What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 346 added, 128 removed, 532 unchanged (47% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our net income for the three months ended March 31, 2020 was $77.2 million , or $0.68 diluted earnings per share, increases of $29.5 million and $0.17 , respectively, compared to the first quarter of 2019 .

Included in both first quarter 2020 and 2019 results were non-core items related to our acquisitions and branch right sizing initiatives, and with respect to our 2019 results only, early retirement program expenses.

Also included in our 2020 results is the gain associated with the Texas Branch Sale.

Excluding all non-core items, core earnings for the three months ended March 31, 2020 were $73.8 million , or $0.65 core diluted earnings per share, compared to $49.1 million , or $0.53 core diluted earnings per share for the three months ended March 31, 2019 .

Our net income for the three months ended June 30, 2020 was $58.8 million, or $0.54 diluted earnings per share, an increase of $3.2 million and a decrease of $0.04, respectively, compared to the second quarter of 2019.

Included in both second quarter 2020 and 2019 results were non-core items related to our acquisitions, early retirement programs and branch right sizing initiatives.

Also included in our 2020 results are the gains associated with the Texas Branch Sale and Colorado Branch Sale.

Excluding all non-core items, core earnings for the three months ended June 30, 2020 were $60.1 million, or $0.55 core diluted earnings per share, compared to $65.5 million, or $0.68 core diluted earnings per share for the three months ended June 30, 2019.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

Net income for the first six months of 2020 was $136.0 million, or $1.22 diluted earnings per share, compared to $103.3 million, or $1.09 diluted earnings per share, for the same period in 2019.

Excluding the non-core items, year-to-date core earnings were $134.0 million, an increase of $19.5 million compared to the same period in prior year.

Core diluted earnings per share for the first half of 2020 were $1.21, equal to the same period in 2019.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

We completed the acquisition of The Landrum Company, including its wholly-owned bank subsidiary, Landmark Bank, in October 2019.

2 unchanged sentences

On February 28, 2020, we completed the Texas Branch Sale of five Simmons Bank locations in Austin, San Antonio and Tilden, Texas.

The Company recognized a gain of $5.9 million on the sale.

Also in February, we announced the Colorado Branch Sale agreement to sell four Simmons Bank locations in Denver, Englewood, Highlands Ranch and Lone Tree, Colorado.

The transaction is expected to close in the second quarter of 2020.

Stockholders’ equity as of March 31, 2020 was $2.8 billion , book value per share was $26.11 and tangible book value per share was $15.22 .

Our ratio of common stockholders’ equity to total assets was 13.65% and the ratio of tangible common stockholders’ equity to tangible assets was 8.4% at March 31, 2020 .

Additionally, on May 18, 2020 we completed the Colorado Branch Sale of four Simmons Bank locations in Denver, Englewood, Highlands Ranch and Lone Tree, Colorado.

The Company recognized a combined gain on sale of $8.1 million on the Texas Branches and Colorado Branches.

Early in 2020, we offered qualifying associates an early retirement option resulting in $493,000 of non-core expense during the second quarter.

We expect ongoing net annualized savings of approximately $2.9 million from this program.

We continuously evaluate our branch network as part of our analysis of our profitability of our operations and the efficiency with which we deliver banking services to our markets.

As a result of this ongoing evaluation, we closed 11 branch locations during June 2020, with estimated net annual cost savings of approximately $2.4 million related to these locations.

In addition, we expect to close an additional 23 branch locations and one loan production office during the fourth quarter of 2020, with an expected net annual cost savings of approximately $6.8 million.

We have added over 38,000 new digital banking users since the end of February 2020.

In March 2020, for the first time, we had more weekly transactions using digital channels than at the branches, and our mobile deposit usage has seen an increase of 75% since the end of February.

During May 2020, we completed the conversion of all consumer customers to our new online platform.

All consumer customers are now on the same online and mobile platforms, including acquired institutions.

Stockholders’ equity as of June 30, 2020 was $2.9 billion, book value per share was $26.64 and tangible book value per share was $15.79.

Our ratio of common stockholders’ equity to total assets was 13.26% and the ratio of tangible common stockholders’ equity to tangible assets was 8.31% at June 30, 2020.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

The Company’s Tier I leverage ratio of 9.0% , as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levels (see Table 12 in the Capital section of this Item).

Total loans were $14.374 billion at March 31, 2020 , compared to $14.426 billion at December 31, 2019 and $11.742 billion at March 31, 2019.

During the quarter we reclassified to other assets held for sale $114.9 million in loan balances associated with the Colorado Branch Sale.

At March 31, 2020 , the allowance for credit losses on loans was $243.2 million .

The Company’s Tier 1 leverage ratio of 8.78%, as well as our other regulatory capital ratios, remain significantly above the “well capitalized” levels (see Table 12 in the Capital section of this Item).

Total loans were $14.61 billion at June 30, 2020, compared to $14.37 billion at March 31, 2020 and $13.13 billion at June 30, 2019.

The increase from prior year is primarily due to the Landrum acquisition.

Sequentially, total loans increased $232.6 million from the first quarter 2020.

During the second quarter of 2020, we had $963.7 million in loan originations under the Paycheck Protection Program (“PPP”) of the CARES Act.

See the COVID-19 Impact section below for additional information.

At June 30, 2020, the allowance for credit losses on loans was $231.6 million.

We adopted the new credit loss methodology, CECL, on January 1, 2020.

Upon adoption, we recorded an additional allowance for credit losses of approximately $151.4 million, an adjustment to the reserve for unfunded commitments of $24.0 million, and a related $128.1 million adjustment to retained earnings net of taxes.

Simmons First National Corporation is an Arkansas-based financial holding company that, as of March 31, 2020 , has approximately $20.8 billion in consolidated assets and, through its subsidiaries, conducts financial operations throughout Arkansas, Colorado, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.

Simmons First National Corporation is an Arkansas-based financial holding company that, as of June 30, 2020, has approximately $21.9 billion in consolidated assets and, through its subsidiaries, conducts financial operations in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas.

COVID-19 Impact

As discussed in Note 24, Recent Events, in the accompanying Condensed Notes to the Consolidated Financial Statements, we have been actively managing our response to the unfolding COVID-19 pandemic.

During the quarter, we sold approximately $1.1 billion in securities to increase liquidity in response to potential customer withdrawals of deposits as well as for anticipated funding of PPP loans.

As of April 30, 2020, the Company has approximately $6.1 billion in liquidity sources and is well capitalized, which management believes has allowed us to approach the crisis from a position of strength.

During the first quarter, we sold approximately $1.1 billion in securities to increase liquidity in response to potential customer withdrawals of deposits as well as for anticipated funding of PPP loans.

As of June 30, 2020, the Company has approximately $2.5 billion in cash and cash equivalents and is well capitalized, which management believes has allowed us to continue to approach the crisis from a position of strength.

Through June 30, 2020, we originated approximately 7,800 PPP loans with an average balance of $123,000 per loan.

Approximately 93% of our PPP loans had a balance of less than $350,000 at the end of the quarter.

The following table categorizes our PPP loans by outstanding balance as of June 30, 2020:

Number of Balance

(Dollars in thousands) Loans % of Loans June 30, 2020 % of Balance

PPP loan balance less than $350,000 7,286 93 % $ 392,329 41 %

PPP loan balance $350,000 or less than $2 million 478 6 % 355,415 37 %

PPP loan balance $2 million to $10 million 62 1 % 215,968 22 %

Total 7,826 100 % $ 963,712 100 %

PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios.

As a result, excluding PPP loans from total assets, common equity to total assets was 13.9% and tangible common equity to tangible assets was 8.7% as of June 30, 2020.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

We are dedicated to supporting our customers and communities throughout this period of uncertainty.

4 unchanged sentences

• Delivered food and care packages to support police, firefighters, emergency responders and healthcare workers.

We are very proud of our team and their demonstration of our community banking values during these trying times.

We have strong liquidity and capital that we believe will assist Simmons once again in weathering critical economic times.

The diversification in our risk profile and our conservative risk appetite has helped to accommodate the needs of the communities we serve while providing value to our shareholders.

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

We believe our associates have done a commendable job of adapting to the changes that have occurred over the past four months.

We continue to operate in an uncertain environment, and we expect to continue to adjust as necessary.

We have consolidated various operations to provide capacity for continued service to our customers and communities.

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

CRITICAL ACCOUNTING POLICIES

29 unchanged sentences

Impairment losses on recorded goodwill, if any, will be recorded as operating expenses.

During the first quarter 2020, our share price began to decline as the markets in the United States responded to the global COVID-19 pandemic.

As a result of the economic decline, the effect on our share price and other factors, we performed an interim goodwill impairment qualitative assessment and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore, goodwill is not impaired.

During the first quarter of 2020, our share price began to decline as the markets in the United States responded to the global COVID-19 pandemic.

As a result of that economic decline, the effect on our share price and other factors, we performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed.

During the second quarter of 2020, we performed our annual goodwill impairment test and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore, goodwill is not impaired.

Stock-Based Compensation Plans

20 unchanged sentences

Our current interest rate sensitivity shows that approximately 51% of our loans and 76% of our time deposits will reprice in the next year.

Net Interest Income

For the three month period ended March 31, 2020 , net interest income on a fully taxable equivalent basis was $169.8 million , an increase of $32.2 million , or 23.4% , over the same period in 2019 .

The increase in net interest income was the result of a $31.9 million increase in interest income coupled with a $342,000 decrease in interest expense.

The increase in interest income primarily resulted from a $28.2 million increase in interest income on loans and an increase of $3.3 million in interest income on investment securities.

The increase in loan volume during the first three months of 2020 generated $37.0 million of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, while a 34 basis point decline in yield resulted in an $8.8 million decrease in interest income.

Net Interest Income Quarter-to-Date Analysis

For the three month period ended June 30, 2020, net interest income on a fully taxable equivalent basis was $166.0 million, an increase of $14.9 million, or 9.9%, over the same period in 2019.

The increase in net interest income was primarily the result of a $17.8 million decrease in interest expense partially offset by a reduction in interest income of $2.9 million.

The reduction in interest income primarily resulted from decreases of $1.1 million and $1.7 million in interest income on loans and investment securities, respectively.

During the second quarter of 2020, we generated $24.8 million of additional interest income due to an increase in loan volume, primarily from our Landrum acquisition completed during the fourth quarter 2019, while a 74 basis point decline in yield resulted in a $25.8 million decrease in interest income.

The loan yield for the second quarter of 2020 was 4.84% compared to 5.58% for the same period in 2019.

The PPP loan yield was approximately 2.33% (including accretion of net fees), which decreased the loan yield by 10 basis points.

Excluding the PPP loans, loan yield for the second quarter 2020 was 4.94%.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

Included in interest income is the additional yield accretion recognized as a result of updated estimates of the cash flows of our loans acquired.

2 unchanged sentences

The resulting adjustment to interest income is spread on a level-yield basis over the remaining expected lives of the loans.

For the three months ended March 31, 2020 and 2019 , interest income included $11.8 million and $6.7 million , respectively, for the yield accretion recognized on loans acquired.

The $342,000 decrease in interest expense is mostly due to the decrease in our deposit account rates and our FHLB borrowing rates.

For the three months ended June 30, 2020 and 2019, interest income included $11.7 million and $10.2 million, respectively, for the yield accretion recognized on loans acquired.

The $17.8 million decrease in interest expense is mostly due to the decline in our deposit account rates and our FHLB borrowing rates.

Interest expense decreased $21.2 million due to the decrease in yield of 78 basis points on interest-bearing deposit accounts and $1.8 million due to the decrease in yield of 52 basis points on FHLB borrowings.

These decreases were partially offset by an increase of $6.8 million in deposit growth primarily due to the 2019 acquisitions.

These decreases were partially offset by an increase of $4.4 million in deposit growth primarily due to the Landrum acquisition.

Net Interest Income Year-to-Date Analysis

For the six month period ended June 30, 2020, net interest income on a fully taxable equivalent basis was $335.8 million, an increase of $47.1 million, or 16.3%, over the same period in 2019.

The increase in net interest income was the result of a $28.9 million increase in interest income coupled with a $18.2 million decrease in interest expense.

The increase in interest income primarily resulted from a $27.2 million increase in interest income on loans and an increase of $1.6 million in interest income on investment securities.

The increase in loan volume during the first six months of 2020 generated $61.2 million of additional interest income, primarily from our Landrum and Reliance acquisitions completed during 2019, while a 54 basis point decline in yield resulted in a $34.0 million decrease in interest income.

For the six months ended June 30, 2020 and 2019, interest income included $23.6 million and $16.8 million, respectively, for the yield accretion recognized on loans acquired.

The $18.2 million decrease in interest expense is mostly due to the decrease in our deposit account rates and our FHLB borrowing rates.

Interest expense decreased $27.4 million due to the decrease in yield of 53 basis points on interest-bearing deposit accounts and $4.2 million due to the decrease in yield of 64 basis points on FHLB borrowings.

These decreases were partially offset by an increase of $11.1 million in deposit growth primarily due to the Landrum and Reliance acquisitions completed in 2019.

Net Interest Margin

Our net interest margin decreased 18 basis points to 3.68% for the three month period ended March 31, 2020 , when compared to 3.86% for the same period in 2019 .

Normalized for all accretion, our core net interest margin at March 31, 2020 and 2019 was 3.42% and 3.68% , respectively.

During March 2020, the Federal Open Market Committee (“FOMC”) of the Federal Reserve substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic.

Because our interest bearing deposits will reprice more quickly in response to the substantial interest rate cuts in March 2020 than we can manage the rate decrease in our variable rate loan portfolio also caused by such cuts, we expect continued pressure on the net interest margin for the remainder of 2020.

Our net interest margin decreased 52 basis points to 3.42% for the three month period ended June 30, 2020, when compared to 3.94% for the same period in 2019.

Normalized for all accretion, our core net interest margin for the three months ended June 30, 2020 and 2019 was 3.18% and 3.67%, respectively.

For the six month period ended June 30, 2020, our net interest margin decreased 35 basis points to 3.55% when compared to 3.90% for the same period in 2019.

The decreases in the net interest margin during the three and six months ended June 30, 2020 were primarily driven by the lower interest rate environment, additional liquidity created in response to the COVID-19 pandemic, and the lower yielding PPP loans originated during the second quarter of 2020.

The impact of these items on the second quarter 2020 core net interest margin was 25 basis points, bringing the core net interest margin adjusted for PPP loans and additional liquidity to 3.43%.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

During March 2020, the Federal Open Market Committee, or FOMC, of the Federal Reserve substantially reduced interest rates in response to the economic crisis brought on by the COVID-19 pandemic.

Because our interest bearing deposits are repricing more quickly in response to the substantial interest rate cuts in March 2020 than we can manage the rate decrease in our variable rate loan portfolio also caused by such cuts, we expect continued pressure on the net interest margin for the remainder of 2020.

Net Interest Income Tables

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three months ended March 31, 2020 and 2019 , respectively, as well as changes in fully taxable equivalent net interest margin for the three months ended March 31, 2020 versus March 31, 2019 .

Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2020 and 2019, respectively, as well as changes in fully taxable equivalent net interest margin for the three and six months ended June 30, 2020 versus June 30, 2019.

Analysis of Net Interest Margin

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(In thousands) 2020 2019 2020 2019

10 unchanged sentences

Three Months Ended

(In thousands)

June 30, Six Months Ended

(In thousands) 2020 vs.

2019 2020 vs.

Increase due to change in earning assets $ 28,949 $ 74,760

3 unchanged sentences

Increase in net interest income $ 14,897 $ 47,089

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three months ended March 31, 2020 and 2019 .

The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods.

3 unchanged sentences

(FTE = Fully Taxable Equivalent using an effective tax rate of 26.135%)

Three Months Ended March 31,

(In thousands)

Three Months Ended June 30,

Average Income/ Yield/ Average Income/ Yield/

(In thousands) Balance Expense Rate (%) Balance Expense Rate (%)

Earning assets:

Interest bearing balances due from banks and federal funds sold

$ 2,190,878 $ 603 0.11 $ 276,370 $ 1,121 1.63

Investment securities - taxable

1,642,083 7,131 1.75 1,641,986 11,066 2.70

Investment securities - non-taxable

866,944 8,434 3.91 624,898 6,209 3.99

Mortgage loans held for sale

86,264 668 3.11 32,030 332 4.16

14,731,306 177,168 4.84 12,814,386 178,219 5.58

Total interest earning assets 19,517,475 194,004 4.00 15,389,670 196,947 5.13

Non-earning assets 2,304,798 1,993,202

Total assets $ 21,822,273 $ 17,382,872

LIABILITIES AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Interest bearing transaction and savings deposits

$ 9,138,563 $ 7,203 0.32 $ 7,139,356 $ 20,190 1.13

Time deposits 3,057,153 10,803 1.42 3,072,246 14,606 1.91

1 unchanged sentence

Federal funds purchased and securities sold under agreements to repurchase

392,633 337 0.35 133,242 257 0.77

Other borrowings 1,395,109 4,963 1.43 1,277,450 6,219 1.95

7 unchanged sentences

Total liabilities and stockholders’ equity

$ 21,822,273 $ 17,382,872

Net interest spread 3.22 3.60

Net interest margin $ 166,031 3.42 $ 151,134 3.94

Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three month period ended March 31, 2020 , as compared to the same period of the prior year.

Six Months Ended June 30,

Average Income/ Yield/ Average Income/ Yield/

(In thousands) Balance Expense Rate (%) Balance Expense Rate (%)

Earning assets:

Interest bearing balances due from banks and federal funds sold

$ 1,477,759 $ 3,044 0.41 $ 335,089 $ 3,275 1.97

Investment securities - taxable

1,983,134 19,883 2.02 1,683,534 23,024 2.76

Investment securities - non-taxable

883,585 16,749 3.81 608,012 12,043 3.99

Mortgage loans held for sale

64,927 949 2.94 24,922 542 4.39

14,640,082 364,915 5.01 12,265,936 337,749 5.55

Total interest earning assets 19,049,487 405,540 4.28 14,917,493 376,633 5.09

Non-earning assets 2,321,761 1,928,035

Total assets $ 21,371,248 $ 16,845,528

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest bearing liabilities:

Interest bearing transaction and savings deposits

$ 9,072,133 $ 25,157 0.56 $ 6,945,274 $ 38,620 1.12

Time deposits 3,104,030 24,126 1.56 2,927,722 26,926 1.85

Total interest bearing deposits 12,176,163 49,283 0.81 9,872,996 65,546 1.34

Federal funds purchased and securities sold under agreements to repurchase

361,768 1,096 0.61 121,338 393 0.65

Other borrowings 1,357,677 9,840 1.46 1,251,000 13,012 2.10

Subordinated debt and debentures 387,876 9,502 4.93 354,043 8,952 5.10

Total interest bearing liabilities 14,283,484 69,721 0.98 11,599,377 87,903 1.53

Non-interest bearing liabilities:

Non-interest bearing deposits 3,978,728 2,771,435

Other liabilities 213,918 167,678

Total liabilities 18,476,130 14,538,490

Stockholders’ equity 2,895,118 2,307,038

Total liabilities and stockholders’ equity

$ 21,371,248 $ 16,845,528

Net interest spread 3.30 3.56

Net interest margin $ 335,819 3.55 $ 288,730 3.90

Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and six month periods ended June 30, 2020, as compared to the same periods of the prior year.

The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

1 unchanged sentence

Three Months Ended

(In thousands, on a fully taxable equivalent basis)

June 30, Six Months Ended

2019 2020 vs.

(In thousands, on a fully taxable equivalent basis) Volume Yield/

Rate Total Volume Yield/

Increase (decrease) in:

1 unchanged sentence

Interest bearing balances due from banks and federal funds sold

$ 1,386 $ (1,904) $ (518) $ 4,011 $ (4,242) $ (231)

Investment securities - taxable 1 (3,936) (3,935) 3,659 (6,800) (3,141)

1 unchanged sentence

Mortgage loans held for sale 438 (102) 336 633 (226) 407

Loans 24,766 (25,817) (1,051) 61,214 (34,048) 27,166

Total 28,949 (31,892) (2,943) 74,760 (45,853) 28,907

Interest expense:

2 unchanged sentences

Federal funds purchased and securities sold under agreements to repurchase

283 (203) 80 731 (28) 703

Other borrowings 534 (1,790) (1,256) 1,036 (4,208) (3,172)

Subordinated notes and debentures 411 (285) 126 835 (285) 550

Total 5,670 (23,510) (17,840) 13,732 (31,914) (18,182)

Increase (decrease) in net interest income $ 23,279 $ (8,382) $ 14,897 $ 61,028 $ (13,939) $ 47,089

3 unchanged sentences

It is management’s practice to review the allowance on a monthly basis and, after considering the factors previously noted, to determine the level of provision made to the allowance.

The provision for credit losses for the three month period ended March 31, 2020 , was $26.1 million , compared to $9.3 million for the three month period ended March 31, 2019 , an increase of $16.8 million .

The increase was primarily driven by two energy credits, previously identified as problem loans, experienced further deterioration during the first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing, resulting in a provision of $22.0 million during the quarter.

The remainder of the provision was related to the economic impact of the COVID-19 pandemic that is incorporated in the Company’s allowance for credit losses.

The provision for credit losses for the three and six month periods ended June 30, 2020, was $26.9 million and $53.0 million, respectively, compared to $7.1 million and $16.4 million for the same periods ended June 30, 2019, increases of $19.8 million and $36.7 million.

The increase during the quarter ended June 30, 2020 was primarily related to updated credit loss forecast models using multiple Moody’s economic scenarios.

The updates capture the possibility of a longer, more prolonged recovery to the economies that affect the loan portfolio.

The increase during the six month period ended June 30, 2020 also included an additional provision related to problem energy credits, subsequently charged-off during second quarter of 2020 for a total of $32.6 million, that experienced further deterioration beginning in first quarter of 2020 and were negatively impacted by the sharp decline in commodity pricing.

The remainder of the increase was related to the economic impact of the COVID-19 pandemic that is incorporated in the Company’s allowance for credit losses.

NON-INTEREST INCOME

1 unchanged sentence

Non-interest income also includes income on the sale of mortgage and SBA loans, investment banking income, income from the increase in cash surrender values of bank owned life insurance and gains (losses) from sales of securities.

For the three month period ended March 31, 2020 , total non-interest income was $82.4 million , an increase of approximately $47.6 million , compared to the first three months of 2019 , primarily due to the incremental gains on the sale of investment securities.

During the first quarter of 2020 , we sold approximately $1.1 billion of investment securities resulting in a net gain of $32.1 million .

Total non-interest income was $50.2 million for the three month period ended June 30, 2020, an increase of approximately $10.3 million, or 25.8%, compared to the same period in 2019, primarily driven by increases in trust income and mortgage lending income.

Conversely, we had decreases in total service charges on deposit accounts and fees of $1.8 million, or 15.2%, primarily attributable to a reduction in customer transactions related to the impact of the COVID-19 pandemic and lower gains on the sale of securities during second quarter of 2020.

For the six month period ended June 30, 2020, total non-interest income was $132.6 million, an increase of approximately $57.9 million, or 77.5%, compared to the same period in 2019.

During the first half of 2020, we sold approximately $1.2 billion of investment securities resulting in a net gain of $32.5 million.

The majority of the investment securities were sold in March 2020, in response to the unfolding events of the COVID-19 pandemic, as we focused on the creation of additional liquidity and strengthening our balance sheet.

We intend to use the additional liquidity to fund our PPP loans during the second quarter 2020, among other potential uses.

We used a portion of the liquidity generated by these investment security sales to fund PPP loans originated during second quarter of 2020.

We plan to reinvest back into our investment portfolio when the PPP loans are repaid, subject to economic conditions and other concerns at such time.

Additionally, the gain on sale from the Texas Branch Sale of $5.9 million contributed to the increase during 2020 .

Table 5 shows non-interest income for the three month periods ended March 31, 2020 and 2019 , respectively, as well as changes in 2020 from 2019 .

Additionally, the gains on sale from the Texas Branch Sale and Colorado Branch Sales of $8.1 million, which we consider a non-core item, contributed to the increase during 2020.

The increase in mortgage lending income in both the three and six month periods ended June 30, 2020 was a result of the current low mortgage interest rate environment as well as increased business related to our Landrum and Reliance acquisitions.

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

Non-Interest Income

Three Months Ended

June 30, 2020

Change from Six Months Ended

June 30, 2020

(Dollars in thousands) 2020 2019 2019 2020 2019 2019

Trust income $ 7,253 $ 5,794 $ 1,459 25.2 % $ 14,404 $ 11,502 $ 2,902 25.2 %

Service charges on deposit accounts 8,570 10,557 (1,987) (18.8) 21,898 20,625 1,273 6.2

5 unchanged sentences

Bank owned life insurance income 1,445 1,260 185 14.7 2,743 2,055 688 33.5

Gain (loss) on sale of securities, net

Gain on sale of securities, net 390 2,823 (2,433) (86.2) 32,485 5,563 26,922 *

Gain on sale of banking operations, net 2,204 — 2,204 * 8,093 — 8,093 *

Other income 7,605 6,065 1,540 25.4 14,517 10,221 4,296 42.0

Total non-interest income $ 50,227 $ 39,934 $ 10,293 25.8 % $ 132,621 $ 74,726 $ 57,895 77.5 %

1 unchanged sentence

* Not meaningful

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended March 31, 2020 , was $30.0 million , an increase of $6.8 million from the same period in 2019 , primarily the result of the 2019 mergers of Landrum and Reliance.

Recurring fee income (total service charges, trust fees, debit and credit card fees) for the three month period ended June 30, 2020 was $25.3 million, an increase of $433,000 from the same period in 2019.

Recurring fee income for the six month period ended June 30, 2020, was $55.3 million, an increase of $7.3 million from the six month period ended June 30, 2019, primarily the result of the Landrum and Reliance acquisitions completed during 2019.

NON-INTEREST EXPENSE

6 unchanged sentences

We also regularly monitor staffing levels at each subsidiary to ensure productivity and overhead are in line with existing workload requirements.

Non-interest expense for the three months ended March 31, 2020 was $125.8 million , an increase of $24.4 million , or 24.1% , from the same period in 2019 .

Normalizing for the non-core costs, non-interest expense for the three months ended March 31, 2020 increased $25.0 million , or 25.1% , from the same period in 2019 , primarily due to the incremental operating expenses from the 2019 mergers.

Also, our Next Generation Banking (“NGB”) technology initiative is well underway and the incremental software and technology expenditures of $1.9 million during the first three months of 2020 were primarily related to this initiative.

Table 6 below shows non-interest expense for the three month periods ended March 31, 2020 and 2019 , respectively, as well as changes in 2020 from 2019 .

Non-interest expense for the three months ended June 30, 2020 was $112.6 million, an increase of $1.9 million, or 1.7%, from the same period in 2019.

Non-interest expense during the second quarter of 2020 included $4.0 million of pre-tax non-core items:

$1.8 million of merger-related costs, $493,000 of early retirement program expenses, and $1.7 million of branch-right sizing costs.

Normalizing for these non-core costs, core non-interest expense for the three months ended June 30, 2020 increased $11.2 million, or 11.4%, from the same period in 2019.

Non-interest expense for the six months ended June 30, 2020 was $238.4 million, an increase of $26.3 million, or 12.4%, from the same period in 2019.

Normalizing for the non-core costs, core non-interest expense for the six months ended June 30, 2020 increased $36.1 million, or 18.3%, from the same period in 2019.

See “GAAP Reconciliation of Non-GAAP Measures” below for additional discussion of non-GAAP measures.

The increases during both periods were primarily due to the incremental operating expenses from the Landrum and Reliance acquisitions completed during 2019.

Also, our Next Generation Banking (“NGB”) technology initiative is well underway and the incremental software and technology expenditures of $9.4 million during the first six months of 2020 were primarily related to this initiative.

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

Non-Interest Expense

Three Months Ended

June 30, 2020

Change from Six Months Ended

June 30, 2020

(Dollars in thousands) 2020 2019 2019 2020 2019 2019

4 unchanged sentences

Other real estate and foreclosure expense

274 591 (317) (53.6) 599 1,228 (629) (51.2)

Deposit insurance 2,838 2,510 328 13.1 5,313 4,550 763 16.8

2 unchanged sentences

Professional services 3,921 3,492 429 12.3 9,750 7,815 1,935 24.8

Postage 1,769 1,445 324 22.4 4,005 3,171 834 26.3

Telephone 2,450 1,480 970 65.5 4,635 3,099 1,536 49.6

Credit card expenses 4,582 3,762 820 21.8 8,964 7,622 1,342 17.6

Marketing 3,528 2,436 1,092 44.8 7,913 5,493 2,420 44.1

Software and technology 10,024 5,580 4,444 79.6 19,469 10,076 9,393 93.2

7 unchanged sentences

LOAN PORTFOLIO

Our loan portfolio averaged $14.55 billion and $11.71 billion during the first three months of 2020 and 2019 , respectively.

As of March 31, 2020 , total loans were $14.37 billion , a decrease of $51.4 million from December 31, 2019 .

Our loan portfolio averaged $14.64 billion and $12.27 billion during the first six months of 2020 and 2019, respectively.

As of June 30, 2020, total loans were $14.61 billion, an increase of $181.2 million from December 31, 2019.

The most significant components of the loan portfolio were loans to businesses (commercial loans, commercial real estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans).

7 unchanged sentences

Loan Portfolio

June 30, December 31,

(In thousands) 2020 2019

March 31, 2020

December 31, 2019

Credit cards $ 184,348 $ 204,802

Other consumer 214,024 249,195

4 unchanged sentences

Total real estate 10,533,787 11,021,940

Commercial 3,038,216 2,451,119

Agricultural 217,715 191,525

Total commercial 3,255,931 2,642,644

Other 418,810 307,123

Total loans before allowance for credit losses $ 14,606,900 $ 14,425,704

Consumer loans consist of credit card loans and other consumer loans.

Consumer loans were $456.5 million at March 31, 2020 , or 3.2% of total loans, compared to $454.0 million , or 3.1% of total loans at December 31, 2019 .

The increase in consumer loans from December 31, 2019 , to March 31, 2020 , was primarily due to growth in direct consumer loans partially offset by a decline in our credit card portfolio.

Real estate loans consist of construction and development (“C&D”) loans, single-family residential loans and commercial real estate loans.

Real estate loans were $10.83 billion at March 31, 2020 , or 75.4% of total loans, compared to $11.02 billion , or 76.4% , of total loans at December 31, 2019 , a decrease of $188.2 million , or 1.7% .

Our C&D loans decreased by $224.6 million , or 10.0% , single family residential loans decreased by $71.2 million , or 2.9% , and commercial real estate (“CRE”) loans increased by $107.6 million , or 1.7% .

Real estate loans declined by $104.6 million due to the reclassification of loans to assets held for sale related to the Colorado Branch Sale.

Consumer loans were $398.4 million at June 30, 2020, or 2.7% of total loans, compared to $454.0 million, or 3.1% of total loans at December 31, 2019.

The decrease in consumer loans from December 31, 2019, to June 30, 2020, was primarily due to the expected seasonal decline in our credit card portfolio.

Real estate loans consist of construction and development (“C&D”) loans, single-family residential loans and commercial real estate (“CRE”) loans.

Real estate loans were $10.53 billion at June 30, 2020, or 72.1% of total loans, compared to $11.02 billion, or 76.4%, of total loans at December 31, 2019, a decrease of $488.2 million, or 4.4%.

Our C&D loans decreased by $238.4 million, or 10.6%, single family residential loans decreased by $207.7 million, or 8.6%, and CRE loans decreased by $42.1 million, or 0.7%.

Real estate loans declined approximately $104.6 million due to the Colorado Branch Sale.

The remaining decrease was due to less activity as a result of the pandemic and our effort to manage our real estate portfolio concentration.

In the near term, we expect to continue to manage our C&D and CRE portfolio concentration by developing deeper relationships with our customers.

Commercial loans consist of non-real estate loans related to business and agricultural loans.

Total commercial loans were $2.51 billion at March 31, 2020 , or 17.4% of total loans, compared to $2.64 billion , or 18.3% of total loans at December 31, 2019 , a decrease of $136.6 million , or 5.2% , that is mostly in our non-agricultural commercial loan portfolio.

Commercial loans declined by $10.2 million due to the Colorado Branch Sale reclassification.

Total commercial loans were $3.26 billion at June 30, 2020, or 22.3% of total loans, compared to $2.64 billion, or 18.3% of total loans at December 31, 2019, an increase of $613.3 million, or 23.2%, that is mostly in our non-agricultural commercial loan portfolio.

The $963.7 million in PPP loan originations drove the increase in commercial loans during the first half of 2020.

Other loans mainly consists of mortgage warehouse lending.

Mortgage volume surged in March 2020 leading to an increase of $270.9 million in other loans primarily from mortgage warehouse lines of credit.

Mortgage volume surged during second quarter of 2020 due to the low interest rate environment leading to an increase of $111.7 million in other loans primarily from mortgage warehouse lines of credit.

ASSET QUALITY

Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.

Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due.

Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower.

2 unchanged sentences

Loans, excluding credit card loans, are placed on a nonaccrual basis either:

(1) when there are serious doubts regarding the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in

the process of collection.

If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses.

2 unchanged sentences

The credit card recovery group pursues account holders until it is determined, on a case-by-case basis, to be uncollectible.

Total non-performing assets increased $67.4 million from December 31, 2019 to March 31, 2020 .

Nonaccrual loans increased by $65.0 million during the period and foreclosed assets held for sale and other real estate owned increased by $1.7 million .

The nonaccrual loan increase was primarily due to two energy portfolio loans that became reportable as non-performing loans during the quarter.

The increase in foreclosed assets held for sale and other real estate owned was primarily due to the closure of six branches in conjunction with the February 2020 system conversion of Landmark Bank into Simmons Bank.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.89% at March 31, 2020 , compared to 0.56% at December 31, 2019 .

Total non-performing assets increased $34.9 million from December 31, 2019 to June 30, 2020.

Nonaccrual loans increased by $40.2 million during the period and foreclosed assets held for sale and other real estate owned decreased by $5.0 million.

The increase in nonaccrual loans was related to several energy portfolio loans that became reportable as non-performing loans since year-end.

We are actively pursuing an exit of our energy lending portfolio, except for our customers who have a diversified relationship with us.

Non-performing assets, including troubled debt restructurings (“TDRs”) and acquired foreclosed assets, as a percent of total assets were 0.70% at June 30, 2020, compared to 0.56% at December 31, 2019.

From time to time, certain borrowers are experiencing declines in income and cash flow.

5 unchanged sentences

or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place.

Our TDR balance remained flat at $5.2 million at March 31, 2020 , compared to $5.3 million at December 31, 2019 .

Our TDR balance decreased to $4.8 million at June 30, 2020 from $5.3 million at December 31, 2019.

The majority of our TDR balance remains in the commercial portfolio with the largest balance comprised of four relationships.

3 unchanged sentences

The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019.

The Company elected to adopt these provisions of the CARES Act.

See discussion of the loans modified under the CARES Act in Note 24, Recent Events in the accompanying Condensed Notes to the Consolidated Financial Statements.

The Company elected to adopt these provisions of the CARES Act and is following the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by regulatory agencies.

Through June 30, 2020, the Company has modified more than 4,600 loans totaling approximately $ 3.3 billion to loan customers affected by COVID-19.

Of these COVID-19 loan modifications, approximately $3.1 billion are commercial loan modifications, comprised of the following industries:

(Dollars in thousands) Loan Balance %

Real estate rental and leasing $ 1,404,416 45.0 %

Accommodation and food services 743,940 23.8

Health care and social assistance 272,868 8.8

Construction 197,242 6.3

Retail trade 141,456 4.5

All other categories 362,238 11.6

Total $ 3,122,160 100.0 %

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

1 unchanged sentence

Strong asset quality remains a primary focus of our strategy.

The allowance for credit losses as a percent of total loans was 1.69% as of March 31, 2020 .

The allowance for credit losses as a percent of total loans was 1.59% as of June 30, 2020.

Non-performing loans equaled 0.91% of total loans.

1 unchanged sentence

The allowance for credit losses was 175% of non-performing loans.

Our annualized net charge-offs to total loans for the first three months of 2020 was 0.07% .

Our annualized net charge-offs to total loans for the first six months of 2020 was 0.56%.

Excluding credit cards, the annualized net charge-offs to total loans for the same period was 0.54%.

2 unchanged sentences

Non-performing Assets

June 30, December 31,

(Dollars in thousands) 2020 2019

March 31, 2020

December 31, 2019

Nonaccrual loans (1)

$ 131,888 $ 91,723

Loans past due 90 days or more (principal or interest payments) 537 855

11 unchanged sentences

_______________________________________

Includes nonaccrual TDRs of approximately $1.1 million at March 31, 2020 and $902,000 at December 31, 2019 .

There was no interest income on nonaccrual loans recorded for the three month periods ended March 31, 2020 and 2019 .

(1) Includes nonaccrual TDRs of approximately $818,000 at June 30, 2020 and $902,000 at December 31, 2019.

There was no interest income on nonaccrual loans recorded for the three and six month periods ended June 30, 2020 and 2019.

ALLOWANCE FOR CREDIT LOSSES

9 unchanged sentences

• Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics.

Change in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.

• Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.

• Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors.

11 unchanged sentences

Loans charged off:

Credit card 2,494 2,181

Other consumer 1,971 2,517

Real estate 2,220 1,633

Commercial 36,210 5,115

Total loans charged off 42,895 11,446

Recoveries of loans previously charged off:

Credit card 497 511

Other consumer 746 631

Real estate 354 300

Commercial 445 1,125

Total recoveries 2,042 2,567

1 unchanged sentence

Provision for credit losses 52,875 16,364

Balance, March 31

Balance, June 30 $ 231,643 $ 64,179

Loans charged off:

Credit card 2,404

Other consumer 2,490

Real estate 2,259

Commercial 18,237

Total loans charged off 25,390

Recoveries of loans previously charged off:

Credit card 510

Other consumer 1,726

Real estate 201

Commercial 142

Total recoveries 2,579

3 unchanged sentences

Provision for Credit Losses

The amount of provision added to the allowance during the three months ended March 31, 2020 and 2019 , and for the year ended December 31, 2019 , was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience.

The amount of provision added to the allowance during the three and six months ended June 30, 2020 and 2019, and for the year ended December 31, 2019, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic forecasts and conditions, past due and non-performing loans and net loss experience.

It is management’s practice to review the allowance on a monthly basis, and after considering the factors previously noted, to determine the level of provision made to the allowance.

Allowance for Credit Losses Allocation

As of March 31, 2020 , the allowance for credit losses reflected an increase of approximately $175.0 million from December 31, 2019 , while loans decreased by $51.4 million over the same three month period.

As of June 30, 2020, the allowance for credit losses reflected an increase of approximately $163.4 million from December 31, 2019 while loans increased $181.2 million over the same six month period.

The allocation in each category within the allowance generally reflects the overall changes in the loan portfolio mix.

However, during the first quarter 2020, we recorded an additional allowance for credit losses of approximately $151.4 million due to the adoption of CECL.

During the first quarter of 2020, we recorded an additional allowance for credit losses of approximately $151.4 million due to the adoption of CECL.

The significant impact to the allowance for credit losses at the date of adoption was driven by the substantial amount of loans acquired held by the Company.

1 unchanged sentence

As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank.

The remaining increase in the allowance for credit losses during the quarter was predominately related to the two energy credits previously discussed in Provision for Credit Losses.

The remaining increase in the allowance for credit losses during the first six months of 2020 was predominately related to updated credit loss forecast models using multiple Moody’s economic scenarios previously discussed in Provision for Credit Losses.

The following table sets forth the sum of the amounts of the allowance for credit losses attributable to individual loans within each category, or loan categories in general.

3 unchanged sentences

Allocation of Allowance for Credit Losses

March 31, 2020

December 31, 2019

(Dollars in thousands)

June 30, 2020 December 31, 2019

(Dollars in thousands) Allowance

Credit cards $ 10,979 1.3 % $ 4,051 1.4 %

Other consumer 10,802 1.4 % 1,998 1.7 %

Real estate 149,471 72.1 % 39,161 76.5 %

Commercial 59,138 22.3 % 22,863 18.3 %

Other 1,253 2.9 % 171 2.1 %

Total $ 231,643 100.0 % $ 68,244 100.0 %

_______________________________________

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

Deposits are our primary source of funding for earning assets and are primarily developed through our network of 240 financial centers.

Deposits are our primary source of funding for earning assets and are primarily developed through our network of approximately 226 financial centers.

We offer a variety of products designed to attract and retain customers with a continuing focus on developing core deposits.

Our core deposits consist of all deposits excluding time deposits of $100,000 or more and brokered deposits.

As of March 31, 2020 , core deposits comprised 80.2% of our total deposits.

As of June 30, 2020, core deposits comprised 84.1% of our total deposits.

We continually monitor the funding requirements along with competitive interest rates in the markets we serve.

6 unchanged sentences

We are continually monitoring and looking for opportunities to fairly reprice our deposits while remaining competitive in this current challenging rate environment.

Our total deposits as of March 31, 2020 , were $15.56 billion , a decrease of $549.2 million from December 31, 2019 .

Our total deposits as of June 30, 2020, were $16.62 billion, an increase of $507.2 million from December 31, 2019.

Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $13.6 billion at June 30, 2020, compared to $12.8 billion at December 31, 2019, an increase of $754.2 million.

Total time deposits decreased $247.0 million to $3.0 billion at June 30, 2020, from $3.3 billion at December 31, 2019.

We had $552.2 million and $1.1 billion of brokered deposits at June 30, 2020, and December 31, 2019, respectively.

We are managing our balance sheet and our net interest margin by continuing to eliminate several high-cost deposits related to public funds and brokered deposits.

In addition, approximately $58.4 million of deposits were reclassed to liabilities held for sale as part of the pending Colorado branch sale.

Non-interest bearing transaction accounts, interest bearing transaction accounts and savings accounts totaled $12.4 billion at March 31, 2020 , compared to $12.8 billion at December 31, 2019 , a $419.0 million decrease.

Total time deposits decreased $130.2 million to $3.1 billion at March 31, 2020 , from $3.3 billion at December 31, 2019 .

We had $934.6 million and $1.1 billion of brokered deposits at March 31, 2020 , and December 31, 2019 , respectively.

OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES

Our total debt was $1.79 billion and $1.69 billion at March 31, 2020 and December 31, 2019 , respectively.

The outstanding balance for March 31, 2020 includes $1.4 billion in FHLB short-term advances;

Our total debt was $1.78 billion and $1.69 billion at June 30, 2020 and December 31, 2019, respectively.

The outstanding balance for June 30, 2020 includes $1.4 billion in FHLB short-term advances;

$9.5 million in FHLB long-term advances;

$330.0 million in subordinated notes;

$58.4 million of trust preferred securities, other subordinated debt and unamortized debt issuance costs;

$52.6 million of trust preferred securities and unamortized debt issuance costs;

and $34.2 million of other long-term debt.

Most of the FHLB short-term advances outstanding at the end of the first quarter 2020 are FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date.

Our FOTO advances outstanding at March 31, 2020 have 10 to 15 year maturity dates with lockout periods that have expired and, as a result, are considered and monitored as short-term advances.

Most of the FHLB short-term advances outstanding at the end of the second quarter 2020 are FHLB Owns the Option (“FOTO”) advances that are a low cost, fixed-rate source of funding in return for granting to FHLB the flexibility to choose a termination date earlier than the maturity date.

Our FOTO advances outstanding at June 30, 2020 have 10 to 15 year maturity dates with lockout periods that have expired and, as a result, are considered and monitored as short-term advances.

We analyze the possibility of the FHLB exercising the options along with the market expected rate outcome.

We assumed trust preferred securities and other subordinated debt in an aggregate principal amount, net of discounts, of $33.9 million related to the Landrum acquisition during 2019.

During the second quarter of 2020, we repaid $5.9 million of other subordinated debt acquired from Landrum.

In March 2018, we issued $330 million in aggregate principal amount of 5.00% Fixed-to-Floating Rate Subordinated Notes (“Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes.

2 unchanged sentences

The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries.

At March 31, 2020 , total capital was $2.85 billion .

At June 30, 2020, total capital was $2.90 billion.

Capital represents shareholder ownership in the Company – the book value of assets in excess of liabilities.

At March 31, 2020 , our common equity to asset ratio was 13.65% compared to 14.06% at year-end 2019 .

At June 30, 2020, our common equity to asset ratio was 13.26% compared to 14.06% at year-end 2019.

Capital Stock

18 unchanged sentences

We anticipate funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow.

During the three month period ended March 31, 2020 , we repurchased 4,922,336 shares at an average price of $18.96 under the Program.

During the six month period ended June 30, 2020, we repurchased — shares at an average price of $18.96 under the Program.

No shares have been repurchased since March 31, 2020.

Market conditions and our capital needs will drive decisions regarding additional future stock repurchases.

We had no stock repurchases during the three months ended March 31, 2019 .

We had no stock repurchases during the first six months of 2019.

Cash Dividends

We declared cash dividends on our common stock of $0.17 per share for the first three months of 2020 compared to $0.16 per share for the first three months of 2019 , an increase of $0.01 , or 6% .

We declared cash dividends on our common stock of $0.34 per share for the first six months of 2020 compared to $0.32 per share for the first six months of 2019, an increase of $0.02, or 6%.

The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our Board of Directors.

13 unchanged sentences

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes that, as of March 31, 2020 , we meet all capital adequacy requirements to which we are subject.

Management believes that, as of June 30, 2020, we meet all capital adequacy requirements to which we are subject.

As of the most recent notification from regulatory agencies, the bank subsidiary was well capitalized under the regulatory framework for prompt corrective action.

1 unchanged sentence

There are no conditions or events since that notification that management believes have changed the institution’s categories.

Our risk-based capital ratios at March 31, 2020 and December 31, 2019 are presented in Table 12 below:

Our risk-based capital ratios at June 30, 2020 and December 31, 2019 are presented in Table 12 below:

Risk-Based Capital

June 30, December 31,

(Dollars in thousands) 2020 2019

March 31, 2020

December 31, 2019

Tier 1 capital:

14 unchanged sentences

Tier 1 leverage ratio 8.78 % 9.59 %

Tier 1 leverage ratio, excluding average PPP loans (non-GAAP) (1)

Tier 1 risk-based capital ratio 11.85 % 10.92 %

5 unchanged sentences

Total risk-based capital ratio 8.00 % 8.00 %

_______________________________________

(1) PPP loans are 100% federally guaranteed and have a zero percent risk-weight for regulatory capital ratios.

Tier 1 leverage ratio, excluding average PPP loans is a non-GAAP measurement.

See “GAAP Reconciliation of Non-GAAP Measures” below for the additional discussion of non-GAAP measures.

Regulatory Capital Changes

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

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

In March 2020 and in response to the COVID-19 pandemic, the agencies issued a new regulatory capital rule revising the CECL Transition Provision to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13.

15 unchanged sentences

As of December 31, 2017, the Company exceeded $15 billion in total assets and the grandfather provisions applicable to its trust preferred securities no longer apply and trust preferred securities are no longer included as Tier 1 capital.

Trust preferred securities and qualifying subordinated debt of $388.4 million is included as Tier 2 and total capital as of March 31, 2020 .

Trust preferred securities and qualifying subordinated debt of $382.6 million is included as Tier 2 and total capital as of June 30, 2020.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 unchanged sentences

These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “believe,” “budget,” “expect,” “foresee,” “anticipate,” “intend,” “indicate,” “target,” “estimate,” “plan,” “project,” “continue,” “contemplate,” “positions,” “prospects,” “predict,” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could,” “might” or “may,” or by variations of such words or by similar expressions.

These forward-looking statements include, without limitation, those relating to the Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase program, acquisition strategy, NGB initiative, the Company’s ability to recruit and retain key employees, the adequacy of the allowance for credit losses, the ability of the Company to manage the impact of the COVID-19 pandemic, the effect of certain new accounting standards on the Company’s financial statements (including, without limitation, the CECL methodology and its anticipated effect on the provision and allowance for credit losses), income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of future litigation, legal and regulatory limitations and compliance and competition.

These forward-looking statements include, without limitation, those relating to the Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase program, acquisition strategy, balance sheet and liquidity management, NGB and other digital banking initiatives, the Company’s ability to recruit and retain key employees, the benefits associated with the Company’s early retirement program and completed and future branch closures, the adequacy of the allowance for credit losses, the ability of the Company to manage the impact of the COVID-19 pandemic, the effect of certain new accounting standards on the Company’s financial statements (including, without limitation, the CECL methodology and its anticipated effect on the provision and allowance for credit losses), income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of future litigation, legal and regulatory limitations and compliance and competition.

These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors, including, without limitation:

4 unchanged sentences

changes in the securities markets generally or the price of the Company’s common stock specifically;

the effect of the steps the Company takes in response to COVID-19, the severity and duration of the pandemic, including whether there is a “second wave” as a result of the loosening of governmental restrictions, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein;

the effects of the COVID-19 pandemic on, among other things, the Company’s operations, liquidity, and credit quality;

3 unchanged sentences

changes in the assumptions, forecasts, models, and methodology used to calculate the impact of CECL on the Company’s financial statements;

potential claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the CARES Act);

claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the CARES Act);

the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions;

8 unchanged sentences

GAAP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The tables below present computations of core earnings (net income excluding non-core items {gain on sale of branches, merger related costs, early retirement program costs and the one-time costs of branch right sizing}) and core diluted earnings per share (non-GAAP) as well as a reconciliation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP) and the core net interest margin (non-GAAP).

The tables below present computations of core earnings (net income excluding non-core items {gain on sale of branches, merger related costs, early retirement program costs and the one-time costs of branch right sizing}) (non-GAAP) and core diluted earnings per share (non-GAAP) as well as a computation of tangible book value per share (non-GAAP), tangible common equity to tangible assets (non-GAAP) and the core net interest margin (non-GAAP).

Non-core items are included in financial results presented in accordance with generally accepted accounting principles (US GAAP).

The tables below also present computations of certain figures that are exclusive of the impact of PPP loans:

the ratios of common equity to total assets and tangible common equity to tangible assets, each adjusted for PPP loans (each non-GAAP), Tier 1 leverage ratio excluding average PPP loans (non-GAAP), core net interest income and core net interest margin, each adjusted for PPP loans and excess liquidity (each non-GAAP), and loan yield excluding PPP loans (non-GAAP).

We believe the exclusion of these non-core items in expressing earnings and certain other financial measures, including “core earnings,” provides a meaningful basis for period-to-period and company-to-company comparisons, which management believes will assist investors and analysts in analyzing the core financial measures of the Company and predicting future performance.

11 unchanged sentences

• Investor presentations of Company performance

We have $1.187 billion and $1.183 billion total goodwill and other intangible assets for the periods ended March 31, 2020 and December 31, 2019 , respectively.

We have $1.183 billion total goodwill and other intangible assets for the periods ended June 30, 2020 and December 31, 2019.

Because our acquisition strategy has resulted in a high level of intangible assets, management believes useful calculations include tangible book value per share (non-GAAP) and tangible common equity to tangible assets (non-GAAP).

We believe the exclusion of PPP loans or their impact, as applicable, in expressing earnings and certain other financial measures provides a meaningful basis for period-to-period and company-to-company comparisons because PPP loans are 100% federally guaranteed and have very low interest rates.

The Company’s non-GAAP financial measures that exclude PPP loans or their impact include the ratios of “common equity to total assets” and “tangible common equity to tangible assets,” each adjusted for PPP loans (each non-GAAP), “Tier 1 leverage ratio excluding average PPP loans” (non-GAAP), “core net interest income” and “core net interest margin,” each adjusted for PPP loans and excess liquidity (each non-GAAP), and “loan yield excluding PPP loans” (non-GAAP).

Management believes these non-GAAP presentations will assist investors and analysts in analyzing the core financial measures of the Company, including the performance of the Company’s loan portfolio and the Company’s regulatory capital position, and predicting future performance.

Management and the Board of Directors utilize these non-GAAP financial measures for financial performance reporting and investor presentations of Company performance.

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

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In thousands, except per share data) 2020 2019 2020 2019

6 unchanged sentences

Tax effect (1)

(482) (3,486) 716 (3,975)

Net non-core items 1,358 9,855 (2,027) 11,236

1 unchanged sentence

Diluted earnings per share (2)

$ 0.54 $ 0.58 $ 1.22 $ 1.09

Non-core items:

4 unchanged sentences

Tax effect (1)

(0.01) (0.04) 0.01 (0.04)

Net non-core items 0.01 0.10 (0.01) 0.12

3 unchanged sentences

(2) See Note 17, Earnings Per Share, for number of shares used to determine EPS.

See Table 14 below for the reconciliation of tangible book value per share.

See Table 14 below for the reconciliation of core other income and core non-interest expense for the periods presented.

Reconciliation of Core Other Income and Core Non-Interest Expense (non-GAAP)

Three Months Ended

June 30, Six Months Ended

(In thousands) 2020 2019 2020 2019

Other income $ 9,809 $ 6,065 $ 22,610 $ 10,221

Gain on sale of banking operations (2,204) — (8,093) —

Core other income (non-GAAP) $ 7,605 $ 6,065 $ 14,517 $ 10,221

Non-interest expense $ 112,598 $ 110,743 $ 238,411 $ 212,152

Non-core items:

Merger related costs 1,830 7,522 2,898 8,992

Early retirement program 493 2,932 493 3,287

Branch right sizing 1,721 2,887 1,959 2,932

Total non-core items 4,044 13,341 5,350 15,211

Core non-interest expense (non-GAAP) $ 116,642 $ 124,084 $ 243,761 $ 227,363

See Table 15 below for the reconciliation of tangible book value per common share.

Reconciliation of Tangible Book Value per Common Share (non-GAAP)

June 30, December 31,

(In thousands, except per share data) 2020 2019

March 31, 2020

December 31, 2019

Total stockholders’ equity $ 2,904,703 $ 2,988,924

2 unchanged sentences

Intangible assets:

Goodwill (1,064,765) (1,055,520)

Other intangible assets (117,823) (127,340)

6 unchanged sentences

Reconciliation of Tangible Common Equity and the Ratio of Tangible Common Equity to Tangible Assets (non-GAAP)

June 30, December 31,

(Dollars in thousands) 2020 2019

March 31, 2020

December 31, 2019

Total common stockholders’ equity $ 2,903,936 $ 2,988,157

Intangible assets:

Goodwill (1,064,765) (1,055,520)

Other intangible assets (117,823) (127,340)

1 unchanged sentence

Tangible common stockholders’ equity $ 1,721,348 $ 1,805,297

Total assets $ 21,903,684 $ 21,259,143

Intangible assets:

Goodwill (1,064,765) (1,055,520)

Other intangible assets (117,823) (127,340)

1 unchanged sentence

Tangible assets $ 20,721,096 $ 20,076,283

Paycheck Protection Program (“PPP”) loans (963,712)

Total assets less PPP loans $ 20,939,972

Tangible assets less PPP loans $ 19,757,384

Ratio of common equity to assets 13.26 % 14.06 %

Ratio of tangible common equity to tangible assets (non-GAAP) 8.31 % 8.99 %

See Table 16 below for the calculation of core net interest margin for the periods presented.

Ratio of common equity to assets less PPP loans (non-GAAP) 13.87 %

Ratio of tangible common equity to tangible assets less PPP loans (non-GAAP) 8.71 %

See Table 17 below for the calculation of Tier 1 leverage ratio excluding average PPP loans for the period presented.

Reconciliation of Tier 1 Leverage Ratio Excluding Average PPP Loans (non-GAAP)

(Dollars in thousands) Three Months Ended

June 30, 2020

Total Tier 1 capital $ 1,820,488

Adjusted average assets for leverage ratio $ 20,742,824

Average PPP loans (645,172)

Adjusted average assets less average PPP loans $ 20,097,652

Tier 1 leverage ratio 8.78 %

Tier 1 leverage ratio excluding average PPP loans (non-GAAP) 9.06 %

See Table 18 below for the calculation of core net interest margin and core net interest margin adjusted for PPP loans and additional liquidity for the periods presented.

Reconciliation of Core Net Interest Margin (non-GAAP)

Three Months Ended

June 30, Six Months Ended

(Dollars in thousands) 2020 2019 2020 2019

4 unchanged sentences

Core net interest income $ 154,308 $ 140,972 $ 312,259 $ 271,908

PPP loan and excess liquidity interest income (5,623)

Core net interest income adjusted for PPP loans and additional liquidity

Average earning assets – quarter-to-date $ 19,517,475 $ 15,389,670 $ 19,049,487 $ 14,917,493

Average PPP loan balance and additional liquidity (2,071,411)

Average earning assets adjusted for PPP loans and additional liquidity

Net interest margin 3.42 % 3.94 % 3.55 % 3.90 %

Core net interest margin (non-GAAP) 3.18 % 3.67 % 3.30 % 3.68 %

Core net interest margin adjusted for PPP loans and additional liquidity (non-GAAP)

See Table 19 below for the calculation of loan yield excluding PPP loans for the period presented.

Reconciliation of Loan Yield Excluding PPP Loans (non-GAAP)

(Dollars in thousands) Three Months Ended

June 30, 2020

Loan interest income $ 177,168

PPP loan interest income (3,733)

Loan interest income excluding PPP loans $ 173,435

Average loan balance $ 14,731,306

Average PPP loan balance (645,172)

Average loan balance excluding PPP loans $ 14,086,134

Loan yield 4.84 %

Loan yield excluding PPP loans (non-GAAP) 4.94 %

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis