusting payment expectations for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers when modeling lifetime probability of default and loss given default. The Company’s analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. The Company evaluates the performance of the selected models used in the calculation and determines if changes to the input assumptions and economic factors are necessary to produce a calculation that is more responsive to changes in economic conditions. Additional qualitative adjustments are applied for risk factors that are not considered within the modeling process but are relevant in assessing the expected credit losses within the loan pools. Loans that do not share risk characteristics are evaluated on an individual basis. For loans individually evaluated, 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. The Company applies expected funding percentages to the respective model loss rates to estimate the allowance for unfunded commitments. Auditing management’s estimate of the allowances for loan credit losses (ACL) and unfunded commitments involved a high degree of subjectivity due to the complexities of the probability of default and loss given default models and the nature of the qualitative factor adjustments. Management’s qualitative factor adjustments are highly judgmental and had a significant effect on the ACL. How the Critical Audit Matter was Addressed in the Audit Our audit procedures related to the ACL and allowance for unfunded commitments included the following procedures, among others: • Obtained an understanding, evaluated the design and tested the operating effectiveness of controls, including information technology, over the reliability and accuracy of data used to calculate and estimate the various components of the ACL including: • Loan data completeness and accuracy • Grouping of loans by segment • Model inputs utilized • Approval of model assumptions selected • Establishment of qualitative factors • Tested the mathematical accuracy of the calculation of the ACL • Tested individual loan files to evaluate the reasonableness of loan credit risk ratings • Tested the completeness and accuracy of inputs utilized in the calculation of the ACL • Evaluated the reasonableness of selected loss drivers utilized and loss driver forecasts for each loan segment • Tested the reasonableness of specific reserves on individually evaluated loans • Tested estimated funding rate of unfunded loan commitments • Evaluated the qualitative adjustments, including any additional factors utilized for specific identified risks and assessed the reasonableness and basis for adjustments • Evaluated the accuracy and completeness of Topic 326 disclosures in the consolidated financial statements 91 Table of Contents Business Combination Accounting Critical Audit Matter Description As discussed in Note 2 , the Company completed the acquisition of Happy Bancshares, Inc. (Happy) and merged Happy State Bank into Centennial Bank on April 1, 2022. Management determined that the acquisition qualified as a business and accordingly, all identifiable assets acquired and liabilities assumed were valued at fair value, resulting in additional goodwill of approximately $421.3 million. The identification and valuation of such acquired assets and assumed liabilities requires management to exercise significant judgment and consider the use of third-party specialists to estimate fair values. Auditing management’s estimates of the fair value of assets acquired and liabilities assumed involved a high degree of subjectivity due to the significant judgment applied, the sensitivity to underlying assumptions in determining fair value and assessing the appropriateness of the third-party specialists’ models. How the Critical Audit Matter was Addressed in the Audit Our audit procedures related to the fair value of assets acquired and liabilities assumed included the following procedures, among others: • Obtained and reviewed the Merger Agreement to gain an understanding of the underlying terms of the acquisition • Obtained an understanding, evaluated the design and tested the operating effectiveness of acquisition accounting controls, including but not limited to, management’s review of valuation results provided by outside vendors • Obtained and reviewed management’s business combination accounting analysis to gain an understanding of adjustments recorded • Tested the mathematical accuracy of the adjustments included in the business combination accounting analysis focusing on the completeness and accuracy of the balance sheet acquired and related fair value • Obtained valuation estimates prepared by management and the Company’s valuation specialists. With the assistance of our valuation specialists, challenged the appropriateness of the valuations allocated to assets acquired and liabilities assumed, including but not limited to, testing of critical inputs, assumptions applied, and valuation models utilized • Recalculated goodwill • Evaluated the accuracy and completeness of disclosures in the consolidated financial statements /s/ FORVIS, LLP (Formerly, BKD, LLP) We have served as the Company’s auditor since 2005. Little Rock, Arkansas February 24, 2023 92 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders, Board of Directors and Audit Committee Home BancShares, Inc. Conway, Arkansas Opinion on the Internal Control Over Financial Reporting We have audited Home BancShares, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, and our report dated February 24, 2023, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. As described in Management’s Report on Internal Control over Financial Reporting , the scope of management’s assessment of internal control over financial reporting as of December 31, 2022, has excluded Happy Bancshares, Inc. acquired on April 1, 2022. We have also excluded Happy Bancshares, Inc. from the scope of our audit of internal control over financial reporting. Happy Bancshares, Inc. represented approximately 16.9% of consolidated total assets as of December 31, 2022. 93 Table of Contents Definitions and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/ FORVIS, LLP (Formerly, BKD, LLP) Little Rock, Arkansas February 24, 2023 94 Table of Contents Home BancShares, Inc. Consolidated Balance Sheets December 31, (In thousands, except share data) 2022 2021 Assets Cash and due from banks $ 263,893 $ 119,908 Interest-bearing deposits with other banks 460,897 3,530,407 Cash and cash equivalents 724,790 3,650,315 Investment securities – available-for-sale, net of allowance for credit losses 4,041,590 3,119,807 Investment securities – held-to-maturity, net of allowance for credit losses 1,287,705 — Total investment securities 5,329,295 3,119,807 Loans receivable 14,409,480 9,836,089 Allowance for credit losses ( 289,669 ) ( 236,714 ) Loans receivable, net 14,119,811 9,599,375 Bank premises and equipment, net 405,073 275,760 Foreclosed assets held for sale 546 1,630 Cash value of life insurance 213,693 105,135 Accrued interest receivable 103,199 46,736 Deferred tax asset, net 209,321 78,290 Goodwill 1,398,253 973,025 Core deposit intangible 58,455 25,045 Other assets 321,152 177,020 Total assets $ 22,883,588 $ 18,052,138 Liabilities and Stockholders’ Equity Deposits: Demand and non-interest-bearing $ 5,164,997 $ 4,127,878 Savings and interest-bearing transaction accounts 11,730,552 9,251,805 Time deposits 1,043,234 880,887 Total deposits 17,938,783 14,260,570 Securities sold under agreements to repurchase 131,146 140,886 FHLB and other borrowed funds 650,000 400,000 Accrued interest payable and other liabilities 196,877 113,868 Subordinated debentures 440,420 371,093 Total liabilities 19,357,226 15,286,417 Stockholders’ equity: Common stock, par value $ 0.01 ; shares authorized 300,000,000 in 2022 and 2021; shares issued and outstanding 203,433,690 in 2022 and 163,699,282 in 2021 2,034 1,637 Capital surplus 2,386,699 1,487,373 Retained earnings 1,443,087 1,266,249 Accumulated other comprehensive (loss) income ( 305,458 ) 10,462 Total stockholders’ equity 3,526,362 2,765,721 Total liabilities and stockholders’ equity $ 22,883,588 $ 18,052,138 See accompanying notes. 95 Table of Contents Home BancShares, Inc. Consolidated Statements of Income Year Ended December 31, (In thousands, except per share data) 2022 2021 2020 Interest income: Loans $ 728,342 $ 571,960 $ 625,338 Investment securities Taxable 91,933 30,054 32,596 Tax-exempt 28,356 19,642 16,158 Deposits – other banks 29,110 3,515 1,849 Federal funds sold 25 — 21 Total interest income 877,766 625,171 675,962 Interest expense: Interest on deposits 85,989 24,936 63,110 Federal funds purchased 2 — 13 FHLB and other borrowed funds 11,076 7,604 9,506 Securities sold under agreements to repurchase 1,430 497 1,167 Subordinated debentures 20,593 19,163 19,611 Total interest expense 119,090 52,200 93,407 Net interest income 758,676 572,971 582,555 Provision for credit losses on loans 50,170 — 111,422 Provision for credit losses on unfunded commitments 11,410 ( 4,752 ) 16,989 Provision for credit losses on investment securities 2,005 — 842 Total credit loss expense 63,585 ( 4,752 ) 129,253 Net interest income after provision for credit losses 695,091 577,723 453,302 Non-interest income: Service charges on deposit accounts 37,114 22,276 21,381 Other service charges and fees 44,588 36,451 30,686 Trust fees 12,855 1,960 1,633 Mortgage lending income 17,657 25,676 29,065 Insurance commissions 2,192 1,943 1,848 Increase in cash value of life insurance 3,800 2,049 2,200 Dividends from FHLB, FRB, FNBB & other 9,198 14,835 12,472 Gain on sale of SBA loans 183 2,380 645 Gain (loss) on branches, equipment and other assets, net 15 ( 105 ) 326 Gain on OREO, net 500 2,003 1,132 Gain on securities, net — 219 — Fair value adjustment for marketable securities ( 1,272 ) 7,178 ( 1,978 ) Other income 48,281 20,704 12,376 Total non-interest income 175,111 137,569 111,786 Non-interest expense: Salaries and employee benefits 238,885 170,755 163,950 Occupancy and equipment 53,417 36,631 38,412 Data processing expense 34,942 24,280 19,032 Merger and acquisition expenses 49,594 1,886 711 Other operating expenses 98,789 64,965 65,280 Total non-interest expense 475,627 298,517 287,385 Income before income taxes 394,575 416,775 277,703 Income tax expense 89,313 97,754 63,255 Net income $ 305,262 $ 319,021 $ 214,448 Basic earnings per common share $ 1.57 $ 1.94 $ 1.30 Diluted earnings per common share $ 1.57 $ 1.94 $ 1.30 See accompanying notes. 96 Table of Contents Home BancShares, Inc. Consolidated Statements of Comprehensive Income Year Ended December 31, (In thousands) 2022 2021 2020 Net income available to all stockholders $ 305,262 $ 319,021 $ 214,448 Net unrealized (loss) gain on available-for-sale securities ( 417,349 ) ( 45,567 ) 37,771 Other comprehensive (loss) income, before tax effect ( 417,349 ) ( 45,567 ) 37,771 Tax effect on other comprehensive (loss) income 101,429 11,909 ( 9,872 ) Other comprehensive (loss) income ( 315,920 ) ( 33,658 ) 27,899 Comprehensive (loss) income $ ( 10,658 ) $ 285,363 $ 242,347 See accompanying notes. 97 Table of Contents Home BancShares, Inc. Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2022, 2021 and 2020 (In thousands, except share data) Common Stock Capital Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balances at December 31, 2019 $ 1,664 $ 1,537,091 $ 956,555 $ 16,221 $ 2,511,531 Cumulative change in accounting principle (adoption of ASC 326) — — ( 43,956 ) — ( 43,956 ) Balance at January 1, 2020 (as adjusted for change in accounting principle) 1,664 1,537,091 912,599 16,221 2,467,575 Comprehensive income: Net income — — 214,448 — 214,448 Other comprehensive income — — — 27,899 27,899 Net issuance of 67,577 shares of common stock from exercise of stock options — 595 — — 595 Repurchase of 1,533,560 shares of common stock ( 15 ) ( 25,675 ) — — ( 25,690 ) Share-based compensation net issuance of 187,889 shares of restricted common stock 2 8,606 — — 8,608 Cash dividends – Common Stock, $ 0.53 per share — — ( 87,677 ) — ( 87,677 ) Balances at December 31, 2020 1,651 1,520,617 1,039,370 44,120 2,605,758 Comprehensive income: Net income — — 319,021 — 319,021 Other comprehensive loss — — — ( 33,658 ) ( 33,658 ) Net issuance of 176,846 shares of common stock from exercise of stock options 2 2,372 — — 2,374 Repurchase of 1,753,000 shares of common stock ( 18 ) ( 44,462 ) — — ( 44,480 ) Share-based compensation net issuance of 180,184 shares of restricted common stock 2 8,846 — — 8,848 Cash dividends – Common Stock, $ 0.56 per share — — ( 92,142 ) — ( 92,142 ) Balances at December 31, 2021 1,637 1,487,373 1,266,249 10,462 2,765,721 Comprehensive income: Net income — — 305,262 — 305,262 Other comprehensive loss — — — ( 315,920 ) ( 315,920 ) Net issuance of 78,954 shares of common stock from exercise of stock options 2 154 — — 156 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 3,098,531 shares of common stock ( 31 ) ( 70,825 ) — — ( 70,856 ) Share-based compensation net issuance of 328,633 shares of restricted common stock 2 9,131 — — 9,133 Cash dividends – Common Stock, $ 0.66 per share — — ( 128,424 ) — ( 128,424 ) Balances at December 31, 2022 $ 2,034 $ 2,386,699 $ 1,443,087 $ ( 305,458 ) $ 3,526,362 See accompanying notes. 98 Table of Contents Home BancShares, Inc. Consolidated Statements of Cash Flows December 31, (In thousands) 2022 2021 2020 Operating Activities Net income $ 305,262 $ 319,021 $ 214,448 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation & amortization 31,856 19,481 20,082 Decrease (increase) in value of equity securities 1,272 ( 7,178 ) 1,978 Amortization of securities, net 20,335 28,516 20,607 Accretion of purchased loans ( 16,341 ) ( 20,151 ) ( 27,376 ) Share-based compensation 9,133 8,848 8,608 Gain on assets ( 698 ) ( 4,497 ) ( 2,103 ) Provision for credit losses - loans 50,170 — 111,422 Provision for credit losses - unfunded commitments 11,410 ( 4,752 ) 16,989 Provision for credit losses - investment securities 2,005 — 842 Deferred income taxes 2,213 3,868 ( 19,751 ) Increase in cash value of life insurance ( 3,800 ) ( 2,049 ) ( 2,200 ) Originations of mortgage loans held for sale ( 510,136 ) ( 783,293 ) ( 863,383 ) Proceeds from sales of mortgage loans held for sale 503,020 825,397 831,604 Changes in assets and liabilities: Accrued interest receivable ( 24,473 ) 13,792 ( 15,212 ) Other assets 9,342 1,756 ( 13,427 ) Accrued interest payable and other liabilities 22,602 ( 9,379 ) 8,600 Net cash provided by operating activities 413,172 389,380 291,728 Investing Activities Net (increase) decrease in loans, excluding loans acquired ( 673,883 ) 1,328,378 92,650 Purchases of investment securities – available-for-sale ( 1,258,403 ) ( 1,390,405 ) ( 1,147,897 ) Purchases of investment securities - held-to-maturity ( 674,178 ) — — Proceeds from maturities of investment securities – available-for-sale 496,551 652,403 774,276 Proceeds from maturities of investment securities – held-to-maturity 501,529 — — Proceeds from sale of investment securities – available-for-sale 67,349 18,112 — Purchases of equity securities ( 49,975 ) ( 13,276 ) ( 15,015 ) Proceeds from sales of equity securities 13,778 16,381 — (Purchases) redemptions of other investments ( 60,889 ) ( 9,784 ) 13,355 Proceeds from foreclosed assets held for sale 2,319 7,599 8,494 Proceeds from sale of SBA loans 4,304 25,116 7,696 Purchases of premises and equipment, net ( 9,016 ) ( 10,282 ) ( 11,547 ) Return of investment on cash value of life insurance 277 418 47,258 Purchase of marine loan portfolio ( 242,617 ) — — Net cash proceeds received (paid) – market acquisitions 858,584 — ( 421,211 ) Net cash (used in) provided by investing activities ( 1,024,270 ) 624,660 ( 651,941 ) 99 Table of Contents Home BancShares, Inc. Consolidated Statements of Cash Flows December 31, (In thousands) 2022 2021 2020 Financing Activities Net (decrease) increase in deposits, excluding deposits acquired ( 2,177,058 ) 1,534,780 1,447,407 Net (decrease) increase in securities sold under agreements to repurchase ( 9,740 ) ( 28,045 ) 25,204 Net decrease in federal funds purchased — — ( 5,000 ) Increase in FHLB and other borrowed funds 601,000 — 1,010,902 Decrease in FHLB and other borrowed funds ( 429,330 ) — ( 1,232,341 ) 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 2,374 595 Repurchase of common stock ( 70,856 ) ( 44,480 ) ( 25,690 ) Dividends paid on common stock ( 128,424 ) ( 92,142 ) ( 87,677 ) Net cash (used in) provided by financing activities ( 2,314,427 ) 1,372,487 1,133,400 Net change in cash and cash equivalents ( 2,925,525 ) 2,386,527 773,187 Cash and cash equivalents – beginning of year 3,650,315 1,263,788 490,601 Cash and cash equivalents – end of year $ 724,790 $ 3,650,315 $ 1,263,788 See accompanying notes. 100 Table of Contents Home BancShares, Inc. Notes to Consolidated Financial Statements 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 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, cash held as demand deposits at various banks and the Federal Reserve Bank (“FRB”) and interest-bearing deposits with other banks. For many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the Federal Open Market Committee announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework. In light of the shift to an ample reserves regime, the FRB reduced the reserve requirement ratios to zero percent effective on March 26, 2020. As a result, the Bank is no longer required to maintain required reserve balance with either the FRB or in the form of cash on hand. 101 Table of Contents Investment Securities Interest on investment securities is recorded as income as earned. Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and losses are recorded as net security gains (losses). Gains or losses on the sale of securities are determined using the specific identification method. Management determines the classification of securities as available-for-sale, held-to-maturity, or trading at the time of purchase based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The Company has no trading securities. Debt securities available-for-sale ("AFS") are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments . The Company first assesses whether it intends to sell or 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 these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Debt securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments . The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. 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. 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. 102 Table of Contents 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 loan 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 impaired 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 for which a specific reserve is not recorded, 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. 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. 103 Table of Contents 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 ASC Topic 805, Business Combinations , which requires the use of the purchase method of accounting. All identifiable assets acquired, including loans, and liabilities assumed 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. For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment. 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. Foreclosed Assets Held for Sale Real estate and personal properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal properties are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal properties are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expense. Bank Premises and Equipment Bank premises and equipment are carried at cost or fair value at the date of acquisition less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Accelerated depreciation methods are used for tax purposes. Leasehold improvements are capitalized and amortized using the straight-line method over the terms of the respective leases or the estimated useful lives of the improvements whichever is shorter. The assets’ estimated useful lives for book purposes are as follows: Bank premises 15 - 40 years Furniture, fixtures, and equipment 3 - 15 years 104 Table of Contents Cash value of life insurance The Company has purchased life insurance policies on certain key employees. Life insurance owned by the Company is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Intangible Assets Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 120 months on a straight-line basis. Goodwill is not amortized, but rather, is evaluated for impairment on at least an annual basis or more frequently if changes or circumstances occur. The Company performed its annual impairment test of goodwill and core deposit intangibles during 2022, 2021 and 2020, as required by FASB ASC 350, Intangibles - Goodwill and Other . The 2022, 2021 and 2020 tests indicated no impairment of the Company’s goodwill or core deposit intangibles. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase consist of obligations of the Company to other parties. At the point funds deposited by customers become investable, those funds are used to purchase securities owned by the Company and held in its general account with the designation of Customers’ Securities. A third party maintains control over the securities underlying overnight repurchase agreements. The securities involved in these transactions are generally U.S. Treasury or Federal Agency issues. Securities sold under agreements to repurchase generally mature on the banking day following that on which the investment was initially purchased and are treated as collateralized financing transactions which are recorded at the amounts at which the securities were sold plus accrued interest. Interest rates and maturity dates of the securities involved vary and are not intended to be matched with funds from customers. Derivative Financial Instruments The Company may enter into derivative contracts for the purposes of managing exposure to interest rate risk. The Company records all derivatives on the consolidated balance sheet at fair value. Historically the Company’s policy has been not to invest in derivative type investments. The Company has standalone derivative financial instruments acquired in a previous acquisition. These derivative financial instruments consist of interest rate swaps and are recognized as assets and liabilities in the consolidated statements of financial condition at fair value. The Bank’s derivative instruments have not been designated as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in fair value recorded in other non-interest income. In addition, as of December 31, 2022 and December 31, 2021, the Company had derivative contracts outstanding associated with the mortgage loans held for sale portfolio. As of December 31, 2022 and 2021, these derivative instruments are not considered to be material to the Company’s financial position and results of operations. Stock Options The Company accounts for stock options in accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees , which establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods and services, or (ii) incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. FASB ASC 718 requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant. For additional information on the stock-based compensation plan, see Note 13. 105 Table of Contents Income Taxes The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes ). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company and its subsidiaries file consolidated tax returns. Its subsidiary provides for income taxes on a separate return basis, and remits to the Company amounts determined to be currently payable. 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. 106 Table of Contents 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 years ended December 31: 2022 2021 2020 (In thousands, except per share data) Net income $ 305,262 $ 319,021 $ 214,448 Average common shares outstanding 194,694 164,501 165,373 Effect of common stock options 325 357 — Diluted common shares outstanding 195,019 164,858 165,373 Basic earnings per common share $ 1.57 $ 1.94 $ 1.30 Diluted earnings per common share $ 1.57 $ 1.94 $ 1.30 As of December 31, 2022 and 2021, the Company's stock options were dilutive to earnings per share. However, as of December 31, 2020, options to purchase 3.3 million shares of common stock with a weighted average exercise price of $ 19.77 were excluded from the computation of diluted earnings per share as the majority of the options had an exercise price which was greater than the average market price of the common stock. 2. Business Combinations Acquisition of 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. 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, intangible assets and other 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: 107 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 $ ( 446 ) $ 112,553 Interest-bearing deposits with other banks 746,031 — 746,031 Cash and cash equivalents 859,030 ( 446 ) 858,584 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 ( 12,270 ) 141,372 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 ( 1,092 ) 31,816 Goodwill 130,428 ( 130,428 ) — Core deposit intangible 10,672 31,591 42,263 Other assets 43,330 15,567 58,897 Total assets acquired $ 6,755,152 $ ( 67,648 ) $ 6,687,504 Liabilities Deposits Demand and non-interest-bearing $ 1,932,756 $ 67 $ 1,932,823 Savings and interest-bearing transaction accounts 3,519,652 — 3,519,652 Time deposits 401,899 903 402,802 Total deposits 5,854,307 970 5,855,277 FHLB and other borrowed funds 74,212 4,118 78,330 Accrued interest payable and other liabilities 50,889 ( 1,892 ) 48,997 Subordinated debentures 159,965 7,625 167,590 Total liabilities assumed 6,139,373 10,821 6,150,194 Equity Total equity assumed 615,779 ( 615,779 ) — Total liabilities and equity assumed $ 6,755,152 $ ( 604,958 ) $ 6,150,194 Net assets acquired 537,310 Purchase price 962,538 Goodwill $ 425,228 108 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 $ 12.3 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 – 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 $ 903,000 fair value adjustment applied for time deposits was because the weighted-average interest rate of Happy’s certificates of deposits were estimated to be above 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. During the third and fourth quarters 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: 109 Table of Contents 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 $ 112,553 $ ( 314 ) Loans receivable Loans receivable 3,652,706 3,652,620 ( 86 ) Bank premises and equipment, net Bank premises and equipment, net 142,067 141,372 ( 695 ) Deferred tax asset, net Deferred tax asset, net 35,414 31,816 ( 3,598 ) Equity method investments & Other assets Other assets 49,752 58,897 9,145 Goodwill Goodwill 425,375 425,228 ( 147 ) Demand and non-interest bearing deposits Demand and non-interest bearing deposits 1,932,756 1,932,823 67 Accrued expense and other liabilities Accrued interest payable and other liabilities 44,759 48,997 4,238 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 December 31, 2022. However, the valuations will be finalized no later than April 1, 2023. As the valuations remain provisional 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 years ended December 31, 2022 and 2021, assuming the acquisition was completed as of January 1, 2022 and 2021, respectively: December 31, 2022 2021 (In thousands, except per share data) Total interest income $ 935,168 $ 839,407 Total non-interest income 188,012 190,550 Net income available to all shareholders 406,949 317,190 Basic earnings per common share $ 1.98 $ 1.53 Diluted earnings per common share 1.98 1.53 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 years ended December 31, 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. 110 Table of Contents Purchased loans 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 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 Acquisition of LH-Finance On February 29, 2020, the Company completed the acquisition of LH-Finance, the marine lending division of People’s United Bank, N.A. The Company paid a purchase price of approximately $ 421.2 million in cash. LH-Finance provides direct consumer financing for United States Coast Guard (“USCG”) registered high-end sail and power boats. Additionally, LH-Finance provides inventory floor plan lines of credit to marine dealers, primarily those selling USCG documented vessels. Including the purchase accounting adjustments, as of the acquisition date, LH-Finance had approximately $ 409.1 million in total assets, including $ 407.4 million in total loans, which resulted in goodwill of $ 14.6 million being recorded. The acquired portfolio of loans is now housed in the Shore Premier Finance (“SPF”) division. The SPF division of Centennial is responsible for servicing the acquired loan portfolio and originating new loan production. In connection with this acquisition, Centennial opened a new loan production office in Baltimore, Maryland. The Company has determined that the acquisition of the net assets of LH-Finance constitutes a business combination as defined by the ASC Topic 805. Accordingly, the assets acquired 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. 3. Investment Securities The amortized cost and estimated fair value of investment securities that are classified as available-for-sale and held-to-maturity are as follows: December 31, 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 $ 682,316 $ — $ 682,316 $ 2,713 $ ( 23,209 ) $ 661,820 Residential mortgage-backed securities 1,759,025 — 1,759,025 71 ( 211,453 ) 1,547,643 Commercial mortgage-backed securities 339,206 — 339,206 — ( 22,254 ) 316,952 State and political subdivisions 1,021,188 ( 842 ) 1,020,346 1,649 ( 115,698 ) 906,297 Other securities 643,885 — 643,885 346 ( 35,353 ) 608,878 Total $ 4,445,620 $ ( 842 ) $ 4,444,778 $ 4,779 $ ( 407,967 ) $ 4,041,590 111 Table of Contents December 31, 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 $ 43,017 $ — $ 43,017 $ — $ ( 3,349 ) $ 39,668 Residential mortgage-backed securities 49,088 — 49,088 24 ( 1,205 ) 47,907 Commercial mortgage-backed securities 85,912 — 85,912 107 ( 2,551 ) 83,468 State and political subdivisions 1,111,693 ( 2,005 ) 1,109,688 65 ( 154,650 ) 955,103 Total $ 1,289,710 $ ( 2,005 ) $ 1,287,705 $ 196 $ ( 161,755 ) $ 1,126,146 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 fair value of approximately $ 2.35 billion and $ 1.15 billion at December 31, 2022 and 2021, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase agreements totaled approximately $ 131.1 million and $ 140.9 million at December 31, 2022 and 2021. The amortized cost and estimated fair value of securities classified as available-for-sale and held-to-maturity at December 31, 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 $ 265,640 $ 265,487 $ — $ — Due after one year through five years 176,377 164,127 4,782 4,479 Due after five years through ten years 476,305 434,906 216,182 190,992 Due after ten years 1,427,566 1,310,977 933,746 799,300 Mortgage - backed securities: Residential 1,759,025 1,547,643 49,088 47,907 Mortgage - backed securities: Commercial 339,206 316,952 85,912 83,468 Other 1,501 1,498 — — Total $ 4,445,620 $ 4,041,590 $ 1,289,710 $ 1,126,146 112 Table of Contents During the year ended December 31, 2022, $ 67.3 million in available-for-sale securities were sold, and no gain or loss was recognized. During the year ended December 31, 2021, $ 17.9 million in available-for-sale securities were sold, and the gross realized gains on the sales totaled $ 219,000 . The income tax expense/benefit to net security gains and losses was 25.740 % of the gross amounts. During the year ended December 31, 2020, no available-for-sale securities were sold. The following shows gross unrealized losses and estimated fair value of investment securities classified as available-for-sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of December 31, 2022 and 2021: December 31, 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 $ 315,531 $ ( 3,056 ) $ 128,527 $ ( 20,153 ) $ 444,058 $ ( 23,209 ) Residential mortgage-backed securities 817,351 ( 54,025 ) 717,587 ( 157,428 ) 1,534,938 ( 211,453 ) Commercial mortgage-backed securities 212,050 ( 10,782 ) 89,979 ( 11,472 ) 302,029 ( 22,254 ) State and political subdivisions 485,817 ( 50,484 ) 338,638 ( 65,214 ) 824,455 ( 115,698 ) Other securities 424,700 ( 25,040 ) 73,556 ( 10,313 ) 498,256 ( 35,353 ) Total $ 2,255,449 $ ( 143,387 ) $ 1,348,287 $ ( 264,580 ) $ 3,603,736 $ ( 407,967 ) Held-to-maturity: U.S. government-sponsored enterprises $ 39,668 $ ( 3,349 ) $ — $ — $ 39,668 $ ( 3,349 ) Residential mortgage-backed securities 40,892 ( 1,205 ) — — 40,892 ( 1,205 ) Commercial mortgage-backed securities 65,948 ( 2,551 ) — — 65,948 ( 2,551 ) State and political subdivisions 955,563 ( 154,650 ) — — 955,563 ( 154,650 ) Total $ 1,102,071 $ ( 161,755 ) $ — $ — $ 1,102,071 $ ( 161,755 ) 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 ) Debt securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments . The Company first assesses whether it intends to sell or 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 these criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is 113 Table of Contents 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. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Debt securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments . The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. 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. 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 86.2 % 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 December 31, 2022, the Company determined the allowance for credit losses of $ 842,000 , resulting from economic uncertainty, was adequate for the available-for-sale investment portfolio. No additional provision for credit losses was considered necessary for the portfolio. Available-for-Sale Investment Securities Year Ended December 31, 2022 Year Ended December 31, 2021 (In thousands) Allowance for credit losses: Beginning balance $ 842 $ 842 Provision for credit loss — — Ending balance, December 31, $ 842 $ 842 Held-to-Maturity Investment Securities Year Ended Dec 31, 2022 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 — — Ending balance, December 31, $ ( 2,005 ) $ — For the year ended December 31, 2022, the Company had available-for-sale investment securities with approximately $ 264.6 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 33.0 % of the Company’s available-for-sale investment portfolio will mature and be repaid to the Company within five years or less. As a result, the Company has the ability and intent to hold such securities until maturity. 114 Table of Contents For the year ended December 31, 2021, the Company had approximately $ 6.4 million in unrealized losses, which were in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies. In addition, approximately 55.7 % of the Company’s investment portfolio was expected to mature and be repaid to the Company within five years or less. As a result, the Company had the ability and intent to hold such securities until maturity. As of December 31, 2022, the Company's available-for-sale securities portfolio consisted of 1,642 investment securities, 1,408 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $ 408.0 million. The U.S government-sponsored enterprises portfolio contained unrealized losses of $ 23.2 million on 65 securities. The residential mortgage-backed securities portfolio contained $ 211.5 million of unrealized losses on 591 securities, and the commercial mortgage-backed securities portfolio contained $ 22.3 million of unrealized losses on 145 securities. The state and political subdivisions portfolio contained $ 115.7 million of unrealized losses on 501 securities. In addition, the other securities portfolio contained $ 35.4 million of unrealized losses on 106 securities. The unrealized losses on the Company's available-for-sale 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 December 31, 2022. As of December 31, 2022, the Company's held-to-maturity securities portfolio consisted of 507 investment securities, 500 of which were in an unrealized loss position. As noted in the table above, the total amount of the unrealized loss was $ 161.8 million. The U.S. government-sponsored enterprises portfolio contained unrealized losses of $ 3.3 million on 5 securities. The state and political subdivisions portfolio contained $ 154.7 million of unrealized losses on 479 securities. The residential mortgage-backed securities portfolio contained $ 1.2 million of unrealized losses on 6 securities, and the commercial mortgage-backed securities portfolio contained $ 2.6 million of unrealized losses on 10 securities. The unrealized losses on the Company's held-to-maturity 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 December 31, 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 December 31, 2022: State and Political Subdivisions Other Securities Total (In thousands) Aaa/AAA $ 233,117 $ 43,017 $ 276,134 Aa/AA 849,386 — 849,386 A 27,593 — 27,593 Not rated 1,597 — 1,597 Agency Backed — 135,000 135,000 Total $ 1,111,693 $ 178,017 $ 1,289,710 Income earned on securities for the years ended is as follows: December 31, 2022 2021 2020 (In thousands) Taxable: Available-for-sale $ 71,352 $ 30,054 $ 32,596 Held-to-maturity 20,581 — — Tax-exempt: Available-for-sale 19,168 19,642 16,158 Held-to-maturity 9,188 — — Total $ 120,289 $ 49,696 $ 48,754 115 Table of Contents 4. Loans Receivable The various categories of loans receivable are summarized as follows: December 31, 2022 2021 (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 5,632,063 $ 3,889,284 Construction/land development 2,135,266 1,850,050 Agricultural 346,811 130,674 Residential real estate loans Residential 1-4 family 1,748,551 1,274,953 Multifamily residential 578,052 280,837 Total real estate 10,440,743 7,425,798 Consumer 1,149,896 825,519 Commercial and industrial 2,349,263 1,386,747 Agricultural 285,235 43,920 Other 184,343 154,105 Total Loans receivable $ 14,409,480 $ 9,836,089 Allowance for credit losses ( 289,669 ) ( 236,714 ) Loans receivable, net $ 14,119,811 $ 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 year ended December 31, 2022, the Company sold $ 4.1 million of the guaranteed portion of certain SBA loans, which resulted in a gain of approximately $ 183,000 . During the year ended December 31, 2021, the Company sold $ 22.7 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 2.4 million. During the year ended December 31, 2020, the Company sold $ 7.0 million of the guaranteed portion of certain SBA loans, which resulted in a gain of $ 645,000 . Mortgage loans held for sale of approximately $ 79.9 million and $ 72.7 million at December 31, 2022 and 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 December 31, 2022 and 2021 were not material. Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. For PCD loans not individually analyzed for impairment, the Company develops separate PCD models for each loan segment. 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 $ 142.5 million and $ 448,000 in PCD loans, as of December 31, 2022 and 2021, respectively. This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance. 116 Table of Contents 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 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 that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These Q-Factors and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system and (ix) economic conditions. Each year management evaluates the performance of the selected models used in the CECL calculation through backtesting. Based on the results of the testing, management determines if the various models produced accurate results compared to the actual losses incurred for the current economic environment. Management then determines if changes to the input assumptions and economic factors would produce a stronger overall calculation that is more responsive to changes in economic conditions. The Company continues to use regression analysis to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default for the changes in the economic factors for the loss driver segments. Based on this analysis during the first quarter of 2021, management determined that changes to several of the economic factors for the various loss driver segments were necessary. The identified loss drivers by segment are included below as of both December 31, 2022 and 2021, respectively. 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. 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. 117 Table of Contents 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 as a result of our acquisitions of Shore Premier Finance on June 30, 2018 and LH-Finance on February 29, 2020. 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 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. During the year ended December 31, 2022, the Company recorded a $ 5.0 million provision for credit losses on loans due to increased loan growth. However, the Company determined that no additional provision was necessary for unfunded commitments as the current levels of the reserve was considered adequate. 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. During the first quarter of 2020, we completed the acquisition of $ 406.2 million of loans from LH-Finance. As a result, the Company recorded a $ 6.6 million loan discount and a $ 9.3 million increase in the allowance for credit losses for this acquisition. A small portion of the loans acquired during the quarter were purchase credit deteriorated (“PCD”) loans, so the Company recorded a $ 357,000 allowance for credit losses on these loans. 118 Table of Contents The following table presents the activity in the allowance for credit losses for the year ended December 31, 2022. Year Ended December 31, 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 ( 1 ) — ( 446 ) ( 9,773 ) ( 7,047 ) ( 17,267 ) Recoveries of loans previously charged off 405 967 119 780 965 3,236 Net loans recovered (charged off) 404 967 ( 327 ) ( 8,993 ) ( 6,082 ) ( 14,031 ) Provision for credit loss - acquired loans 7,205 18,711 7,380 11,303 571 45,170 Provision for credit loss - loans ( 4,731 ) ( 22,331 ) ( 5,528 ) 28,386 9,204 5,000 Balance, December 31 $ 32,243 $ 93,848 $ 50,963 $ 89,354 $ 23,261 $ 289,669 The following table presents the balance in the allowance for credit losses for the year ended December 31, 2021. 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 ) ( 545 ) ( 8,242 ) ( 2,228 ) ( 11,661 ) Recoveries of loans previously charged off 58 785 683 591 785 2,902 Net loans recovered (charged off) 58 139 138 ( 7,651 ) ( 1,443 ) ( 8,759 ) Provision for credit loss - loans ( 4,504 ) ( 1,374 ) ( 4,896 ) 14,183 ( 3,409 ) — Balance, December 31 $ 28,415 $ 87,218 $ 48,458 $ 53,062 $ 19,561 $ 236,714 119 Table of Contents The following table presents the balance in the allowance for loan losses for the year ended December 31, 2020. Year Ended December 31, 2020 Construction/ Land Development Other Commercial Real Estate Residential Real Estate Commercial & Industrial Consumer & Other Total (In thousands) Allowance for loan losses: Beginning balance $ 26,433 $ 33,529 $ 20,135 $ 16,615 $ 5,410 $ 102,122 Impact of adopting ASC 326 ( 5,296 ) 15,912 16,680 11,584 5,108 43,988 Allowance for credit losses on PCD loans - LH Finance acquisition — — — — 357 357 Loans charged off ( 1,218 ) ( 3,041 ) ( 485 ) ( 7,764 ) ( 1,978 ) ( 14,486 ) Recoveries of loans previously charged off 107 647 337 218 761 2,070 Net loans recovered (charged off) ( 1,111 ) ( 2,394 ) ( 148 ) ( 7,546 ) ( 1,217 ) ( 12,416 ) Provision for credit loss - loans 12,835 41,406 16,549 25,877 5,446 102,113 Provision for loan losses - acquired loans — — — — 9,309 9,309 Balance December 31 $ 32,861 $ 88,453 $ 53,216 $ 46,530 $ 24,413 $ 245,473 The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing as of December 31, 2022 and 2021, respectively: December 31, 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 $ 12,219 $ 8,383 $ 1,844 Construction/land development 1,977 — 31 Agricultural 278 — — Residential real estate loans Residential 1-4 family 18,083 — 1,374 Multifamily residential — — — Total real estate 32,557 8,383 3,249 Consumer 2,842 — 35 Commercial and industrial 14,920 — 6,300 Agricultural & other 692 — 261 Total $ 51,011 $ 8,383 $ 9,845 120 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 $ 51.0 million and $ 47.2 million in nonaccrual loans for the periods ended December 31, 2022 and 2021, respectively. In addition, the Company had $ 9.8 million and $ 3.0 million in loans past due 90 days or more and still accruing for the periods ended December 31, 2022 and 2021, respectively. The Company had $ 8.4 million and $ 9.2 million in nonaccrual loans with a specific reserve as of December 31, 2022 and 2021, respectively. The Company did not recognize any interest income on nonaccrual loans during the periods ended December 31, 2022 and 2021. The following table presents the amortized cost basis of collateral-dependent impaired loans by class of loans as of December 31, 2022 and 2021, respectively: December 31, 2022 Commercial Real Estate Residential Real Estate Other (In thousands) Real estate: Commercial real estate loans Non-farm/non-residential $ 162,268 $ — $ — Construction/land development 2,008 — — Agricultural 278 — — Residential real estate loans Residential 1-4 family — 20,832 — Multifamily residential — 969 — Total real estate 164,554 21,801 — Consumer — — 2,888 Commercial and industrial — — 30,334 Agricultural & other — — 1,527 Total $ 164,554 $ 21,801 $ 34,749 121 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 $ 221.1 million and $ 331.5 million in collateral-dependent impaired loans for the periods ended December 31, 2022 and 2021, respectively. Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent impaired loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral less estimated costs to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan. 122 Table of Contents The following is an aging analysis for loans receivable as of December 31, 2022 and 2021: December 31, 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 $ 4,242 $ 2,117 $ 14,063 $ 20,422 $ 5,611,641 $ 5,632,063 $ 1,844 Construction/land development 4,042 1,892 2,008 7,942 2,127,324 2,135,266 31 Agricultural 1,469 193 278 1,940 344,871 346,811 — Residential real estate loans Residential 1-4 family 6,715 605 19,457 26,777 1,721,774 1,748,551 1,374 Multifamily residential — — — — 578,052 578,052 — Total real estate 16,468 4,807 35,806 57,081 10,383,662 10,440,743 3,249 Consumer 950 539 2,877 4,366 1,145,530 1,149,896 35 Commercial and industrial 3,007 1,075 21,220 25,302 2,323,961 2,349,263 6,300 Agricultural and other 1,065 57 953 2,075 467,503 469,578 261 Total $ 21,490 $ 6,478 $ 60,856 $ 88,824 $ 14,320,656 $ 14,409,480 $ 9,845 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 were $ 51.0 million and $ 47.2 million at December 31, 2022 and 2021, respectively. Interest recognized on impaired loans, including those loans with a specific reserve, during the years ended December 31, 2022, 2021 and 2020 was approximately $ 9.6 million, $ 14.7 million and $ 3.4 million, respectively. The amount of interest recognized on impaired loans on the cash basis is not materially different than the accrual basis. 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. 123 Table of Contents 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 risks 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. 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. 124 Table of Contents Based on the most recent analysis performed, the risk category of loans by class as of December 31, 2022 and 2021 is as follows: December 31, 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 $ — $ — $ — $ 237 $ — $ 132 $ 85 $ 454 Risk rating 2 — — — 118 — 3,992 — 4,110 Risk rating 3 616,809 509,269 263,188 279,157 322,278 852,727 374,371 3,217,799 Risk rating 4 438,565 341,047 235,669 161,421 321,188 482,437 139,203 2,119,530 Risk rating 5 — 757 1,145 14,417 35,273 37,561 95 89,248 Risk rating 6 876 196 14,247 26,649 4,720 153,909 194 200,791 Risk rating 7 131 — — — — — — 131 Risk rating 8 — — — — — — — — Total non-farm/non-residential 1,056,381 851,269 514,249 481,999 683,459 1,530,758 513,948 5,632,063 Construction/land development Risk rating 1 $ — $ 11 $ — $ — $ — $ — $ — $ 11 Risk rating 2 682 — — — — 210 — 892 Risk rating 3 421,774 283,546 83,631 48,350 19,340 34,910 75,797 967,348 Risk rating 4 354,852 512,541 58,368 79,924 11,520 43,634 65,960 1,126,799 Risk rating 5 — — 30,987 310 — 1,140 — 32,437 Risk rating 6 612 — 574 751 3 5,839 — 7,779 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total construction/land development 777,920 796,098 173,560 129,335 30,863 85,733 141,757 2,135,266 Agricultural Risk rating 1 $ 1,749 $ — $ — $ — $ — $ — $ — $ 1,749 Risk rating 2 — 2,048 — — — — — 2,048 Risk rating 3 61,725 43,356 32,895 16,475 10,326 37,892 5,996 208,665 Risk rating 4 18,870 25,252 20,532 8,706 3,154 42,886 4,755 124,155 Risk rating 5 — — — 326 — 603 — 929 Risk rating 6 — 1,630 1,623 4,972 — 1,040 — 9,265 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total agricultural 82,344 72,286 55,050 30,479 13,480 82,421 10,751 346,811 Total commercial real estate loans $ 1,916,645 $ 1,719,653 $ 742,859 $ 641,813 $ 727,802 $ 1,698,912 $ 666,456 $ 8,114,140 Residential real estate loans Residential 1-4 family Risk rating 1 $ — $ — $ — $ — $ — $ 115 $ 40 $ 155 Risk rating 2 — — — — — 48 2 50 Risk rating 3 360,510 255,775 176,955 112,053 98,093 314,492 110,881 1,428,759 Risk rating 4 37,471 35,875 61,418 11,871 15,577 61,034 65,674 288,920 Risk rating 5 — — — 3,049 226 328 — 3,603 Risk rating 6 849 2,423 3,564 3,521 2,536 12,662 1,508 27,063 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — 1 — 1 Total residential 1-4 family 398,830 294,073 241,937 130,494 116,432 388,680 178,105 1,748,551 125 Table of Contents December 31, 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 38,830 37,566 14,127 33,813 13,098 60,117 6,534 204,085 Risk rating 4 43,478 101,282 182,850 8,284 11,934 11,779 1,201 360,808 Risk rating 5 — — — — 3,142 7,897 — 11,039 Risk rating 6 — — — 302 — 1,818 — 2,120 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total multifamily residential 82,308 138,848 196,977 42,399 28,174 81,611 7,735 578,052 Total real estate $ 2,397,783 $ 2,152,574 $ 1,181,773 $ 814,706 $ 872,408 $ 2,169,203 $ 852,296 $ 10,440,743 Consumer Risk rating 1 $ 5,332 $ 3,952 $ 1,134 $ 637 $ 552 $ 1,176 $ 1,467 $ 14,250 Risk rating 2 — — — 193 614 — — 807 Risk rating 3 284,828 276,044 146,256 132,763 118,244 135,266 16,093 1,109,494 Risk rating 4 15,306 2,293 422 1,216 459 907 69 20,672 Risk rating 5 — 633 19 — 8 810 — 1,470 Risk rating 6 215 156 270 970 24 1,386 101 3,122 Risk rating 7 — — — — — — — — Risk rating 8 3 — 1 — — 77 — 81 Total consumer 305,684 283,078 148,102 135,779 119,901 139,622 17,730 1,149,896 Commercial and industrial Risk rating 1 3,450 $ 7,692 $ 268 $ 264 $ 16 $ 21,298 $ 8,832 $ 41,820 Risk rating 2 1,590 305 27 198 — 226 781 3,127 Risk rating 3 301,063 126,312 80,636 73,360 71,964 112,017 253,111 1,018,463 Risk rating 4 70,862 120,618 69,963 89,975 81,389 48,496 568,795 1,050,098 Risk rating 5 83,272 14,762 159 1,408 6,815 185 75,891 182,492 Risk rating 6 4,842 2,539 11,204 4,193 5,769 16,559 3,554 48,660 Risk rating 7 — — — — 4,316 202 85 4,603 Risk rating 8 — — — — — — — — Total commercial and industrial 465,079 272,228 162,257 169,398 170,269 198,983 911,049 2,349,263 Agricultural and other Risk rating 1 $ 297 $ 266 $ 115 $ — $ — $ 95 $ 722 $ 1,495 Risk rating 2 140 78 — 2,338 34 115 1,661 4,366 Risk rating 3 85,707 36,004 30,546 4,725 7,986 46,748 131,760 343,476 Risk rating 4 7,627 13,591 2,598 1,671 1,710 8,766 69,179 105,142 Risk rating 5 — 8 204 — — 593 745 1,550 Risk rating 6 — 58 157 11,137 304 949 944 13,549 Risk rating 7 — — — — — — — — Risk rating 8 — — — — — — — — Total agricultural and other 93,771 50,005 33,620 19,871 10,034 57,266 205,011 469,578 Total $ 3,262,317 $ 2,757,885 $ 1,525,752 $ 1,139,754 $ 1,172,612 $ 2,565,074 $ 1,986,086 $ 14,409,480 126 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 1,274,953 127 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 $ 9,836,089 128 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 December 31, 2022 and 2021. December 31, 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 $ 1,056,381 $ 851,269 $ 509,258 $ 456,196 $ 679,187 $ 1,403,874 $ 513,630 $ 5,469,795 Non-performing — — 4,991 25,803 4,272 126,884 318 162,268 Total non-farm/ non-residential 1,056,381 851,269 514,249 481,999 683,459 1,530,758 513,948 5,632,063 Construction/land development Performing 777,309 796,098 172,987 128,736 30,860 85,511 141,757 2,133,258 Non-performing 611 — 573 599 3 222 — 2,008 Total construction/ land development 777,920 796,098 173,560 129,335 30,863 85,733 141,757 2,135,266 Agricultural Performing $ 82,344 $ 72,286 $ 55,050 $ 30,479 $ 13,480 $ 82,143 $ 10,751 $ 346,533 Non-performing — — — — — 278 — 278 Total agricultural 82,344 72,286 55,050 30,479 13,480 82,421 10,751 346,811 Total commercial real estate loans $ 1,916,645 $ 1,719,653 $ 742,859 $ 641,813 $ 727,802 $ 1,698,912 $ 666,456 $ 8,114,140 Residential real estate loans Residential 1-4 family Performing $ 397,464 $ 292,100 $ 239,047 $ 127,250 $ 114,337 $ 380,210 $ 177,311 $ 1,727,719 Non-performing 1,366 1,973 2,890 3,244 2,095 8,470 794 20,832 Total residential 1-4 family 398,830 294,073 241,937 130,494 116,432 388,680 178,105 1,748,551 Multifamily residential Performing $ 82,308 $ 138,848 $ 196,977 $ 42,399 $ 28,174 $ 80,642 $ 7,735 $ 577,083 Non-performing — — — — — 969 — 969 Total multifamily residential 82,308 138,848 196,977 42,399 28,174 81,611 7,735 578,052 Total real estate 2,397,783 2,152,574 1,181,773 814,706 872,408 2,169,203 852,296 10,440,743 Consumer Performing $ 305,620 $ 282,944 $ 147,820 $ 134,831 $ 119,877 $ 138,288 $ 17,628 $ 1,147,008 Non-performing 64 134 282 948 24 1,334 102 2,888 Total consumer 305,684 283,078 148,102 135,779 119,901 139,622 17,730 1,149,896 Commercial and industrial Performing $ 464,285 $ 267,719 $ 159,152 $ 165,733 $ 160,267 $ 194,162 $ 907,611 $ 2,318,929 Non-performing 794 4,509 3,105 3,665 10,002 4,821 3,438 30,334 Total commercial and industrial 465,079 272,228 162,257 169,398 170,269 198,983 911,049 2,349,263 Agricultural and other Performing $ 93,771 $ 50,001 $ 33,416 $ 19,818 $ 10,034 $ 56,631 $ 204,380 $ 468,051 Non-performing — 4 204 53 — 635 631 1,527 Total agricultural and other 93,771 50,005 33,620 19,871 10,034 57,266 205,011 469,578 Total $ 3,262,317 $ 2,757,885 $ 1,525,752 $ 1,139,754 $ 1,172,612 $ 2,565,074 $ 1,986,086 $ 14,409,480 129 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 $ 28.3 million or 183 total revolving loans convert to term loans for the year ended December 31, 2022 compared to $ 58.7 million or 259 total revolving loans convert to term loans for the year ended December 31, 2021. These loans were considered immaterial for vintage disclosure inclusion. 130 Table of Contents The following is a presentation of troubled debt restructurings (“TDRs”) by class as of December 31, 2022 and 2021: December 31, 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 11 $ 4,462 $ 1,395 $ 598 $ 436 $ 2,429 Construction/land development 1 216 177 — — 177 Residential real estate loans Residential 1-4 family 14 2,115 772 145 290 1,207 Multifamily residential 1 1,130 969 — — 969 Total real estate 27 7,923 3,313 743 726 4,782 Consumer 2 18 11 — 1 12 Commercial and industrial 15 3,199 748 47 156 951 Total 44 $ 11,140 $ 4,072 $ 790 $ 883 $ 5,745 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 $ 7,526 131 Table of Contents The following is a presentation of TDRs on non-accrual status as of December 31, 2022, and 2021 because they are not in compliance with the modified terms: December 31, 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 2 $ 262 2 $ 7 Construction/land development 1 177 1 210 Agricultural — — 1 262 Residential real estate loans Residential 1-4 family 4 218 5 388 Total real estate 7 657 9 867 Consumer 1 1 3 3 Commercial and industrial 13 931 6 206 Total 21 $ 1,589 18 $ 1,076 The following is a presentation of total foreclosed assets as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 (In thousands) Commercial real estate loans Non-farm/non-residential $ 118 $ 536 Construction/land development 47 834 Agricultural — — Residential real estate loans Residential 1-4 family 260 260 Multifamily residential 121 — Total foreclosed assets held for sale $ 546 $ 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 December 31, 2022 and 2021, the balance of purchase credit deteriorated loans was approximately $ 142.5 million and $ 448,000 , respectively. This balance, as of December 31, 2022, consisted of $ 142.1 million resulting from the acquisition of Happy and $ 415,000 from the acquisition of LH-Finance. 6. Goodwill and Core Deposit Intangible Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposit intangible at December 31, 2022 and 2021, were as follows: December 31, 2022 December 31, 2021 Goodwill (In thousands) Balance, beginning of period $ 973,025 $ 973,025 Acquisitions 425,228 — Balance, end of period $ 1,398,253 $ 973,025 132 Table of Contents December 31, 2022 December 31, 2021 Core Deposit Intangible (In thousands) Balance, beginning of period $ 25,045 $ 30,728 Acquisitions 42,263 — Amortization expense ( 8,853 ) ( 5,683 ) Balance, end of year $ 58,455 $ 25,045 The carrying basis and accumulated amortization of core deposits intangibles at December 31, 2022 and 2021 were: December 31, 2022 December 31, 2021 (In thousands) Gross carrying amount $ 128,888 $ 86,625 Accumulated amortization ( 70,433 ) ( 61,580 ) Net carrying amount $ 58,455 $ 25,045 Core deposit intangible amortization expense for the years ended December 31, 2022, 2021 and 2020 was approximately $ 8.9 million, $ 5.7 million and $ 5.8 million, respectively. The core deposit intangible is tested annually for impairment during the fourth quarter. During the 2022 review, no impairment was found. Including all of the mergers completed as of December 31, 2022, HBI’s estimated amortization expense of the core deposit intangible for each of the years 2023 through 2027 is approximately: 2023 – $ 9.7 million; 2024 – $ 8.4 million; 2025 – $ 8.0 million; 2026 – $ 7.8 million and 2027 – $ 6.6 million. The carrying amount of the Company’s goodwill was $ 1.40 billion and $ 973.0 million at December 31, 2022 and 2021, respectively. Goodwill is tested annually for impairment during the fourth quarter or more frequently if changes or circumstances occur. During the 2022 and 2021 reviews, no impairment was found. 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 December 31, 2022 and 2021, other assets were $ 321.2 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 $ 135.3 million and $ 88.2 million at December 31, 2022 and December 31, 2021, respectively, and are accounted for at cost. The Company also 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 $ 80.6 million and $ 36.4 million at December 31, 2022 and 2021, respectively. There were no transactions during the period that would indicate a material change in fair value. 8. Deposits The aggregate amount of time deposits with a minimum denomination of $250,000 was $ 333.2 million and $ 321.6 million at December 31, 2022 and 2021, respectively. The aggregate amount of time deposits with a minimum denomination of $100,000 was $ 639.3 million and $ 537.4 million at December 31, 2022 and 2021, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $ 3.4 million, $ 7.3 million and $ 22.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, brokered deposits were $ 476.6 million and $ 625.7 million, respectively. 133 Table of Contents The following is a summary of the scheduled maturities of all time deposits at December 31, 2022 (in thousands): 2023 $ 862,018 2024 129,470 2025 19,206 2026 15,111 2027 16,768 Thereafter 661 Total time deposits $ 1,043,234 Deposits totaling approximately $ 2.65 billion and $ 1.91 billion at December 31, 2022 and 2021, respectively, were public funds obtained primarily from state and political subdivisions in the United States. 9. Securities Sold Under Agreements to Repurchase At December 31, 2022 and 2021, securities sold under agreements to repurchase totaled $ 131.1 million and $ 140.9 million, respectively. For the years ended December 31, 2022 and 2021, securities sold under agreements to repurchase daily weighted-average totaled $ 129.0 million and $ 151.2 million, respectively. The remaining contractual maturity of securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2022 and 2021 is presented in the following table: December 31, 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 $ 5,322 $ 5,322 $ 8,433 $ 8,433 Mortgage-backed securities 5,153 5,153 7,920 7,920 State and political subdivisions 117,674 117,674 122,173 122,173 Other securities 2,997 2,997 2,360 2,360 Total borrowings $ 131,146 $ 131,146 $ 140,886 $ 140,886 10. FHLB and Other Borrowed Funds The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $ 650.0 million and $ 400.0 million at December 31, 2022 and 2021, respectively. The Company had no other borrowed funds as of December 31, 2022 or December 31, 2021. At December 31, 2022, $ 50.0 million and $ 600.0 million of the outstanding balance were classified as short-term and long-term advances, respectively. At December 31, 2021, the entire $ 400.0 million balance was classified as long term advances. The FHLB advances mature from 2023 to 2033 with fixed interest rates ranging from 2.26 % to 4.84 % and are secured by loans and investments securities. Expected maturities could differ from contractual maturities because the FHLB has have the right to call or the Company has the right to prepay certain obligations. Additionally, the Company had $ 1.14 billion and $ 1.07 billion at December 31, 2022 and 2021, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at December 31, 2022 and 2021, respectively. 134 Table of Contents Maturities of borrowings with original maturities exceeding one year at December 31, 2022, are as follows (in thousands): By Contractual Maturity By Call Date 2023 $ 50,000 $ 50,000 2024 — 400,000 2025 100,000 100,000 2026 100,000 100,000 2027 — — Thereafter 400,000 — $ 650,000 $ 650,000 Additionally, 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 December 31, 2022 and 2021 was zero . 11. Subordinated Debentures Subordinated debentures consist of subordinated debt securities and guaranteed payments on trust preferred securities. As of December 31, 2022 and 2021, subordinated debentures were $ 440.4 million and $ 371.1 million, respectively. Subordinated debentures at December 31, 2022 and 2021 contained the following components: As of December 31, 2022 As of December 31, 2021 (In thousands) Trust preferred securities Subordinated debentures, issued in 2006, due 2036, fixed rate of 6.75 % during the first five years and at a floating rate of 1.85 % above the three-month LIBOR rate, reset quarterly, thereafter, currently callable without penalty $ — $ 3,093 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 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 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 issued in 2020, due 2030, fixed rate of 5.500 % 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 143,400 — 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 297,020 — 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 $ 440,420 $ 371,093 135 Table of Contents 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 in aggregate principal amount of 5.500 % Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”) from Happy, and the Company recorded approximately $ 144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated debt obligations of the Company and will mature on July 31, 2030. From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50 % per annum, payable in arrears on January 31 and July 31 of each year. From and including July 31, 2025 to, but excluding, the maturity date or earlier redemption, the 2030 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate (SOFR)), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345 %, payable quarterly in arrears on January 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025. The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 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 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, 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 2030 Notes for U.S. federal income tax purposes or preclude the 2030 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 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption date. 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. The Company may, beginning with the interest payment date of January 30, 2027 , and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100 % of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027 , at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100 % of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date. On April 3, 2017, the Company completed an underwritten public offering of $ 300.0 million in aggregate principal amount of its 5.625 % Fixed-to-Floating Rate Subordinated Notes due 2027 (the “Notes”) for net proceeds, after underwriting discounts and issuance costs, of approximately $ 297.0 million . The 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 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 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 is less than zero, then three-month LIBOR would have been deemed to be zero. 136 Table of Contents 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. 12. Income Taxes The following is a summary of the components of the provision for income taxes for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 (In thousands) Current: Federal $ 72,367 $ 70,536 $ 62,362 State 14,733 23,350 20,644 Total current 87,100 93,886 83,006 Deferred: Federal 1,839 2,906 ( 14,839 ) State 374 962 ( 4,912 ) Total deferred 2,213 3,868 ( 19,751 ) Income tax expense $ 89,313 $ 97,754 $ 63,255 The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 Statutory federal income tax rate 21.00 % 21.00 % 21.00 % Effect of non-taxable interest income ( 1.89 ) ( 1.03 ) ( 1.29 ) Stock compensation 0.38 0.25 0.33 State income taxes, net of federal benefit 2.70 3.97 3.50 Other 0.45 ( 0.74 ) ( 0.76 ) Effective income tax rate 22.64 % 23.45 % 22.78 % 137 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: December 31, 2022 December 31, 2021 (In thousands) Deferred tax assets: Allowance for credit losses $ 80,232 $ 68,644 Deferred compensation 7,817 5,342 Stock compensation 6,180 5,044 Non-accrual interest income 1,518 694 Real estate owned 103 109 Unrealized loss on Securities AFS 98,587 — Loan discounts 7,007 4,169 Tax basis premium/discount on acquisitions 1,222 3,220 Investments 28,523 263 Deposits — ( 65 ) Other 8,007 5,283 Gross deferred tax assets 239,196 92,703 Deferred tax liabilities: Accelerated depreciation on premises and equipment 4,252 761 Unrealized gain on securities available-for-sale — 4,220 Core deposit intangibles 14,755 5,736 FHLB dividends 2,681 2,820 Other 8,187 876 Gross deferred tax liabilities 29,875 14,413 Net deferred tax assets $ 209,321 $ 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. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in other non-interest expense. During the years ended December 31, 2022, 2021 and 2020, the Company did not recognize any significant interest or penalties. 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. Stock Repurchases On January 22, 2021, the Board of Directors of the Company authorized the repurchase of up to an additional 20,000,000 shares of the Company’s common stock under the previously approved stock repurchase program. During 2022, the Company utilized a portion of this stock repurchase program in order to repurchase a total of 3,098,531 shares with a weighted-average stock price of $ 22.84 per share. The 2022 earnings were used to fund the repurchases during the year. Shares repurchased under the program as of December 31, 2022 total 20,759,866 shares. The remaining balance available for repurchase was 18,992,134 shares at December 31, 2022. 138 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 December 31, 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 December 31, 2022, the Company had 2,762,049 shares of common stock remaining available for future grants and 5,732,565 shares of common stock reserved for issuance pursuant the Plans. The intrinsic value of the stock options outstanding at December 31, 2022, 2021, and 2020 was $ 7.8 million, $ 13.1 million and $ 5.0 million, respectively. The intrinsic value of the stock options vested at December 31, 2022, 2021 and 2020 was $ 7.5 million, $ 10.7 million and $ 4.7 million, respectively. The intrinsic value of the stock options exercised during 2022, 2021 and 2020 was $ 1.8 million, $ 2.0 million, and $ 719,000 , respectively. Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards, which are expected to be recognized over the vesting periods, was approximately $ 5.2 million as of December 31, 2022. The table below summarized the stock option transactions under the Plan at December 31, 2022, 2021 and 2020 and changes during the years then ended: 2022 2021 2020 Shares (000) Weighted- average Exercisable Price Shares (000) Weighted- average Exercisable Price Shares (000) Weighted- average Exercisable Price Outstanding, beginning of year 3,015 $ 20.06 3,254 $ 19.77 3,411 $ 19.60 Granted 183 21.13 15 21.68 — — Forfeited/Expired ( 96 ) 21.89 ( 57 ) 22.44 ( 76 ) 21.95 Exercised ( 131 ) 11.30 ( 197 ) 14.78 ( 81 ) 10.61 Outstanding, end of year 2,971 20.45 3,015 20.06 3,254 19.77 Exercisable, end of year 1,837 18.89 1,543 17.46 1,537 16.82 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 year ended December 31, 2022 was $ 5.21 , and the weighted-average fair value of options granted during the year ended December 31, 2021 was $ 11.11 . 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. 139 Table of Contents The assumptions used in determining the fair value of 2022, 2021 and 2020 stock option grants were as follows: For the Years Ended December 31, 2022 2021 2020 Expected dividend yield 3.14 % 2.59 % Not Applicable Expected stock price volatility 31.18 % 70.13 % Not Applicable Risk-free interest rate 2.82 % 0.75 % Not Applicable Expected life of options 6.5 years 6.5 years Not Applicable The following is a summary of currently outstanding and exercisable options at December 31, 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 $ 8.62 100 0.05 $ 8.62 100 $ 8.62 $ 9.54 to $ 14.71 100 2.04 14.71 100 14.71 $ 16.77 to $ 16.86 110 1.70 16.81 110 16.81 $ 17.12 to $ 17.36 86 2.29 17.12 86 17.12 $ 17.40 to $ 18.46 866 2.63 18.45 866 18.45 $ 18.50 to $ 20.16 35 6.27 19.04 21 19.04 $ 20.46 to $ 21.25 258 5.63 20.84 155 21.08 $ 21.31 to $ 22.22 127 6.05 22.18 82 22.21 $ 22.70 to $ 23.32 1,185 5.55 23.32 240 23.32 $ 23.51 to $ 25.96 104 5.52 25.34 77 25.74 2,971 1,837 The table below summarizes the activity for the Company’s restricted stock issued and outstanding at December 31, 2022, 2021 and 2020 and changes during the years then ended: 2022 2021 2020 (In thousands) Beginning of year 1,231 1,371 1,636 Issued 409 216 264 Vested ( 178 ) ( 320 ) ( 453 ) Forfeited ( 81 ) ( 36 ) ( 76 ) End of year 1,381 1,231 1,371 Amount of expense for twelve months ended $ 7,646 $ 7,112 $ 6,824 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 $ 14.6 million as of December 31, 2022. 140 Table of Contents 14. Non-Interest Expense The table below shows the components of non-interest expense for years ended December 31, 2022, 2021 and 2020: 2022 2021 2020 (In thousands) Salaries and employee benefits $ 238,885 $ 170,755 $ 163,950 Occupancy and equipment 53,417 36,631 38,412 Data processing expense 34,942 24,280 19,032 Merger expense 49,594 1,886 711 Other operating expenses: Advertising 7,974 4,855 3,999 Amortization of intangibles 8,853 5,683 5,844 Electronic banking expense 13,632 9,817 8,477 Directors' fees 1,491 1,614 1,624 Due from bank service charges 1,255 1,044 975 FDIC and state assessment 8,428 5,472 6,494 Hurricane expense 176 — — Insurance 3,705 3,118 3,018 Legal and accounting 9,401 3,703 4,222 Other professional fees 8,881 6,950 8,150 Operating supplies 3,120 1,915 1,988 Postage 2,078 1,283 1,283 Telephone 1,890 1,425 1,302 Other expense 27,905 18,086 17,904 Total other operating expenses 98,789 64,965 65,280 Total non-interest expense $ 475,627 $ 298,517 $ 287,385 15. Employee Benefit Plans 401(k) and Employee Stock Ownership Plan The Company has a combined 401(k) plan and employee stock ownership plan, named the Home BancShares, Inc. 401(k) and Employee Stock Ownership Plan, in which substantially all employees may participate. The Company matches employees’ contributions based on a percentage of salary contributed by participants. As of December 31, 2022, participants in the plan held approximately 1.3 million shares of the Company’s stock. These shares are allocated to the individual employees that have elected to own stock within the plan. While the plan also allows for discretionary employer contributions, no discretionary contributions were made for the years ended 2022, 2021 and 2020. The Company’s expense for the plan was approximately $ 3.1 million, $ 2.5 million and $ 2.3 million in 2022, 2021 and 2020, respectively, which is included in salaries and employee benefits expense. Chairman’s Retirement Plan On April 20, 2007, the Company’s Board of Directors approved a Chairman’s Retirement Plan for John W. Allison, the Company’s Chairman. The Chairman’s Retirement Plan provides a supplemental retirement benefit of $ 250,000 a year for 10 consecutive years or until Mr. Allison’s death, whichever occurs later. During 2011, Mr. Allison reached the age of 65 and became 100 % vested in the plan. Therefore, he began receiving the supplemental retirement benefit due to him. He received $ 250,000 of this benefit during 2022, 2021 and 2020, respectively. An expense of $ 97,449 , $ 109,140 and $ 119,935 was accrued for 2022, 2021 and 2020 for this plan, respectively. 141 Table of Contents 16. Related Party Transactions In the ordinary course of business, loans may be made to officers and directors and their affiliated companies at substantially the same terms as comparable transactions with other borrowers. At December 31, 2022 and 2021, related party loans were approximately $ 76.5 million and $ 60.7 million, respectively. New loans and advances on prior commitments made to the related parties were $ 24.8 million and $ 1.7 million for the years ended December 31, 2022 and 2021, respectively. Repayments of loans made by the related parties were $ 9.1 million and $ 6.1 million for the years ended December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, directors, officers, and other related interest parties had demand, non-interest-bearing deposits of approximately $ 7.7 million and $ 1.8 million, respectively, savings and interest-bearing transaction accounts of approximately $ 10.9 million and $ 14.3 million, respectively, and time certificates of deposit of approximately $ 390,000 and $ 387,000 , respectively. During each of 2022, 2021 and 2020, rent expense totaling approximately $ 137,000 , $ 143,000 and $ 115,000 , respectively, was paid to related parties. 17. 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 December 31, 2022, the balances of the right-of-use asset and lease liability were $ 42.9 million and $ 46.0 million, respectively. As of December 31, 2021, the balances of the right-of-use asset and lease liability were $ 39.6 million and $ 42.4 million, respectively. The right-of-use asset is included in bank premises and equipment, net , and the lease liability is included in accrued interest payable and other liabilities . The minimum rental commitments under these noncancelable operating leases are as follows (in thousands) as of December 31, 2022 and 2021: December 31, 2022 2023 $ 8,332 2024 7,463 2025 6,739 2026 6,352 2027 5,821 Thereafter 24,591 Total future minimum lease payments $ 59,298 Discount effect of cash flows ( 13,344 ) Present value of net future minimum lease payments $ 45,954 142 Table of Contents December 31, 2021 2022 $ 7,714 2023 6,574 2024 6,001 2025 5,510 2026 5,389 Thereafter 24,999 Total future minimum lease payments $ 56,187 Discount effect of cash flows ( 13,778 ) Present value of net future minimum lease payments $ 42,409 Additional information (dollar amounts in thousands): Year Ended December 31, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020 Lease expense: Operating lease expense $ 7,995 $ 7,857 $ 8,138 Short-term lease expense 3 6 35 Variable lease expense 873 1,028 1,056 Total lease expense $ 8,871 $ 8,891 $ 9,229 Other information: Cash paid for amounts included in the measurement of lease liabilities $ 8,128 $ 7,881 $ 8,030 Weighted-average remaining lease term 9.28 9.71 10.19 Weighted-average discount rate 3.41 % 3.48 % 3.61 % 18. 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 December 31, 2022 and 2021, commercial real estate loans represented 56.3 % and 59.7 % of total loans receivable, respectively, and 230.1 % and 212.2 % of total stockholders’ equity, respectively. Residential real estate loans represented 16.1 % and 15.8 % of total loans receivable and 66.0 % and 56.3 % of total stockholders’ equity at December 31, 2022 and 2021, respectively. Approximately 79.7 % of the Company’s total loans and 84.6 % of the Company’s real estate loans as of December 31, 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. 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. 143 Table of Contents 19. Commitments and Contingencies In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of their 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 December 31, 2022 and 2021, commitments to extend credit of $ 4.83 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 December 31, 2022 and 2021, is $ 184.6 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. 20. Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: 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. 144 Table of Contents 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 $ 168.6 million and $ 280.0 million as of December 31, 2022 and 2021, respectively. This valuation is considered Level 3, consisting of appraisals of underlying collateral. The Company reversed $ 1.1 million and $ 380,000 of accrued interest receivable when impaired loans were put on non-accrual status during the years ended December 31, 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 December 31, 2022 and 2021, the fair value of foreclosed assets held for sale, less estimated costs to sell, was $ 546,000 and $ 1.6 million, respectively. No foreclosed assets held for sale were remeasured during the year ended December 31, 2022. No foreclosed assets held for sale were remeasured during the year ended December 31, 2021. 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. 145 Table of Contents December 31, 2022 Carrying Amount Fair Value Level (In thousands) Financial assets: Cash and cash equivalents $ 724,790 $ 724,790 1 Investment securities - available for sale 4,041,590 4,041,590 2 Investment securities - held-to-maturity 1,287,705 1,126,146 2 Loans receivable, net of impaired loans and allowance 13,929,892 14,240,833 3 Accrued interest receivable 103,199 103,199 1 FHLB, FRB & FNBB stock; other equity investments 215,952 215,952 3 Marketable equity securities 52,034 52,034 1 Financial liabilities: Deposits: Demand and non-interest bearing $ 5,164,997 $ 5,164,997 1 Savings and interest-bearing transaction accounts 11,730,552 11,730,552 1 Time deposits 1,043,234 1,014,348 3 Securities sold under agreements to repurchase 131,146 131,146 1 FHLB and other borrowed funds 650,000 595,886 2 Accrued interest payable 10,622 10,622 1 Subordinated debentures 440,420 411,686 3 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 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 3 146 Table of Contents 21. 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 2022, the Company requested approximately $ 214.7 million in regular dividends from its banking subsidiary. The Company’s banking subsidiary is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in the consolidated financial statements. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total, common equity Tier 1 ("CET1") 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 December 31, 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 has elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III amended the prompt corrective action rules to incorporate a CET1 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 % CET1 risk-based capital ratio, a 4 % Tier 1 leverage ratio, a 6 % Tier 1 risk-based capital ratio and an 8 % total risk-based capital ratio. The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under Basel III, the criteria for a well-capitalized institution are now: a 6.5 % CET1 risk-based capital ratio, a 5 % Tier 1 leverage ratio, an 8 % Tier 1 risk-based capital ratio, and a 10 % total risk-based capital ratio. As of December 31, 2022, the Bank met the capital standards for a well-capitalized institution. The Company’s CET1 risk-based capital ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio were 12.91 %, 10.86 %, 12.91 %, and 16.54 %, respectively, as of December 31, 2022. 147 Table of Contents The Company’s actual capital amounts and ratios along with the Company’s bank subsidiary are presented in the following table. Actual Minimum Capital Requirement –Basel III Minimum To Be Well-Capitalized Under Prompt Corrective Action Provision Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2022 Common equity Tier 1 capital ratios: Home BancShares $ 2,399,919 12.91 % $ 1,300,831 7.00 % N/A N/A Centennial Bank 2,408,756 13.00 1,297,352 7.00 1,204,684 6.50 Leverage ratios: Home BancShares $ 2,399,919 10.86 % $ 883,664 4.00 % N/A N/A Centennial Bank 2,408,756 10.93 881,464 4.00 1,101,831 5.00 Tier 1 capital ratios: Home BancShares $ 2,399,919 12.91 % $ 1,579,580 8.50 % N/A N/A Centennial Bank 2,408,756 13.00 1,575,356 8.50 1,482,688 8.00 Total risk-based capital ratios: Home BancShares $ 3,073,455 16.54 % $ 1,951,246 10.50 % N/A N/A Centennial Bank 2,640,992 14.25 1,946,021 10.50 1,853,354 10.00 As of December 31, 2021 Common equity Tier 1 capital ratios: Home BancShares $ 1,812,797 15.37 % $ 825,548 7.00 % N/A N/A Centennial Bank 1,859,093 15.82 822,608 7.00 763,850 6.50 Leverage ratios: Home BancShares $ 1,884,067 11.11 % $ 678,427 4.00 % N/A N/A Centennial Bank 1,859,093 10.97 677,883 4.00 847,353 5.00 Tier 1 capital ratios: Home BancShares $ 1,884,067 15.98 % $ 1,002,451 8.50 % N/A N/A Centennial Bank 1,859,093 15.82 998,881 8.50 940,123 8.00 Total risk-based capital ratios: Home BancShares $ 2,331,948 19.77 % $ 1,238,322 10.50 % N/A N/A Centennial Bank 2,006,814 17.08 1,233,697 10.50 1,174,950 10.00 22. 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 $ 858.6 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. In connection with the LH-Finance acquisition, accounted for using the purchase method, the Company acquired approximately $ 409.1 million in assets, including $ 407.4 million in loans as of February 29, 2020, and paid $ 421.2 million in cash. 148 Table of Contents The following is summary of the Company’s additional cash flow information during the years ended December 31: 2022 2021 2020 (In thousands) Interest paid $ 115,046 $ 53,327 $ 95,483 Income taxes paid 86,583 98,320 77,838 Assets acquired by foreclosure 619 2,623 2,639 23. Condensed Financial Information (Parent Company Only) Condensed Balance Sheets December 31, (In thousands) 2022 2021 Assets Cash and cash equivalents $ 359,570 $ 291,585 Investment securities 57,912 18,254 Investments in wholly-owned subsidiaries 3,538,344 2,815,345 Investments in unconsolidated subsidiaries — 2,201 Other assets 19,422 14,591 Total assets $ 3,975,248 $ 3,141,976 Liabilities Subordinated debentures $ 440,420 $ 371,093 Other liabilities 8,466 5,162 Total liabilities 448,886 376,255 Stockholders' Equity Common stock 2,034 1,637 Capital surplus 2,386,699 1,487,373 Retained earnings 1,443,087 1,266,249 Accumulated other comprehensive income ( 305,458 ) 10,462 Total stockholders' equity 3,526,362 2,765,721 Total liabilities and stockholders' equity $ 3,975,248 $ 3,141,976 Condensed Statements of Income Years Ended December 31, (In thousands) 2022 2021 2020 Income Dividends from equity securities $ 2,088 $ 646 $ 385 Dividends from banking subsidiary 216,086 286,712 183,711 Other (loss) income ( 1,297 ) 7,234 ( 1,588 ) Total income 216,877 294,592 182,508 Expenses 38,933 34,194 33,346 Income before income taxes and equity in undistributed net income of subsidiaries 177,944 260,398 149,162 Tax benefit for income taxes 10,752 7,161 8,589 Income before equity in undistributed net income of subsidiaries 188,696 267,559 157,751 Equity in undistributed net income of subsidiaries 116,566 51,462 56,697 Net income $ 305,262 $ 319,021 $ 214,448 149 Table of Contents Condensed Statements of Cash Flows Years Ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities Net income $ 305,262 $ 319,021 $ 214,448 Items not requiring (providing) cash Depreciation — — 216 Amortization 1,912 767 769 Share-based compensation 9,133 8,848 8,607 Decrease (increase) in value of equity securities 1,272 ( 7,178 ) 1,978 Gain on assets — — ( 320 ) Equity in undistributed income of subsidiaries ( 116,566 ) ( 51,462 ) ( 56,697 ) Changes in other assets ( 4,149 ) 90 ( 628 ) Changes in other liabilities 2,290 ( 76 ) ( 307 ) Net cash provided by operating activities 199,154 270,010 168,066 Cash flows from investing activities Proceeds from sale of premises and equipment, net — — 1,841 Net cash proceeds from Happy Bancshares, Inc. 201,428 — — Purchases of equity securities ( 49,975 ) ( 13,276 ) ( 15,015 ) Proceeds from sale of equity securities 13,778 16,381 — Redemptions of other investments 2,899 — — Net cash provided by (used in) investing activities 168,130 3,105 ( 13,174 ) Cash flows from financing activities Retirement of subordinated debentures ( 300,000 ) — — Proceeds from the issuance of subordinated debentures 296,324 — — Redemption of trust preferred securities ( 96,499 ) — — Proceeds from exercise of stock options 156 2,374 595 Repurchase of common stock ( 70,856 ) ( 44,480 ) ( 25,689 ) Dividends paid ( 128,424 ) ( 92,142 ) ( 87,677 ) Net cash used in financing activities ( 299,299 ) ( 134,248 ) ( 112,771 ) Increase in cash and cash equivalents 67,985 138,867 42,121 Cash and cash equivalents, beginning of year 291,585 152,718 110,597 Cash and cash equivalents, end of year $ 359,570 $ 291,585 $ 152,718 24. Recent Accounting Pronouncements In December 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. 150 Table of Contents 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. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. 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 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. 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. In December 2022, the FASB issued ASU 2022-06, " Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. " These amendments extend the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ASU 2022-06 was effective upon issuance. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No items are reportable. 151 Table of Contents