SIMMONS FIRST NATIONAL CORP 10-Q

Item 1. Financial Statements (Unaudited) Simmons First National Corporation Consolidated Balance Sheets June 30, 2020 and December 31, 2019 June 30, December 31, (In thousands, except share data) 2020 2019 (Unaudited) ASSETS Cash and non-interest bearing balances due from banks $ 234,998 $ 277,208 Interest bearing balances due from banks and federal funds sold 2,310,162 719,415 Cash and cash equivalents 2,545,160 996,623 Interest bearing balances due from banks - time 4,561 4,554 Investment securities: Held-to-maturity, net of allowance for credit losses of $ 307 at June 30, 2020 51,720 40,927 Available-for-sale, net of allowance for credit losses of $ 609 at June 30, 2020 (amortized cost of $ 2,428,548 and $ 3,263,151 at June 30, 2020 and December 31, 2019, respectively) 2,496,896 3,288,343 Total investments 2,548,616 3,329,270 Mortgage loans held for sale 120,034 58,102 Other assets held for sale 399 260,332 Loans 14,606,900 14,425,704 Allowance for credit losses on loans ( 231,643 ) ( 68,244 ) Net loans 14,375,257 14,357,460 Premises and equipment 478,896 492,384 Premises held for sale 4,576 — Foreclosed assets and other real estate owned 14,111 19,121 Interest receivable 79,772 62,707 Bank owned life insurance 256,643 254,152 Goodwill 1,064,765 1,055,520 Other intangible assets 117,823 127,340 Other assets 293,071 241,578 Total assets $ 21,903,684 $ 21,259,143 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Non-interest bearing transaction accounts $ 4,608,098 $ 3,741,093 Interest bearing transaction accounts and savings deposits 8,978,045 9,090,878 Time deposits 3,029,975 3,276,969 Total deposits 16,616,118 16,108,940 Federal funds purchased and securities sold under agreements to repurchase 387,025 150,145 Other borrowings 1,393,689 1,297,599 Subordinated debentures 382,604 388,260 Other liabilities held for sale — 159,853 Accrued interest and other liabilities 219,545 165,422 Total liabilities 18,998,981 18,270,219 Stockholders’ equity: Preferred stock, 40,040,000 shares authorized; Series D, $ 0.01 par value, $ 1,000 liquidation value per share; 767 shares issued and outstanding at June 30, 2020 and December 31, 2019 767 767 Common stock, Class A, $ 0.01 par value; 175,000,000 shares authorized at June 30, 2020 and December 31, 2019; 108,994,389 and 113,628,601 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 1,090 1,136 Surplus 2,029,383 2,117,282 Undivided profits 819,153 848,848 Accumulated other comprehensive income 54,310 20,891 Total stockholders’ equity 2,904,703 2,988,924 Total liabilities and stockholders’ equity $ 21,903,684 $ 21,259,143 See Condensed Notes to Consolidated Financial Statements. 3 Simmons First National Corporation Consolidated Statements of Income Three and Six Months Ended June 30, 2020 and 2019 Three Months Ended June 30, Six Months Ended June 30, (In thousands, except per share data) 2020 2019 2020 2019 (Unaudited) (Unaudited) INTEREST INCOME Loans $ 176,910 $ 178,122 $ 364,476 $ 337,562 Interest bearing balances due from banks and federal funds sold 603 1,121 3,044 3,275 Investment securities 13,473 15,666 32,416 31,947 Mortgage loans held for sale 668 332 949 542 TOTAL INTEREST INCOME 191,654 195,241 400,885 373,326 INTEREST EXPENSE Deposits 18,006 34,796 49,283 65,546 Federal funds purchased and securities sold under agreements to repurchase 337 257 1,096 393 Other borrowings 4,963 6,219 9,840 13,012 Subordinated notes and debentures 4,667 4,541 9,502 8,952 TOTAL INTEREST EXPENSE 27,973 45,813 69,721 87,903 NET INTEREST INCOME 163,681 149,428 331,164 285,423 Provision for credit losses 26,915 7,079 53,049 16,364 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 136,766 142,349 278,115 269,059 NON-INTEREST INCOME Trust income 7,253 5,794 14,404 11,502 Service charges on deposit accounts 8,570 10,557 21,898 20,625 Other service charges and fees 1,489 1,312 3,077 2,601 Mortgage lending income 12,459 3,656 17,505 6,479 SBA lending income 245 895 541 1,392 Investment banking income 571 360 1,448 978 Debit and credit card fees 7,996 7,212 15,910 13,310 Bank owned life insurance income 1,445 1,260 2,743 2,055 Gain on sale of securities, net 390 2,823 32,485 5,563 Other income 9,809 6,065 22,610 10,221 TOTAL NON-INTEREST INCOME 50,227 39,934 132,621 74,726 NON-INTEREST EXPENSE Salaries and employee benefits 57,644 56,128 125,568 112,495 Occupancy expense, net 9,217 6,919 18,727 14,394 Furniture and equipment expense 6,144 4,206 11,867 7,564 Other real estate and foreclosure expense 274 591 599 1,228 Deposit insurance 2,838 2,510 5,313 4,550 Merger related costs 1,830 7,522 2,898 8,992 Other operating expenses 34,651 32,867 73,439 62,929 TOTAL NON-INTEREST EXPENSE 112,598 110,743 238,411 212,152 INCOME BEFORE INCOME TAXES 74,395 71,540 172,325 131,633 Provision for income taxes 15,593 15,616 36,287 28,014 NET INCOME 58,802 55,924 136,038 103,619 Preferred stock dividends 13 326 26 326 NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 58,789 $ 55,598 $ 136,012 $ 103,293 BASIC EARNINGS PER SHARE $ 0.54 $ 0.58 $ 1.23 $ 1.10 DILUTED EARNINGS PER SHARE $ 0.54 $ 0.58 $ 1.22 $ 1.09 See Condensed Notes to Consolidated Financial Statements. 4 Simmons First National Corporation Consolidated Statements of Comprehensive Income Three and Six Months Ended June 30, 2020 and 2019 Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 (Unaudited) (Unaudited) NET INCOME $ 58,802 $ 55,924 $ 136,038 $ 103,619 OTHER COMPREHENSIVE INCOME Unrealized holding gains arising during the period on available-for-sale securities 22,159 31,681 77,728 60,811 Unrealized holding gain on the transfer of held-to-maturity securities to available-for-sale per ASU 2017-12 — — — 2,547 Less: Reclassification adjustment for realized gains included in net income 390 2,823 32,485 5,563 Other comprehensive income, before tax effect 21,769 28,858 45,243 57,795 Less: Tax effect of other comprehensive income 5,689 7,542 11,824 15,105 TOTAL OTHER COMPREHENSIVE INCOME 16,080 21,316 33,419 42,690 COMPREHENSIVE INCOME $ 74,882 $ 77,240 $ 169,457 $ 146,309 See Condensed Notes to Consolidated Financial Statements. 5 Simmons First National Corporation Consolidated Statements of Cash Flows Six Months Ended June 30, 2020 and 2019 (In thousands) June 30, 2020 June 30, 2019 (Unaudited) OPERATING ACTIVITIES Net income $ 136,038 $ 103,619 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 24,148 16,019 Provision for credit losses 53,049 16,364 (Benefit) provision for credit losses on unfunded commitments ( 8,000 ) 950 Gain on sale of investments ( 32,485 ) ( 5,563 ) Net accretion of investment securities and assets ( 30,078 ) ( 22,663 ) Net amortization on borrowings 271 182 Stock-based compensation expense 7,577 6,249 Gain on sale of foreclosed assets held for sale ( 400 ) ( 16 ) Gain on sale of mortgage loans held for sale ( 14,993 ) ( 8,257 ) Gain on sale of other intangibles ( 301 ) — Gain on sale of branches ( 8,094 ) — Fair value write-down of closed branches 1,465 — Deferred income taxes 4,616 4,940 Income from bank owned life insurance ( 3,245 ) ( 2,136 ) Originations of mortgage loans held for sale ( 470,797 ) ( 282,204 ) Proceeds from sale of mortgage loans held for sale 423,858 282,861 Changes in assets and liabilities: Interest receivable ( 18,021 ) ( 1,494 ) Lease right-of-use assets 5,995 ( 2,469 ) Other assets ( 19,676 ) 18,911 Accrued interest and other liabilities 70,270 ( 5,326 ) Income taxes payable ( 34,233 ) 2,553 Net cash provided by operating activities 86,964 122,520 INVESTING ACTIVITIES Net originations of loans ( 318,795 ) ( 302,151 ) Proceeds from sale of loans 4,600 — (Increase) decrease in due from banks - time ( 7 ) 395 Purchases of premises and equipment, net ( 19,784 ) ( 21,689 ) Proceeds from sale of foreclosed assets held for sale 6,173 9,870 Proceeds from sale of available-for-sale securities 1,201,778 449,107 Proceeds from maturities of available-for-sale securities 2,048,453 296,409 Purchases of available-for-sale securities ( 2,386,878 ) ( 383,416 ) Proceeds from maturities of held-to-maturity securities 5,932 25,406 Purchases of held-to-maturity securities ( 16,997 ) — Proceeds from bank owned life insurance death benefits 763 1,310 Disposition of assets and liabilities held for sale 181,261 1,393 Purchase of Reliance Bancshares, Inc. — ( 37,017 ) Net cash provided by investing activities 706,499 39,617 FINANCING ACTIVITIES Net change in deposits 561,185 ( 107,806 ) Repayments of subordinated debentures ( 5,927 ) — Dividends paid on preferred stock ( 26 ) ( 326 ) Dividends paid on common stock ( 37,606 ) ( 30,265 ) Net change in other borrowed funds 96,090 ( 178,756 ) Net change in federal funds purchased and securities sold under agreements to repurchase 236,880 20,532 Net shares cancelled under stock compensation plans ( 3,171 ) ( 3,030 ) Shares issued under employee stock purchase plan 956 1,312 Retirement of preferred stock — ( 42,000 ) Repurchases of common stock ( 93,307 ) — Net cash provided by (used in) financing activities 755,074 ( 340,339 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,548,537 ( 178,202 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 996,623 833,458 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,545,160 $ 655,256 See Condensed Notes to Consolidated Financial Statements. 6 Simmons First National Corporation Consolidated Statements of Stockholders’ Equity Three Months Ended June 30, 2020 and 2019 (In thousands, except share data) Preferred Stock Common Stock Surplus Accumulated Other Comprehensive Income (Loss) Undivided Profits Total Three Months Ended June 30, 2020 Balance, March 31, 2020 (Unaudited) $ 767 $ 1,090 $ 2,026,420 $ 38,230 $ 778,893 $ 2,845,400 Comprehensive income — — — 16,080 58,802 74,882 Stock-based compensation plans, net – 28,058 shares — — 2,963 — — 2,963 Dividends on preferred stock — — — — ( 13 ) ( 13 ) Dividends on common stock – $ 0.17 per share — — — — ( 18,529 ) ( 18,529 ) Balance, June 30, 2020 (Unaudited) $ 767 $ 1,090 $ 2,029,383 $ 54,310 $ 819,153 $ 2,904,703 Three Months Ended June 30, 2019 Balance, March 31, 2019 (Unaudited) $ — $ 926 $ 1,599,566 $ ( 6,000 ) $ 707,829 $ 2,302,321 Comprehensive income — — — 21,316 55,924 77,240 Stock-based compensation plans, net – 22,672 shares — — 2,906 — — 2,906 Stock issued for Reliance acquisition – 3,999,623 shares 42,000 40 102,790 — — 144,830 Retirement of preferred stock ( 42,000 ) — — — — ( 42,000 ) Dividends on preferred stock — — — — ( 326 ) ( 326 ) Dividends on common stock – $ 0.16 per share — — — — ( 15,458 ) ( 15,458 ) Balance, June 30, 2019 (Unaudited) $ — $ 966 $ 1,705,262 $ 15,316 $ 747,969 $ 2,469,513 See Condensed Notes to Consolidated Financial Statements. 7 Simmons First National Corporation Consolidated Statements of Stockholders’ Equity Six Months Ended June 30, 2020 and 2019 (In thousands, except share data) Preferred Stock Common Stock Surplus Accumulated Other Comprehensive Income (Loss) Undivided Profits Total Six Months Ended June 30, 2020 Balance, December 31, 2019 $ 767 $ 1,136 $ 2,117,282 $ 20,891 $ 848,848 $ 2,988,924 Impact of ASU 2016-13 adoption — — — — ( 128,101 ) ( 128,101 ) Comprehensive income — — — 33,419 136,038 169,457 Stock issued for employee stock purchase plan – 43,681 shares — 1 955 — — 956 Stock-based compensation plans, net – 244,443 shares — 2 4,404 — — 4,406 Stock repurchases – 4,922,336 shares — ( 49 ) ( 93,258 ) — — ( 93,307 ) Dividends on preferred stock — — — — ( 26 ) ( 26 ) Dividends on common stock – $ 0.34 per share — — — — ( 37,606 ) ( 37,606 ) Balance, June 30, 2020 (Unaudited) $ 767 $ 1,090 $ 2,029,383 $ 54,310 $ 819,153 $ 2,904,703 Six Months Ended June 30, 2019 Balance, December 31, 2018 $ — $ 923 $ 1,597,944 $ ( 27,374 ) $ 674,941 $ 2,246,434 Comprehensive income — — — 42,690 103,619 146,309 Stock issued for employee stock purchase plan – 60,413 shares — 1 1,311 — — 1,312 Stock-based compensation plans, net – 182,977 shares — 2 3,217 — — 3,219 Stock issued for Reliance acquisition – 3,999,623 shares 42,000 40 102,790 — — 144,830 Preferred stock retirement ( 42,000 ) — — — — ( 42,000 ) Dividends on preferred stock — — — — ( 326 ) ( 326 ) Dividends on common stock – $ 0.32 per share — — — — ( 30,265 ) ( 30,265 ) Balance, June 30, 2019 (Unaudited) $ — $ 966 $ 1,705,262 $ 15,316 $ 747,969 $ 2,469,513 See Condensed Notes to Consolidated Financial Statements. 8 SIMMONS FIRST NATIONAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: PREPARATION OF INTERIM FINANCIAL STATEMENTS Description of Business and Organizational Structure Simmons First National Corporation (“Company”) is a financial holding company headquartered in Pine Bluff, Arkansas, and the parent company of Simmons Bank, an Arkansas state-chartered bank that has been in operation since 1903. Simmons First Insurance Services, Inc. and Simmons First Insurance Services of TN, LLC are wholly-owned subsidiaries of Simmons Bank and are insurance agencies that offer various lines of personal and corporate insurance coverage to individual and commercial customers. The Company, through its subsidiaries, offers, among other things, consumer, real estate and commercial loans; checking, savings and time deposits; and specialized products and services (such as credit cards, trust and fiduciary services, investments, agricultural finance lending, equipment lending, insurance and Small Business Administration (“SBA”) lending) from approximately 226 financial centers located throughout market areas in Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosures for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2019, was derived from audited financial statements. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of interim results of operations, including normal recurring accruals. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 27, 2020. The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (“US GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income items and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements and actual results may differ from these estimates. Such estimates include, but are not limited to, the Company’s allowance for credit losses. Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income. Recently Adopted Accounting Standards Fair Value Measurement Disclosures – In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), that eliminates, amends and adds disclosure requirements for fair value measurements. These amendments are part of FASB’s disclosure review project and they are expected to reduce costs for preparers while providing more decision-useful information for financial statement users. The eliminated disclosure requirements include the 1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; 2) the policy of timing of transfers between levels of the fair value hierarchy; and 3) the valuation processes for Level 3 fair value measurements. Among other modifications, the amended disclosure requirements remove the term “at a minimum” from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Under the new disclosure requirements, entities must disclose the changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is 9 effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. ASU 2018-13 did not have a material impact on the Company’s fair value disclosures. Credit Losses on Financial Instruments – In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires earlier measurement of credit losses, expands the range of information considered in determining expected credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in current US GAAP with a methodology (the current expected credit losses, or “CECL”, methodology) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted each period for changes in expected lifetime credit losses. This methodology replaces the multiple existing impairment methods in current guidance, which generally require that a loss be incurred before it is recognized. Within the life cycle of a loan or other financial asset, this new guidance will generally result in the earlier recognition of the provision for credit losses and the related allowance for credit losses than current practice. For available-for-sale debt securities that the Company intends to hold and where fair value is less than cost, credit-related impairment, if any, will be recognized through an allowance for credit losses and adjusted each period for changes in credit risk. The effective date for these amendments is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In preparation for implementation of ASU 2016-13, the Company formed a cross functional team that assessed its data and system needs and evaluated the potential impact of adopting the new guidance. The Company anticipated a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the prior accounting practice that utilized the incurred loss model. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed in to law by the President of the United States and allows the option to temporarily defer or suspend the adoption of ASU 2016-13. During the deferral, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses and would be in accordance with US GAAP. The Company has not elected to temporarily defer the adoption of ASU 2016-13 and adopted the new standard as of January 1, 2020. Upon adoption, the Company recorded an additional allowance for credit losses on loans of approximately $ 151.4 million and an adjustment to the reserve for unfunded commitments recorded in other liabilities of $ 24.0 million. The Company also recorded an additional allowance for credit losses on investment securities of $ 742,000 . The impact at adoption was reflected as an adjustment to beginning retained earnings, net of income taxes, in the amount of $ 128.1 million. The significant impact to the Company’s allowance for credit losses at the date of adoption was driven by the substantial amount of loans acquired held by the Company. The Company had approximately one third of total loans categorized as acquired at the adoption date with very little reserve allocated to them due to the previous incurred loss impairment methodology. As such, the amount of the CECL adoption impact was greater on the Company when compared to a non-acquisitive bank. 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 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. The rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years an estimate of CECL’s effect on regulatory capital, followed by a three-year transition period (the “2020 CECL Transition Provision”). The Company elected to apply the 2020 CECL Transition Provision. 10 In connection with the adoption of ASU 2016-13, the Company revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below: Allowance for Credit Losses - Held-to-Maturity (“HTM”) Securities - 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. See Note 3, Investment Securities, for additional information related to the Company’s allowance for credit losses on HTM securities. Allowance for Credit Losses - Available-for-Sale (“AFS”) Securities - For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. If the assessment indicates 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 loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. 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 uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note 3, Investment Securities, for additional information related to the Company’s allowance for credit losses on AFS securities. Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans, and any direct principal charge-offs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance on the consolidated balance sheets. Further information regarding accounting policies related to past due loans, non-accrual loans, and troubled-debt restructurings is presented in Note 5, Loans and Allowance for Credit Losses. The Company used the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . The Company increased the allowance for credit losses by approximately $ 5.4 million at adoption for the assets previously identified as PCI. In accordance with ASU 2016-13 , the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. Collateral Dependent Loans - Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets 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 loss is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset 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 financial asset 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 costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost 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 financial asset. Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures - The allowance for credit losses on off-balance-sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance for credit loss is recognized if the Company has the unconditional right to cancel the obligation. The allowance for credit loss is reported as a component of accrued interest and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the income statement as a component of other operating expenses. 11 Recently Issued Accounting Standards Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). LIBOR is a benchmark interest rate referenced in a variety of agreements that are used by numerous entities. After 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides optional expedients and exceptions to contracts, hedging relationships and other transactions affected by reference rate reform. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. Optional expedients for hedge accounting permits changes to critical terms of hedging relationships and to the designated benchmark interest rate in a fair value hedge and also provides relief for assessing hedge effectiveness for cash flow hedges. Companies are able to apply ASU 2020-04 immediately; however, the guidance will only be available for a limited time (generally through December 31, 2022). As of June 30, 2020, the Company has not made any modifications to hedges or other instruments that reference an interest rate that is expected to be discontinued. Income Taxes – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), that removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 introduces the following new guidance: i) guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction and ii) a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax. Additionally, ASU 2019-12 changes the following current guidance: i) making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations, ii) determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting, iii) accounting for tax law changes and year-to-date losses in interim periods, and iv) determining how to apply the income tax guidance to franchise taxes that are partially based on income. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating all of the amendments in ASU 2019-12 and has not yet determined the impact of this new standard. There have been no other significant changes to the Company’s accounting policies from the 2019 Form 10-K. Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a material impact on its present or future financial position or results of operations. NOTE 2: ACQUISITIONS The Landrum Company On October 31, 2019, the Company completed its merger with The Landrum Company (“Landrum”), pursuant to the terms of the Agreement and Plan of Merger dated as of July 30, 2019 (“Landrum Agreement”), at which time Landrum was merged with and into the Company, with the Company continuing as the surviving corporation. Pursuant to the terms of the Landrum Agreement, the shares of Landrum Class A Common Voting Stock, par value $ 0.01 per share, and Landrum Class B Common Nonvoting Stock, par value $ 0.01 per share, were converted into the right to receive, in the aggregate, approximately 17,350,000 shares of the Company’s common stock, and each share of Landrum’s series E preferred stock was converted into the right to receive one share of the Company’s comparable series D preferred stock. The Company issued 17,349,722 shares of its common stock and 767 shares of its series D preferred stock, par value $ 0.01 per share, in exchange for all outstanding shares of Landrum capital stock to effect the merger. Prior to the acquisition, Landrum, headquartered in Columbia, Missouri, conducted banking business through its subsidiary bank, Landmark Bank, from 39 branches located in Missouri, Oklahoma and Texas. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 3.4 billion in assets, including approximately $ 2.0 billion in loans (inclusive of loan discounts), and approximately $ 3.0 billion in deposits. The systems conversion occurred on February 14, 2020, at which time Landmark Bank merged into Simmons Bank, with Simmons Bank as the surviving institution. Goodwill of $ 140.6 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s current footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. 12 A summary, at fair value, of the assets acquired and liabilities assumed in the Landrum acquisition, as of the acquisition date, is as follows: (In thousands) Acquired from Landrum Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 215,285 $ — $ 215,285 Due from banks - time 248 — 248 Investment securities 1,021,755 4,228 1,025,983 Loans acquired 2,049,137 ( 43,651 ) 2,005,486 Allowance for loan losses ( 22,736 ) 22,736 — Foreclosed assets 373 ( 183 ) 190 Premises and equipment 63,878 18,867 82,745 Bank owned life insurance 19,206 — 19,206 Goodwill 407 ( 407 ) — Core deposit intangible — 24,345 24,345 Other intangibles 412 4,704 5,116 Other assets 33,924 ( 13,290 ) 20,634 Total assets acquired $ 3,381,889 $ 17,349 $ 3,399,238 Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 716,675 $ — $ 716,675 Interest bearing transaction accounts and savings deposits 1,465,429 — 1,465,429 Time deposits 867,197 299 867,496 Total deposits 3,049,301 299 3,049,600 Other borrowings 10,055 — 10,055 Subordinated debentures 34,794 ( 877 ) 33,917 Accrued interest and other liabilities 31,057 ( 586 ) 30,471 Total liabilities assumed 3,125,207 ( 1,164 ) 3,124,043 Equity 256,682 ( 256,682 ) — Total equity assumed 256,682 ( 256,682 ) — Total liabilities and equity assumed $ 3,381,889 $ ( 257,846 ) $ 3,124,043 Net assets acquired 275,195 Purchase price 415,779 Goodwill $ 140,584 The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the merger. Management will continue to review the estimated fair values and evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired assets and assumed liabilities in this transaction over the next few months, within one year of the merger. Therefore, adjustments to the estimated amounts and carrying values may occur. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Landrum subsequent to the acquisition date. 13 Reliance Bancshares, Inc. On April 12, 2019, the Company completed its merger with Reliance Bancshares, Inc. (“Reliance”), headquartered in the St. Louis, Missouri, metropolitan area, pursuant to the terms of the Agreement and Plan of Merger (“Reliance Agreement”), dated November 13, 2018, as amended February 11, 2019. In the merger, each outstanding share of Reliance common stock, as well as each Reliance common stock equivalent was canceled and converted into the right to receive shares of the Company’s common stock and/or cash in accordance with the terms of the Reliance Agreement. In addition, each share of Reliance’s Series A Preferred Stock and Series B Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series A Preferred Stock or Series B Preferred Stock, respectively, and each share of Reliance’s Series C Preferred Stock was converted into the right to receive one share of Simmons’ comparable Series C Preferred Stock (unless the holder of such Series C Preferred Stock elected to receive alternate consideration in accordance with the Reliance Agreement). The Company issued 3,999,623 shares of its common stock and paid $ 62.7 million in cash to effect the merger. The Company also issued $ 42.0 million of its Series A Preferred Stock and Series B Preferred Stock. On May 13, 2019, the Company redeemed all of the preferred stock issued in connection with the merger, and paid all accrued and unpaid dividends up to the date of redemption. On October 29, 2019, the Company amended its Amended and Restated Articles of Incorporation to cancel the Series C Preferred Stock, having 140 authorized shares, of which no shares were ever issued or outstanding. Prior to the acquisition, Reliance conducted banking business through its subsidiary bank, Reliance Bank, from 22 branches located in Missouri and Illinois. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $ 1.5 billion in assets, including approximately $ 1.1 billion in loans (inclusive of loan discounts), and approximately $ 1.2 billion in deposits. Contemporaneously with the completion of the Reliance merger, Reliance Bank was merged into Simmons Bank, with Simmons Bank as the surviving institution. Goodwill of $ 78.5 million was recorded as a result of the transaction. The merger strengthened the Company’s market share and brought forth additional opportunities in the Company’s St. Louis metropolitan area footprint, which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes. A summary, at fair value, of the assets acquired and liabilities assumed in the Reliance acquisition, as of the acquisition date, is as follows: (In thousands) Acquired from Reliance Fair Value Adjustments Fair Value Assets Acquired Cash and due from banks $ 25,693 $ — $ 25,693 Due from banks - time 502 — 502 Investment securities 287,983 ( 1,873 ) 286,110 Loans acquired 1,138,527 ( 41,657 ) 1,096,870 Allowance for loan losses ( 10,808 ) 10,808 — Foreclosed assets 11,092 ( 5,180 ) 5,912 Premises and equipment 32,452 ( 3,001 ) 29,451 Bank owned life insurance 39,348 — 39,348 Core deposit intangible — 18,350 18,350 Other assets 25,165 6,911 32,076 Total assets acquired $ 1,549,954 $ ( 15,642 ) $ 1,534,312 14 (In thousands) Acquired from Reliance Fair Value Adjustments Fair Value Liabilities Assumed Deposits: Non-interest bearing transaction accounts $ 108,845 $ ( 33 ) $ 108,812 Interest bearing transaction accounts and savings deposits 639,798 — 639,798 Time deposits 478,415 ( 1,758 ) 476,657 Total deposits 1,227,058 ( 1,791 ) 1,225,267 Securities sold under agreement to repurchase 14,146 — 14,146 Other borrowings 162,900 ( 5,500 ) 157,400 Accrued interest and other liabilities 8,185 268 8,453 Total liabilities assumed 1,412,289 ( 7,023 ) 1,405,266 Equity 137,665 ( 137,665 ) — Total equity assumed 137,665 ( 137,665 ) — Total liabilities and equity assumed $ 1,549,954 $ ( 144,688 ) $ 1,405,266 Net assets acquired 129,046 Purchase price 207,539 Goodwill $ 78,493 During 2020, the Company finalized its analysis of the loans acquired along with other acquired assets and assumed liabilities. The Company’s operating results include the operating results of the acquired assets and assumed liabilities of Reliance subsequent to the acquisition date. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the acquisitions above. Cash and due from banks and time deposits due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices if material. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value. Loans acquired – 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 and 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. Foreclosed assets – These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal. Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired. Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value. Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill. Goodwill established prior to the acquisitions, if applicable, was written off. 15 Core deposit intangible – This intangible asset represents the value of the relationships that the acquired banks had with their 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. Any core deposit intangible established prior to the acquisitions, if applicable, was written off. Other intangibles – These intangible assets represent the value of the relationship that Landrum had with their trust and wealth management customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach. Intangible assets for Landrum also included mortgage servicing rights. Other intangibles established prior to the acquisitions, if applicable, were written off. Other assets – The fair value adjustment results from certain assets whose value was estimated to be more or less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value. 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 Company performed a fair value analysis of the estimated weighted average interest rate of the certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference when material. Securities sold under agreement to repurchase – The carrying amount of securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities. Other borrowings – The fair value of other borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities. 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. Accrued interest and other liabilities – The adjustment establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition. The carrying amount of accrued interest and the remainder of other liabilities was deemed to be a reasonable estimate of fair value. NOTE 3: INVESTMENT SECURITIES Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity. Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders’ equity, further discussed below. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant yield method over the period to maturity. The amortized cost, fair value and allowance for credit losses of investment securities that are classified as HTM are as follows: (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Held-to-Maturity June 30, 2020 Mortgage-backed securities $ 25,980 $ — $ 25,980 $ 798 $ ( 1 ) $ 26,777 State and political subdivisions 24,872 ( 95 ) 24,777 1,125 ( 2 ) 25,900 Other securities 1,175 ( 212 ) 963 111 — 1,074 Total HTM $ 52,027 $ ( 307 ) $ 51,720 $ 2,034 $ ( 3 ) $ 53,751 16 (In thousands) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value December 31, 2019 Mortgage-backed securities $ 10,796 $ — $ 10,796 $ 71 $ ( 59 ) $ 10,808 State and political subdivisions 27,082 — 27,082 849 — 27,931 Other securities 3,049 — 3,049 67 — 3,116 Total HTM $ 40,927 $ — $ 40,927 $ 987 $ ( 59 ) $ 41,855 The amortized cost, fair value and allowance for credit losses of investment securities that are classified as AFS are as follows: (In thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Available-for-sale June 30, 2020 U.S. Government agencies $ 210,496 $ — $ 1,416 $ ( 991 ) $ 210,921 Mortgage-backed securities 1,125,484 — 28,804 ( 202 ) 1,154,086 State and political subdivisions 1,015,625 ( 371 ) 39,510 ( 696 ) 1,054,068 Other securities 76,943 ( 238 ) 1,354 ( 238 ) 77,821 Total AFS $ 2,428,548 $ ( 609 ) $ 71,084 $ ( 2,127 ) $ 2,496,896 December 31, 2019 U.S. Treasury $ 449,729 $ — $ 112 $ ( 112 ) $ 449,729 U.S. Government agencies 194,207 — 1,313 ( 1,271 ) 194,249 Mortgage-backed securities 1,738,584 — 8,510 ( 4,149 ) 1,742,945 State and political subdivisions 860,539 — 20,983 ( 998 ) 880,524 Other securities 20,092 — 822 ( 18 ) 20,896 Total AFS $ 3,263,151 $ — $ 31,740 $ ( 6,548 ) $ 3,288,343 Accrued interest receivable on HTM and AFS securities at June 30, 2020 was $ 247,000 and $ 12.7 million, respectively, and is included in interest receivable on the consolidated balance sheets. The Company has made the election to exclude all accrued interest receivable from securities from the estimate of credit losses. The following table summarizes the Company’s AFS investments in an unrealized loss position for which an allowance for credit loss has not been recorded as of June 30, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position: Less Than 12 Months 12 Months or More Total (In thousands) Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Available-for-sale U.S. Government agencies $ 3,209 $ ( 3 ) $ 56,007 $ ( 988 ) $ 59,216 $ ( 991 ) Mortgage-backed securities 47,380 ( 161 ) 4,266 ( 41 ) 51,646 ( 202 ) State and political subdivisions 30,468 ( 324 ) 388 ( 1 ) 30,856 ( 325 ) Total AFS $ 81,057 $ ( 488 ) $ 60,661 $ ( 1,030 ) $ 141,718 $ ( 1,518 ) 17 As of June 30, 2020, the Company’s investment portfolio included $ 2.5 billion of AFS securities, of which $ 141.7 million, or 5.7 %, were in an unrealized loss position that are not deemed to have credit losses. A portion of the unrealized losses were related to the Company’s mortgage-backed securities, which are issued and guaranteed by U.S. government-sponsored entities and agencies, and the Company’s state and political securities, specifically investments in insured fixed rate municipal bonds meaning issuers continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, the decline in fair value for each of the above AFS securities is attributable to the rates for those investments yielding less than current market rates. Management does not believe any of the securities are impaired due to reasons of credit quality. Management believes the declines in fair value for the securities are temporary. Management does not have the intent to sell the securities, and management believes it is more likely than not the Company will not have to sell the securities before recovery of their amortized cost basis. Allowance for Credit Losses All of the mortgage-backed securities held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Accordingly, no allowance for credit losses has been recorded for these securities. Regarding securities issued by state and political subdivisions and other HTM securities, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal forecasts, (v) whether or not such securities provide insurance or other credit enhancement or pre-refunded by the issuers. The following table details activity in the allowance for credit losses by investment security type for the three and six months ended June 30, 2020 on the Company’s HTM and AFS securities held. (In thousands) State and Political Subdivisions Other Securities Total Three Months Ended June 30, 2020 Held-to-Maturity Beginning balance, April 1, 2020 $ 97 $ 312 $ 409 Provision for credit loss expense ( 2 ) ( 100 ) ( 102 ) Ending balance, June 30, 2020 $ 95 $ 212 $ 307 Available-for-sale Beginning balance, April 1, 2020 $ 95 $ 174 $ 269 Credit losses on securities not previously recorded 370 160 530 Net increase (decrease) in allowance on previously impaired securities ( 94 ) ( 96 ) ( 190 ) Ending balance, June 30, 2020 $ 371 $ 238 $ 609 Six Months Ended June 30, 2020 Held-to-Maturity Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 58 311 369 Provision for credit loss expense 37 ( 99 ) ( 62 ) Ending balance, June 30, 2020 $ 95 $ 212 $ 307 Available-for-sale Beginning balance, January 1, 2020 $ — $ — $ — Impact of ASU 2016-13 adoption 373 — 373 Credit losses on securities not previously recorded 77 192 269 Reduction due to sales ( 142 ) — ( 142 ) Net increase (decrease) in allowance on previously impaired securities 63 46 109 Ending balance, June 30, 2020 $ 371 $ 238 $ 609 18 During the three and six months ended June 30, 2020, the provision for credit losses was $ 340,000 and $ 236,000 , respectively, related to AFS securities. The following table summarizes bond ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of June 30, 2020: State and Political Subdivisions (In thousands) Not Guaranteed or Pre-Refunded Other Credit Enhancement or Insurance Pre-Refunded Total Other Securities Aaa/AAA $ 2,112 $ — $ — $ 2,112 $ — Aa/AA 11,512 5,922 — 17,434 — A 961 1,147 — 2,108 — Not Rated 2,849 369 — 3,218 1,175 Total $ 17,434 $ 7,438 $ — $ 24,872 $ 1,175 Historical loss rates associated with securities having similar grades as those in the Company’s portfolio have generally not been significant. Pre-refunded securities, if any, have been defeased by the issuer and are fully secured by cash and/or U.S. Treasury securities held in escrow for payment to holders when the underlying call dates of the securities are reached. Securities with other credit enhancement or insurance continue to make timely principal and interest payments under the contractual terms of the securities. Accordingly, no allowance for credit losses has been recorded for these securities as there is no current expectation of credit losses related to these securities. Income earned on securities for the three and six months ended June 30, 2020 and 2019, is as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Taxable: Held-to-maturity $ 288 $ 289 $ 459 $ 727 Available-for-sale 7,086 10,777 19,667 22,297 Non-taxable: Held-to-maturity 68 89 140 1,251 Available-for-sale 6,031 4,511 12,150 7,672 Total $ 13,473 $ 15,666 $ 32,416 $ 31,947 The amortized cost and estimated fair value by maturity of securities are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities. Held-to-Maturity Available-for-Sale (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value One year or less $ 4,928 $ 4,962 $ 15,006 $ 15,077 After one through five years 15,201 15,793 35,995 36,348 After five through ten years 5,918 6,219 203,777 205,627 After ten years — — 1,047,772 1,084,495 Securities not due on a single maturity date 25,980 26,777 1,125,484 1,154,086 Other securities (no maturity) — — 514 1,263 Total $ 52,027 $ 53,751 $ 2,428,548 $ 2,496,896 19 The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $ 1.38 billion at June 30, 2020 and $ 1.73 billion at December 31, 2019. There were approximately $ 391,000 of gross realized gains and $ 1,000 of gross realized losses from the sale of securities during the three months ended June 30, 2020, and approximately $ 32.5 million of gross realized gains and $ 2,600 of gross realized losses from the sale of securities during the six months ended June 30, 2020. During the first half of 2020, the Company sold approximately $ 1.2 billion of investment securities to create additional liquidity. There were approximately $ 2.8 million of gross realized gains and no gross realized losses from the sale of securities during the three months ended June 30, 2019, and approximately $ 5.6 million of gross realized gains and no gross realized losses from the sale of securities during the six months ended June 30, 2019. The income tax expense/benefit related to security gain/losses was 26.135 % of the gross amounts in 2020 and 2019. NOTE 4: OTHER ASSETS AND OTHER LIABILITIES HELD FOR SALE Colorado Branch Sale On February 10, 2020, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “First Western Agreement”) with First Western Trust Bank (“First Western”), a wholly-owned subsidiary of First Western Financial, Inc. On May 18, 2020, First Western completed its purchase of certain assets and assumption of certain liabilities (“Colorado Branch Sale”) associated with four Simmons Bank locations in Denver, Englewood, Highlands Ranch, and Lone Tree, Colorado (collectively, the “Colorado Branches”). Pursuant to the terms of the First Western Agreement, First Western assumed certain deposit liabilities and acquired certain loans, as well as cash, personal property and other fixed assets associated with the Colorado Branches. Texas Branch Sale On December 20, 2019, the Company’s subsidiary bank, Simmons Bank, entered into a Branch Purchase and Assumption Agreement (the “Spirit Agreement”) with Spirit of Texas Bank, SSB (“Spirit”), a wholly-owned subsidiary of Spirit of Texas Bancshares, Inc. On February 28, 2020, Spirit completed its purchase of certain assets and assumption of certain liabilities (“Texas Branch Sale”) associated with five Simmons Bank locations in Austin, San Antonio, and Tilden, Texas (collectively, the “Texas Branches”). Pursuant to the terms of the Spirit Agreement, Spirit assumed certain deposit liabilities and acquired certain loans, as well as cash, real property, personal property and other fixed assets associated with the Texas Branches. The Company recognized a combined gain on sale of $ 8.1 million related to the Texas Branches and Colorado Branches in the six month period ended June 30, 2020. 20 NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES At June 30, 2020, the Company’s loan portfolio was $ 14.61 billion, compared to $ 14.43 billion at December 31, 2019. The various categories of loans are summarized as follows: June 30, December 31, (In thousands) 2020 2019 Consumer: Credit cards $ 184,348 $ 204,802 Other consumer 214,024 249,195 Total consumer 398,372 453,997 Real Estate: Construction and development 2,010,256 2,248,673 Single family residential 2,207,087 2,414,753 Other commercial 6,316,444 6,358,514 Total real estate 10,533,787 11,021,940 Commercial: 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 $ 14,606,900 $ 14,425,704 The above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as net deferred origination fees totaling $ 82.2 million and $ 91.6 million at June 30, 2020 and December 31, 2019, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 66.9 million and $ 48.9 million at June 30, 2020 and December 31, 2019, respectively, and is included in interest receivable on the consolidated balance sheets. Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; providing an adequate allowance for credit losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures. Real estate – The real estate loan portfolio consists of construction and development loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real 21 estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors these loans closely. Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one or three year balloons, and the Company has instituted a pricing mechanism for commercial loans. It is standard practice to require personal guaranties on commercial loans for closely-held or limited liability entities. Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. 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. When interest accrual 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. The amortized cost basis of nonaccrual loans segregated by class of loans are as follows: June 30, December 31, (In thousands) 2020 2019 Consumer: Credit cards $ 223 $ 382 Other consumer 1,912 1,705 Total consumer 2,135 2,087 Real estate: Construction and development 6,501 5,289 Single family residential 32,244 27,695 Other commercial 36,255 16,582 Total real estate 75,000 49,566 Commercial: Commercial 53,538 40,924 Agricultural 710 753 Total commercial 54,248 41,677 Total $ 131,383 $ 93,330 Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 2020 had an amortized cost of $ 18.0 million. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method. 22 An age analysis of the amortized cost basis of past due loans, including nonaccrual loans, segregated by class of loans is as follows: (In thousands) Gross 30-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans 90 Days Past Due & Accruing June 30, 2020 Consumer: Credit cards $ 672 $ 262 $ 934 $ 183,414 $ 184,348 $ 262 Other consumer 2,626 724 3,350 210,674 214,024 1 Total consumer 3,298 986 4,284 394,088 398,372 263 Real estate: Construction and development 3,574 4,698 8,272 2,001,984 2,010,256 — Single family residential 13,805 15,389 29,194 2,177,893 2,207,087 — Other commercial 4,665 19,480 24,145 6,292,299 6,316,444 50 Total real estate 22,044 39,567 61,611 10,472,176 10,533,787 50 Commercial: Commercial 6,413 14,891 21,304 3,016,912 3,038,216 180 Agricultural 411 401 812 216,903 217,715 1 Total commercial 6,824 15,292 22,116 3,233,815 3,255,931 181 Other — — — 418,810 418,810 — Total $ 32,166 $ 55,845 $ 88,011 $ 14,518,889 $ 14,606,900 $ 494 December 31, 2019 Consumer: Credit cards $ 848 $ 641 $ 1,489 $ 203,313 $ 204,802 $ 259 Other consumer 4,884 735 5,619 243,576 249,195 — Total consumer 5,732 1,376 7,108 446,889 453,997 259 Real estate: Construction and development 5,792 1,078 6,870 2,241,803 2,248,673 — Single family residential 26,318 13,789 40,107 2,374,646 2,414,753 597 Other commercial 7,645 6,450 14,095 6,344,419 6,358,514 — Total real estate 39,755 21,317 61,072 10,960,868 11,021,940 597 Commercial: Commercial 10,579 13,551 24,130 2,426,989 2,451,119 — Agricultural 1,223 456 1,679 189,846 191,525 — Total commercial 11,802 14,007 25,809 2,616,835 2,642,644 — Other — — — 307,123 307,123 — Total $ 57,289 $ 36,700 $ 93,989 $ 14,331,715 $ 14,425,704 $ 856 23 The following table presents information pertaining to impaired loans as of December 31, 2019, in accordance with previous US GAAP prior to the adoption of ASU 2016-13. (In thousands) Unpaid Contractual Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance Average Investment in Impaired Loans Interest Income Recognized Average Investment in Impaired Loans Interest Income Recognized December 31, 2019 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 Consumer: Credit cards $ 382 $ 382 $ — $ 382 $ — $ 332 $ 40 $ 320 $ 70 Other consumer 1,537 1,378 — 1,378 — 1,563 12 1,762 25 Total consumer 1,919 1,760 — 1,760 — 1,895 52 2,082 95 Real estate: Construction and development 4,648 4,466 72 4,538 4 2,355 14 1,993 28 Single family residential 19,466 15,139 2,963 18,102 42 15,486 105 14,351 203 Other commercial 10,645 4,713 3,740 8,453 694 7,676 59 8,751 123 Total real estate 34,759 24,318 6,775 31,093 740 25,517 178 25,095 354 Commercial: Commercial 53,436 6,582 28,998 35,580 5,007 29,776 187 23,811 335 Agricultural 525 383 116 499 — 1,148 8 1,159 16 Total commercial 53,961 6,965 29,114 36,079 5,007 30,924 195 24,970 351 Total $ 90,639 $ 33,043 $ 35,889 $ 68,932 $ 5,747 $ 58,336 $ 425 $ 52,147 $ 800 When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” (“TDR”) results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; 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. The Company returns 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. The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. 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. TDRs are individually evaluated for expected credit losses. The Company assesses the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determines if a specific allowance for credit losses is needed. 24 The following table presents a summary of TDRs segregated by class of loans. Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance June 30, 2020 Real estate: Single-family residential 12 $ 1,221 7 $ 680 19 $ 1,901 Other commercial — — 2 70 2 70 Total real estate 12 1,221 9 750 21 1,971 Commercial: Commercial 4 2,739 3 68 7 2,807 Total commercial 4 2,739 3 68 7 2,807 Total 16 $ 3,960 12 $ 818 28 $ 4,778 December 31, 2019 Real estate: Construction and development — $ — 1 $ 72 1 $ 72 Single-family residential 7 1,151 12 671 19 1,822 Other commercial 1 476 2 80 3 556 Total real estate 8 1,627 15 823 23 2,450 Commercial: Commercial 4 2,784 3 79 7 2,863 Total commercial 4 2,784 3 79 7 2,863 Total 12 $ 4,411 18 $ 902 30 $ 5,313 The following table presents loans that were restructured as TDRs during the three and six months ended June 30, 2020. There were no loans restructured as TDRs during the three and six month periods ended June 30, 2019. (Dollars in thousands) Number of loans Balance Prior to TDR Balance at June 30, Change in Maturity Date Change in Rate Financial Impact on Date of Restructure Three and Six Months Ended June 30, 2020 Real estate: Single-family residential 1 $ 147 $ 147 $ 147 $ — $ — Total real estate 1 $ 147 $ 147 $ 147 $ — $ — During the three and six months ended June 30, 2020, the Company modified one loan with a recorded investment of $ 147,000 prior to modification which was deemed troubled debt restructuring. The restructured loan was modified by deferring amortized principal payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. A specific reserve of $ 7,200 was determined necessary for this loan. There were no loans considered TDRs for which a payment default occurred during the six months ended June 30, 2020. There was one commercial loan considered a TDR for which a payment default occurred during the six months ended June 30, 2019. A charge-off of approximately $ 138,000 was recorded for this loan. The Company defines a payment default as a payment received more than 90 days after its due date. There were no TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the three or six month periods ended June 30, 2020 or 2019. At June 30, 2020 and December 31, 2019, the Company had $ 4,395,000 and $ 5,789,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At June 30, 2020 and December 31, 2019, the Company had $ 2,321,000 and $ 4,458,000 , respectively, of OREO secured by residential real estate properties. 25 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 weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions of the Company’s local markets. The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the 8 risk ratings is as follows: • Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength. • Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”). • Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters. • Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability. • Risk Rate 5 – Special Mention - A loan in this category 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. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices. • Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan. • Risk Rate 7 – Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status. • Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible. 26 The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the delinquency credit quality indicators is as follows: • Current - Loans in this category are either current in payments or are under 30 days past due. These loans are considered to have a normal level of risk. • 30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk. • 90+ Days Past Due - Loans in this category are over 90 days past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced. The following table presents a summary of loans by credit quality indicator, other than pass or current, as of June 30, 2020 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 (YTD) 2019 2018 2017 2016 2015 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: 30-89 days past due $ — $ — $ — $ — $ — $ — $ 672 $ — $ 672 90+ days past due — — — — — — 262 — 262 Total consumer - credit cards — — — — — — 934 — 934 Consumer - other Delinquency: 30-89 days past due 89 446 387 576 633 71 424 — 2,626 90+ days past due 31 110 107 291 135 29 21 — 724 Total consumer - other 120 556 494 867 768 100 445 — 3,350 Real estate - C&D Risk rating: 5 internal grade — 43 17 1,947 20 — — — 2,027 6 internal grade 241 2,988 425 197 422 1,082 850 799 7,004 7 internal grade — — — — — — — — — Total real estate - C&D 241 3,031 442 2,144 442 1,082 850 799 9,031 Real estate - SF residential Delinquency: 30-89 days past due 321 2,074 1,980 1,415 1,796 4,553 1,666 — 13,805 90+ days past due — 2,402 2,916 2,378 1,518 3,822 2,353 — 15,389 Total real estate - SF residential 321 4,476 4,896 3,793 3,314 8,375 4,019 — 29,194 Real estate - other commercial Risk rating: 5 internal grade 18,591 2,425 11,530 1,049 1,349 2,591 18,027 24,917 80,479 6 internal grade 35,258 6,008 8,995 4,411 4,110 13,502 39,073 10,077 121,434 7 internal grade — — — — — — — — — Total real estate - other commercial 53,849 8,433 20,525 5,460 5,459 16,093 57,100 34,994 201,913 Commercial Risk rating: 5 internal grade 3,377 325 478 136 233 58 46,465 — 51,072 6 internal grade 9,588 5,098 4,885 2,024 1,168 697 55,123 860 79,443 7 internal grade — — — — — — — — — Total commercial 12,965 5,423 5,363 2,160 1,401 755 101,588 860 130,515 Commercial - agriculture Risk rating: 5 internal grade — 86 15 379 — — 37 — 517 6 internal grade 21 112 193 95 149 11 63 — 644 7 internal grade — — — — — — — — — Total commercial - agriculture 21 198 208 474 149 11 100 — 1,161 Total $ 67,517 $ 22,117 $ 31,928 $ 14,898 $ 11,533 $ 26,416 $ 165,036 $ 36,653 $ 376,098 27 The following table presents a summary of loans by credit risk rating as of December 31, 2019 segregated by class of loans. (In thousands) Risk Rate 1-4 Risk Rate 5 Risk Rate 6 Risk Rate 7 Risk Rate 8 Total December 31, 2019 Consumer: Credit cards $ 204,161 $ — $ 641 $ — $ — $ 204,802 Other consumer 247,668 — 2,026 — — 249,694 Total consumer 451,829 — 2,667 — — 454,496 Real estate: Construction and development 2,229,019 70 7,735 — 37 2,236,861 Single family residential 2,394,284 6,049 41,601 130 — 2,442,064 Other commercial 6,068,425 69,745 67,429 — — 6,205,599 Total real estate 10,691,728 75,864 116,765 130 37 10,884,524 Commercial: Commercial 2,384,263 26,713 84,317 43 180 2,495,516 Agricultural 309,741 41 5,672 — — 315,454 Total commercial 2,694,004 26,754 89,989 43 180 2,810,970 Other 275,714 — — — — 275,714 Total $ 14,113,275 $ 102,618 $ 209,421 $ 173 $ 217 $ 14,425,704 Allowance for Credit Losses Allowance for Credit Losses – The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is based on the Company’s reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, nonperforming loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor. • Changes in the nature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors. • 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. • 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. 28 • Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors. • Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within the Company’s reasonable and supportable forecast. • Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or are classified as a troubled debt restructuring. The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan. Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $ 55.0 million as further detailed in the table below. The collateral securing these loans consist of commercial real estate properties, residential properties, other business assets, and secured energy production assets. (In thousands) Real Estate Collateral Energy Other Collateral Total Construction and development $ 2,465 $ — $ — $ 2,465 Single family residential 5,479 — — 5,479 Other commercial real estate 18,654 — — 18,654 Commercial — 21,755 6,696 28,451 Total $ 26,598 $ 21,755 $ 6,696 $ 55,049 The following table details activity in the allowance for credit losses by portfolio segment for loans for the three and six months ended June 30, 2020. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Allowance for credit losses: Three Months Ended June 30, 2020 Beginning balance, April 1, 2020 $ 76,327 $ 141,022 $ 7,817 $ 18,029 $ 243,195 Provision for credit loss expense 18,400 10,020 3,943 ( 5,685 ) 26,678 Charge-offs ( 35,687 ) ( 1,824 ) ( 1,053 ) ( 592 ) ( 39,156 ) Recoveries 98 253 272 303 926 Net charge-offs ( 35,589 ) ( 1,571 ) ( 781 ) ( 289 ) ( 38,230 ) Ending balance, June 30, 2020 $ 59,138 $ 149,471 $ 10,979 $ 12,055 $ 231,643 29 (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Six Months Ended June 30, 2020 Beginning balance, January 1, 2020 - prior to adoption of CECL $ 22,863 $ 39,161 $ 4,051 $ 2,169 $ 68,244 Impact of CECL adoption 22,733 114,314 2,232 12,098 151,377 Provision for credit loss expense 49,307 ( 2,138 ) 6,693 ( 987 ) 52,875 Charge-offs ( 36,210 ) ( 2,220 ) ( 2,494 ) ( 1,971 ) ( 42,895 ) Recoveries 445 354 497 746 2,042 Net charge-offs ( 35,765 ) ( 1,866 ) ( 1,997 ) ( 1,225 ) ( 40,853 ) Ending balance, June 30, 2020 $ 59,138 $ 149,471 $ 10,979 $ 12,055 $ 231,643 Activity in the allowance for credit losses for the three and six months ended June 30, 2019 was as follows: (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total Allowance for credit losses: Three Months Ended June 30, 2019 Beginning balance, April 1, 2019 $ 19,394 $ 34,870 $ 3,919 $ 2,372 $ 60,555 Provision for credit losses 2,956 2,681 800 642 7,079 Charge-offs ( 1,963 ) ( 1,216 ) ( 1,039 ) ( 964 ) ( 5,182 ) Recoveries 967 158 271 331 1,727 Net charge-offs ( 996 ) ( 1,058 ) ( 768 ) ( 633 ) ( 3,455 ) Ending balance, June 30, 2019 $ 21,354 $ 36,493 $ 3,951 $ 2,381 $ 64,179 Six Months Ended June 30, 2019 Beginning balance, January 1, 2019 $ 20,514 $ 29,838 $ 3,923 $ 2,419 $ 56,694 Provision for credit losses 4,830 7,988 1,698 1,848 16,364 Charge-offs ( 5,115 ) ( 1,633 ) ( 2,181 ) ( 2,517 ) ( 11,446 ) Recoveries 1,125 300 511 631 2,567 Net charge-offs ( 3,990 ) ( 1,333 ) ( 1,670 ) ( 1,886 ) ( 8,879 ) Ending balance, June 30, 2019 $ 21,354 $ 36,493 $ 3,951 $ 2,381 $ 64,179 Four energy credits within the Commercial segment were charged off during the second quarter of 2020 for a total of $ 32.6 million, of which $ 27.1 million was specifically reserved for at March 31, 2020. The primary driver for the change in the provision for credit losses was related to updated credit loss forecasts using multiple Moody’s economic scenarios. The baseline economic forecast was weighted 68 % by the Company, while the downside scenarios of S-2 and S-3 were weighted 22 % and 10 %, respectively, to capture the possibility of a longer, more prolonged recovery to the economies that affect the loan portfolio. Reserve for Unfunded Commitments In addition to the allowance for credit losses, the Company has established a reserve for unfunded commitments, classified in other liabilities. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The reserve for unfunded commitments as of June 30, 2020 and December 31, 2019 was $ 24.4 million and $ 8.4 million, respectively. The increase from year end was due to the adoption of CECL. The adequacy of the reserve for unfunded commitments is determined monthly based on methodology similar to the methodology for determining the allowance for credit losses. For the six months ended June 30, 2020 and 2019, net adjustments to the reserve for unfunded commitments were a benefit of $ 8.0 million and an expense of $ 950,000 , respectively, and were included in other non-interest expense. 30 NOTE 6: RIGHT-OF-USE LEASE ASSETS AND LEASE LIABILITIES As of the first quarter 2019, the Company accounts for its leases in accordance with ASC Topic 842, Leases , which requires recognition of most leases, including operating leases, with a term greater than 12 months on the balance sheet. At lease commencement, the lease contract is reviewed to determine whether the contract is a finance lease or an operating lease; a lease liability is recognized on a discounted basis, related to the Company’s obligation to make lease payments; and a right-of-use asset is also recognized related to the Company’s right to use, or control the use of, a specified asset for the lease term. The Company accounts for lease and non-lease components (such as taxes, insurance and common area maintenance costs) separately as such amounts are generally readily determinable under the lease contracts. Lease payments over the expected term are discounted using the Company’s FHLB advance rates for borrowings of similar term. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company’s leases are classified as operating leases with a term, including expected renewal or termination options, greater than one year, and are related to certain office facilities and office equipment. Right-of-use lease assets included in premises and equipment were $ 34.7 million and $ 40.7 million at June 30, 2020 and December 31, 2019, respectively. Lease liabilities included in other liabilities were $ 34.8 million and $ 40.9 million at June 30, 2020 and December 31, 2019, respectively. Other information related to the Company’s operating leases is presented in the table below: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating lease cost $ 3,443,100 $ 2,613,600 $ 6,643,600 $ 6,048,500 Weighted average remaining lease term 8.53 years 8.92 years Weighted average discount rate 3.25 % 3.47 % NOTE 7: PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Total premises and equipment, net at June 30, 2020 and December 31, 2019 were as follows: June 30, December 31, (In thousands) 2020 2019 Right-of-use lease assets $ 34,680 $ 40,675 Premises and equipment: Land 96,607 99,931 Buildings and improvements 306,951 309,290 Furniture, fixtures and equipment 98,383 99,343 Software 63,995 56,012 Construction in progress 6,635 6,998 Accumulated depreciation and amortization ( 128,355 ) ( 119,865 ) Total premises and equipment, net $ 478,896 $ 492,384 31 NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is tested annually, or more often than annually, if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill totaled $ 1.065 billion at June 30, 2020 and $ 1.056 billion at December 31, 2019. During 2019, the Company recorded $ 131.3 million and $ 78.5 million of goodwill as a result of its acquisitions of Landrum and Reliance, respectively. During the first half of 2020, goodwill increased $ 9.2 million related to the continued assessment of the fair value and assumed tax position of the Landrum acquisition. Goodwill impairment was neither indicated nor recorded during the six months ended June 30, 2020 or the year ended December 31, 2019. During the first quarter of 2020, the Company’s 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 share price and other factors, the Company performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed. During the second quarter of 2020, the Company performed the annual goodwill impairment analysis and concluded that it is more likely-than-not that the fair value of goodwill continues to exceed its carrying value and therefore, goodwill is not impaired. Core deposit premiums represent the value of the relationships that acquired banks had with their deposit customers and are amortized over periods ranging from 10 years to 15 years and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Other intangible assets represent the value of other acquired relationships, including relationships with trust and wealth management customers, and are being amortized over various periods ranging from 10 years to 15 years. Changes in the carrying amount and accumulated amortization of the Company’s core deposit premiums and other intangible assets at June 30, 2020 and December 31, 2019 were as follows: June 30, December 31, (In thousands) 2020 2019 Core deposit premiums: Balance, beginning of year $ 111,808 $ 79,807 Acquisitions (1) — 42,695 Disposition of intangible asset (2) ( 2,324 ) — Amortization ( 6,094 ) ( 10,694 ) Balance, end of period 103,390 111,808 Books of business and other intangibles: Balance, beginning of year 15,532 11,527 Acquisitions (3) — 5,116 Disposition of intangible asset ( 413 ) — Amortization ( 686 ) ( 1,111 ) Balance, end of period 14,433 15,532 Total other intangible assets, net $ 117,823 $ 127,340 _________________________ (1) Core deposit premiums of $ 24.3 million and $ 18.4 million were recorded during 2019 as part of the Landrum and Reliance acquisitions, respectively. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019. (2) Adjustments recorded for the premiums on certain deposit liabilities associated with the sale of the Texas Branches and Colorado Branches. (3) The Company recorded $ 5.1 million during 2019 primarily related to the wealth management operations acquired from Landrum. See Note 2, Acquisitions, for additional information on acquisitions completed in 2019. 32 The carrying basis and accumulated amortization of the Company’s other intangible assets at June 30, 2020 and December 31, 2019 were as follows: June 30, December 31, (In thousands) 2020 2019 Core deposit premiums: Gross carrying amount $ 146,355 $ 148,679 Accumulated amortization ( 42,965 ) ( 36,871 ) Core deposit premiums, net 103,390 111,808 Books of business and other intangibles: Gross carrying amount 19,938 20,350 Accumulated amortization ( 5,505 ) ( 4,818 ) Books of business and other intangibles, net 14,433 15,532 Total other intangible assets, net $ 117,823 $ 127,340 The Company’s estimated remaining amortization expense on other intangible assets as of June 30, 2020 is as follows: (In thousands) Year Amortization Expense Remainder of 2020 $ 6,714 2021 13,379 2022 13,327 2023 13,044 2024 12,141 Thereafter 59,218 Total $ 117,823 NOTE 9: TIME DEPOSITS Time deposits included approximately $ 2.09 billion and $ 2.15 billion of certificates of deposit of $100,000 or more, at June 30, 2020, and December 31, 2019, respectively. Of this total approximately $ 1.1 billion and $ 837.3 million of certificates of deposit were over $250,000 at June 30, 2020 and December 31, 2019, respectively. NOTE 10: INCOME TAXES The provision for income taxes is comprised of the following components for the periods indicated below: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Income taxes currently payable $ 9,391 $ 12,757 $ 31,671 $ 23,074 Deferred income taxes 6,202 2,859 4,616 4,940 Provision for income taxes $ 15,593 $ 15,616 $ 36,287 $ 28,014 33 The tax effects 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: June 30, December 31, (In thousands) 2020 2019 Deferred tax assets: Loans acquired $ 13,756 $ 20,783 Allowance for credit losses 57,244 16,732 Valuation of foreclosed assets 2,636 2,626 Tax NOLs from acquisition 16,816 18,118 Deferred compensation payable 2,890 2,750 Accrued equity and other compensation 6,845 6,677 Acquired securities — 3,393 Right-of-use lease liability 8,738 10,221 Allowance for unfunded commitments 6,122 — Other 5,655 7,886 Gross deferred tax assets 120,702 89,186 Deferred tax liabilities: Goodwill and other intangible amortization ( 39,876 ) ( 41,221 ) Accumulated depreciation ( 36,731 ) ( 36,554 ) Right-of-use lease asset ( 8,701 ) ( 10,176 ) Unrealized gain on available-for-sale securities ( 16,183 ) ( 3,720 ) Deferred loan fees and costs ( 2,884 ) ( 3,018 ) Acquired securities ( 820 ) — Other ( 5,113 ) ( 4,633 ) Gross deferred tax liabilities ( 110,308 ) ( 99,322 ) Net deferred tax asset (liability) $ 10,394 $ ( 10,136 ) A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown for the periods indicated below: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Computed at the statutory rate (21%) $ 15,620 $ 14,955 $ 36,180 $ 27,575 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit 2,296 1,420 4,359 2,765 Discrete items related to ASU 2016-09 43 ( 81 ) 69 ( 107 ) Tax exempt interest income ( 1,421 ) ( 1,024 ) ( 2,842 ) ( 1,985 ) Tax exempt earnings on BOLI ( 212 ) ( 215 ) ( 531 ) ( 394 ) Federal tax credits ( 1,034 ) ( 729 ) ( 2,068 ) ( 1,458 ) Other differences, net 301 1,290 1,120 1,618 Actual tax provision $ 15,593 $ 15,616 $ 36,287 $ 28,014 34 The Company follows ASC Topic 740, Income Taxes , which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in future years. The Company expects to fully realize its deferred tax assets in the future. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $ 77.8 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $ 46.8 million is related to the Reliance acquisition that closed during second quarter 2019. All of the acquired Reliance net operating losses are expected to be fully utilized by 2027, with the remaining acquired net operating loss carryforwards expected to be fully utilized by 2036. The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 2016 tax year and forward. The Company’s various state income tax returns are generally open from the 2016 and later tax return years based on individual state statute of limitations. NOTE 11: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Company utilizes securities sold under agreements to repurchase to facilitate the needs of its customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with the Company’s safekeeping agents. The gross amount of recognized liabilities for repurchase agreements was $ 335.2 million and $ 133.2 million at June 30, 2020 and December 31, 2019, respectively. The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 2020 and December 31, 2019 is presented in the following tables. Remaining Contractual Maturity of the Agreements (In thousands) Overnight and Continuous Up to 30 Days 30-90 Days Greater than 90 Days Total June 30, 2020 Repurchase agreements: U.S. Government agencies $ 335,230 $ — $ — $ — $ 335,230 December 31, 2019 Repurchase agreements: U.S. Government agencies $ 133,220 $ — $ — $ — $ 133,220 35 NOTE 12: OTHER BORROWINGS AND SUBORDINATED NOTES AND DEBENTURES Debt at June 30, 2020 and December 31, 2019 consisted of the following components: June 30, December 31, (In thousands) 2020 2019 Other Borrowings FHLB advances, net of discount, due 2020 to 2034, 0.23 % to 7.37 % secured by real estate loans $ 1,359,532 $ 1,262,691 Other long-term debt 34,157 34,908 Total other borrowings 1,393,689 1,297,599 Subordinated Notes and Debentures Subordinated notes payable, due 4/1/2028, fixed-to-floating rate (fixed rate of 5.00 % through 3/31/2023, floating rate of 2.15 % above the three month LIBOR rate, reset quarterly) 330,000 330,000 Trust preferred securities, net of discount, due 9/15/2037, floating rate of 1.37 % above the three month LIBOR rate, reset quarterly 10,310 10,310 Trust preferred securities, net of discount, due 6/6/2037, floating rate of 1.57 % above the three month LIBOR rate, reset quarterly, callable without penalty 10,310 10,310 Trust preferred securities, due 12/15/2035, floating rate of 1.45 % above the three month LIBOR rate, reset quarterly, callable without penalty 6,702 6,702 Trust preferred securities, net of discount, due 6/15/2037, floating rate of 1.85 % above the three month LIBOR rate, reset quarterly, callable without penalty 25,094 25,015 Trust preferred securities, net of discount, due 12/15/2036, floating rate of 1.85 % above the three month LIBOR rate, reset quarterly, callable without penalty 3,013 3,004 Other subordinated debentures, due 12/31/2036, floating rate of prime rate minus 1.1 %, reset quarterly — 5,927 Unamortized debt issuance costs ( 2,825 ) ( 3,008 ) Total subordinated notes and debentures 382,604 388,260 Total other borrowings and subordinated debt $ 1,776,293 $ 1,685,859 In March 2018, the Company issued $ 330.0 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. The Company incurred $ 3.6 million in debt issuance costs related to the offering during March 2018. The Notes will mature on April 1, 2028 and will bear interest at an initial fixed rate of 5.00 % per annum, payable semi-annually in arrears. From and including April 1, 2023 to, but excluding, the maturity date or the date of earlier redemption, the interest rate will reset quarterly to an annual interest rate equal to the then-current three month LIBOR rate plus 215 basis points, payable quarterly in arrears. The Notes will be subordinated in right of payment to the payment of the Company’s other existing and future senior indebtedness, including all of its general creditors. The Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of its subsidiaries. The Company used a portion of the net proceeds from the sale of the Notes to repay certain outstanding indebtedness. The Notes qualify for Tier 2 capital treatment. The Company assumed subordinated debt of $ 33.9 million in connection with the Landrum acquisition in October 2019, of which $ 5.9 million was repaid during second quarter of 2020. At June 30, 2020, the Company had $ 1.35 billion of FHLB advances outstanding with original or expected maturities of one year or less, of which $ 1.30 billion are FHLB Owns the Option (“FOTO”) advances. FOTO advances 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. Typically, FOTO exercise dates follow a specified lockout period at the beginning of the term when FHLB cannot terminate the FOTO advance. If FHLB exercises its option to terminate the FOTO advance at one of the specified option exercise dates, there is no termination or prepayment fee, and replacement funding will be available at then-prevailing market rates, subject to FHLB’s credit and collateral requirements. The Company’s FOTO advances outstanding at June 30, 2020 have maturity dates of ten years to fifteen years with lockout periods that have expired and, as a result, are considered and monitored by the Company as short-term advances. The possibility of the FHLB exercising the options is analyzed by the Company along with the market expected rate outcome. 36 The Company had total FHLB advances of $ 1.36 billion at June 30, 2020, with approximately $ 2.8 billion of additional advances available from the FHLB. The FHLB advances are secured by mortgage loans and investment securities totaling approximately $ 6.1 billion at June 30, 2020. The trust preferred securities are tax-advantaged issues that qualified for Tier 1 capital treatment until December 31, 2017, when the Company reached $ 15 billion in assets. They still qualify for inclusion as Tier 2 capital at June 30, 2020. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole asset of each trust. The preferred securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Company. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payments on the related junior subordinated debentures. The Company’s obligations under the junior subordinated securities and other relevant trust agreements, in the aggregate, constitute a full and unconditional guarantee by the Company of each respective trust’s obligations under the trust securities issued by each respective trust. The Company’s long-term debt primarily includes subordinated debt and long-term FHLB advances with an original maturity of greater than one year. Aggregate annual maturities of long-term debt at June 30, 2020, are as follows: Year (In thousands) Remainder of 2020 $ 1,193 2021 2,860 2022 2,027 2023 1,758 2024 2,399 Thereafter 416,056 Total $ 426,293 NOTE 13: CONTINGENT LIABILITIES The Company and/or its subsidiaries have various unrelated legal proceedings, which, in the aggregate, are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries. NOTE 14: CAPITAL STOCK On February 27, 2009, at a special meeting, the Company’s shareholders approved an amendment to the Articles of Incorporation to establish 40,040,000 authorized shares of preferred stock, $ 0.01 par value. The aggregate liquidation preference of all shares of preferred stock cannot exceed $ 80,000,000 . On February 12, 2019, the Company filed its Amended and Restated Articles of Incorporation (“February Amended Articles”) with the Arkansas Secretary of State. The February Amended Articles classified and designated three series of preferred stock out of the Corporation’s authorized preferred stock: Series A Preferred Stock, Par Value $ 0.01 Per Share (having 40,000 authorized shares); Series B Preferred Stock, Par Value $ 0.01 Per Share (having 2,000.02 authorized shares); and 7 % Perpetual Convertible Preferred Stock, Par Value $ 0.01 Per Share, Series C (having 140 authorized shares). On October 29, 2019, the Company filed its Amended and Restated Articles of Incorporation (“October Amended Articles”) with the Arkansas Secretary of State. The October Amended Articles classified and designated Series D Preferred Stock, Par Value $ 0.01 Per Share, out of the Company’s authorized preferred stock. The October Amended Articles also canceled the Company’s 7 % Perpetual Convertible Preferred Stock, Par Value $ 0.01 Per Share, Series C Preferred Stock, of which no shares were ever issued or outstanding. 37 On July 23, 2012, the Company approved a stock repurchase program which authorized the repurchase of up to 1,700,000 shares of common stock. On October 22, 2019, the Company announced a new stock repurchase program (“Program”) that replaced the stock repurchase program approved on July 23, 2012, under which the Company may repurchase up to $ 60,000,000 of its Class A common stock currently issued and outstanding. On March 5, 2020, the Company announced an amendment to the Program that increased the maximum amount that may be repurchased under the Program from $ 60,000,000 to $ 180,000,000 . The Program will terminate on October 31, 2021 (unless terminated sooner). Under the Program, the Company may repurchase shares of its common stock through open market and privately negotiated transactions or otherwise. The timing, pricing, and amount of any repurchases under the Program will be determined by the Company’s management at its discretion based on a variety of factors, including, but not limited to, trading volume and market price of the Company’s common stock, corporate considerations, the Company’s working capital and investment requirements, general market and economic conditions, and legal requirements. The Program does not obligate the Company to repurchase any common stock and may be modified, discontinued, or suspended at any time without prior notice. The Company anticipates funding for this Program to come from available sources of liquidity, including cash on hand and future cash flow. During the six months ended June 30, 2020, the Company repurchased 4,922,336 shares at an average price of $ 18.96 under the Program. No shares have been repurchased under the Program since March 31, 2020. Market conditions and the Company’s capital needs will drive decisions regarding additional, future stock repurchases. The Company had no repurchases of its common stock during the three and six month periods ended June 30, 2019. NOTE 15: UNDIVIDED PROFITS Simmons Bank, the Company’s subsidiary bank, is subject to legal limitations on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Commissioner of the Arkansas State Bank Department is required if the total of all dividends declared by an Arkansas state bank in any calendar year exceeds seventy-five percent ( 75 %) of the total of its net profits, as defined, for that year combined with seventy-five percent ( 75 %) of its retained net profits of the preceding year. At June 30, 2020, Simmons Bank had approximately $ 165.1 million available for payment of dividends to the Company, without prior regulatory approval. The risk-based capital guidelines of the Federal Reserve Board and the Arkansas State Bank Department include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. Under the Basel III Rules effective January 1, 2015, the criteria for a well-capitalized institution are: a 5 % “Tier l leverage capital” ratio, an 8 % “Tier 1 risk-based capital” ratio, 10 % “total risk-based capital” ratio; and a 6.5 % “common equity Tier 1 (CET1)” ratio. The Company and Simmons Bank, must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625 % level and was phased in over a four year period (increasing by that amount on each subsequent January 1 until it reached 2.5 % on January 1, 2019). Failure to meet this capital conservation buffer would result in additional limits on dividends, other distributions and discretionary bonuses. As of June 30, 2020, the Company and Simmons Bank met all capital adequacy requirements, including the capital conservation buffer, under the Basel III Capital Rules. The Company’s CET1 ratio was 11.85 % at June 30, 2020. 38 NOTE 16: STOCK-BASED COMPENSATION The Company’s Board of Directors has adopted various stock-based compensation plans. The plans provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance stock units. Pursuant to the plans, shares are reserved for future issuance by the Company upon exercise of stock options or awards of stock appreciation rights, stock awards or units, or performance shares granted to directors, officers and other key employees. The table below summarizes the transactions under the Company’s active stock-based compensation plans for the six months ended June 30, 2020: Stock Options Outstanding Non-vested Stock Awards Outstanding Non-vested Stock Units Outstanding (Shares in thousands) Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Grant-Date Fair Value Number of Shares Weighted Average Grant-Date Fair Value Balance, January 1, 2020 692 $ 22.46 21 $ 23.19 1,152 $ 26.79 Granted — — — — 480 22.37 Stock options exercised ( 1 ) 10.71 — — — — Stock awards/units vested (earned) — — ( 5 ) 21.15 ( 386 ) 26.07 Forfeited/expired ( 33 ) 22.49 — — ( 62 ) 26.66 Balance, June 30, 2020 658 $ 22.48 16 $ 23.75 1,184 $ 25.23 Exercisable, June 30, 2020 658 $ 22.48 The following table summarizes information about stock options under the plans outstanding at June 30, 2020: Options Outstanding Options Exercisable Range of Exercise Prices Number of Shares (In thousands) Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number of Shares (In thousands) Weighted Average Exercise Price $ 9.46 — $ 9.46 1 1.55 $ 9.46 1 $ 9.46 10.65 — 10.65 3 2.58 10.65 3 10.65 20.29 — 20.29 66 3.70 20.29 66 20.29 20.36 — 20.36 2 4.38 20.36 2 20.36 22.20 — 22.20 74 3.63 22.20 74 22.20 22.75 — 22.75 412 4.39 22.75 412 22.75 23.51 — 23.51 93 4.80 23.51 93 23.51 24.07 — 24.07 7 5.21 24.07 7 24.07 $ 9.46 — $ 24.07 658 4.29 $ 22.48 658 $ 22.48 39 The table below summarizes the Company’s performance stock unit activity for the six months ended June 30, 2020: (In thousands) Performance Stock Units Non-vested, January 1, 2020 199 Granted 116 Vested (earned) ( 80 ) Forfeited ( 18 ) Non-vested, June 30, 2020 217 Stock-based compensation expense was $ 7,577,000 and $ 6,249,000 during the six months ended June 30, 2020 and 2019, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based awards. There was no unrecognized stock-based compensation expense related to stock options at June 30, 2020. Unrecognized stock-based compensation expense related to non-vested stock awards and stock units was $ 21,925,000 at June 30, 2020. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 1.9 years. The intrinsic value of stock options outstanding and stock options exercisable at June 30, 2020 was $ 28,000 . Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $ 17.11 as of June 30, 2020, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the six months ended June 30, 2020 and June 30, 2019, was $ 6,000 and $ 5,000 , respectively. The fair value of the Company’s employee stock options granted is estimated on 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. There were no stock options granted during the six months ended June 30, 2020 and 2019. NOTE 17: EARNINGS PER SHARE (“EPS”) Basic EPS is computed by dividing reported net income available to common stockholders by weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing reported net income available to common stockholders by the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of earnings per share is as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands, except per share data) 2020 2019 2020 2019 Net income available to common stockholders $ 58,789 $ 55,598 $ 136,012 $ 103,293 Average common shares outstanding 108,982 96,098 110,936 94,318 Average potential dilutive common shares 148 270 148 270 Average diluted common shares 109,130 96,368 111,084 94,588 Basic earnings per share $ 0.54 $ 0.58 $ 1.23 $ 1.10 Diluted earnings per share $ 0.54 $ 0.58 $ 1.22 $ 1.09 There were approximately 653,718 stock options excluded from the three and six months ended June 30, 2020 earnings per share calculations due to the average market prices of the Company’s common stock exceeding the related stock option exercise prices. There were 6,610 stock options excluded from the three months ended June 30, 2019 earnings per share calculation due to the average market price of the Company’s stock exceeding the related stock option exercise price. There were no stock options excluded from the earnings per share calculation for the six months ended June 30, 2019 due to the related exercise price exceeding the average market price. 40 NOTE 18: ADDITIONAL CASH FLOW INFORMATION The following is a summary of the Company’s additional cash flow information: Six Months Ended June 30, (In thousands) 2020 2019 Interest paid $ 72,146 $ 87,841 Income taxes paid (refunded) 3,196 28,253 Transfers of loans to foreclosed assets held for sale 1,147 1,506 Transfers of premises to foreclosed assets and other real estate owned 3,120 444 Transfers of premises to premises held for sale 1,072 — Transfers of other real estate owned to premises held for sale 3,504 — Right-of-use lease assets obtained in exchange for lessee operating lease liabilities (adoption of ASU 2016-02) — 32,757 Transfers of loans to other assets held for sale 114,925 — Transfers of deposits to other liabilities held for sale 58,405 — NOTE 19: OTHER INCOME AND OTHER OPERATING EXPENSES Other income for the three and six months ended June 30, 2020 was $ 9.8 million and $ 22.6 million, respectively, which included the $ 8.1 million gains on sale of the Texas Branch Sale and Colorado Branch Sale. Other income for the three and six months ended June 30, 2019 was $ 6.1 million and $ 10.2 million, respectively. Other operating expenses consisted of the following: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Professional services $ 3,921 $ 3,492 $ 9,750 $ 7,815 Postage 1,769 1,445 4,005 3,171 Telephone 2,450 1,480 4,635 3,099 Credit card expense 4,582 3,762 8,964 7,622 Marketing 3,528 2,436 7,913 5,493 Software and technology 10,024 5,580 19,469 10,076 Operating supplies 828 560 1,764 1,178 Amortization of intangibles 3,369 2,947 6,782 5,588 Branch right sizing expense 1,721 2,887 1,959 2,932 Other expense 2,459 8,278 8,198 15,955 Total other operating expenses $ 34,651 $ 32,867 $ 73,439 $ 62,929 NOTE 20: CERTAIN TRANSACTIONS From time to time, the Company and its subsidiaries have made loans, other extensions of credit, and vendor contracts to directors, officers, their associates and members of their immediate families. Additionally, some directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary bank, Simmons Bank. Such loans and other extensions of credit, deposits and vendor contracts (which were not material) were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons or through a competitive bid process. Further, in management’s opinion, these extensions of credit did not involve more than normal risk of collectability or present other unfavorable features. 41 NOTE 21: COMMITMENTS AND CREDIT RISK The Company grants agri-business, commercial and residential loans to customers primarily throughout Arkansas, Illinois, Kansas, Missouri, Oklahoma, Tennessee and Texas, along with credit card loans to customers throughout the United States. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. 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. At June 30, 2020, the Company had outstanding commitments to extend credit aggregating approximately $ 670,546,000 and $ 2,933,075,000 for credit card commitments and other loan commitments, respectively. At December 31, 2019, the Company had outstanding commitments to extend credit aggregating approximately $ 634,788,000 and $ 3,991,931,000 for credit card commitments and other loan commitments, respectively. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $ 63,279,000 and $ 71,074,000 at June 30, 2020, and December 31, 2019, respectively, with terms ranging from 9 months to 15 years. At June 30, 2020 and December 31, 2019, the Company had no deferred revenue under standby letter of credit agreements. NOTE 22: FAIR VALUE MEASUREMENTS ASC Topic 820, Fair Value Measurements defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 defines fair value as 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. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value: • Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities. • Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities 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 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. 42 Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Available-for-sale securities – Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. Other securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. 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 security’s terms and conditions, among other things. In order to ensure the fair values are consistent with ASC Topic 820, the Company periodically checks the fair values by comparing them to another pricing source, such as Bloomberg. The availability of pricing confirms Level 2 classification in the fair value hierarchy. The third-party pricing service is subject to an annual review of internal controls (SSAE 16), which is made available for the Company’s review. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company’s investment in U.S. Treasury securities, if any, is reported at fair value utilizing Level 1 inputs. The remainder of the Company’s available-for-sale securities are reported at fair value utilizing Level 2 inputs. Derivative instruments – The Company’s derivative instruments are reported at fair value utilizing Level 2 inputs. The Company obtains fair value measurements from dealer quotes. Other assets and other liabilities held for sale – The Company’s other assets and other liabilities held for sale are reported at fair value utilizing Level 3 inputs. See Note 4, Other Assets and Other Liabilities Held for Sale. The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2020 Available-for-sale securities U.S. Government agencies $ 210,921 $ — $ 210,921 $ — Mortgage-backed securities 1,154,086 — 1,154,086 — State and political subdivisions 1,054,068 — 1,054,068 — Other securities 77,821 — 77,821 — Other assets held for sale 399 — — 399 Derivative asset 44,702 — 44,702 — Derivative liability ( 45,080 ) — ( 45,080 ) — December 31, 2019 Available-for-sale securities U.S. Treasury $ 449,729 $ 449,729 $ — $ — U.S. Government agencies 194,249 — 194,249 — Mortgage-backed securities 1,742,945 — 1,742,945 — States and political subdivisions 880,524 — 880,524 — Other securities 20,896 — 20,896 — Other assets held for sale 260,332 — — 260,332 Derivative asset 14,903 — 14,903 — Other liabilities held for sale ( 159,853 ) — — ( 159,853 ) Derivative liability ( 12,650 ) — ( 12,650 ) — 43 Certain financial assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets and liabilities measured at fair value on a nonrecurring basis include the following: Individually assessed loans (collateral-dependent) – When the Company has a specific expectation to initiate, or has initiated, foreclosure proceedings, and when the repayment of a loan is expected to be substantially dependent on the liquidation of underlying collateral, the relationship is deemed collateral-dependent. Fair value of the loan is determined by establishing an allowance for credit loss for any exposure based on the valuation of the underlying collateral. The valuation of the collateral is determined by either an independent third-party appraisal or other collateral analysis. Discounts can be made by the Company based upon the overall evaluation of the independent appraisal. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy. Collateral values supporting the individually assessed loans are evaluated quarterly for updates to appraised values or adjustments due to non-current valuations. Foreclosed assets and other real estate owned – Foreclosed assets and other real estate owned are reported 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 and other real estate owned is estimated using Level 3 inputs based on unobservable market data. The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral-dependent loans and foreclosed assets primarily relate to the specialized discounting criteria applied to the borrower’s reported amount of collateral. The amount of the collateral discount depends upon the condition and marketability of the collateral, as well as other factors which may affect the collectability of the loan. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for instruments measured using Level 3 inputs could occur in the future. As the Company’s primary objective in the event of default would be to liquidate the collateral to settle the outstanding balance of the loan, collateral that is less marketable would receive a larger discount. Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value if, on an aggregate basis, the fair value of the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments, discounted cash flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Such loans are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3. At June 30, 2020 and December 31, 2019, the aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, no mortgage loans held for sale were marked down and reported at fair value. The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a nonrecurring basis as of June 30, 2020 and December 31, 2019. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2020 Individually assessed loans (1) (2) (collateral-dependent) $ 47,585 $ — $ — $ 47,585 Foreclosed assets and other real estate owned (1) 2,995 — — 2,995 December 31, 2019 Individually assessed loans (1) (2) (collateral-dependent) $ 49,190 $ — $ — $ 49,190 Foreclosed assets and other real estate owned (1) 18,798 — — 18,798 ________________________ (1) These amounts represent the resulting carrying amounts on the consolidated balance sheets for collateral-dependent loans and foreclosed assets and other real estate owned for which fair value re-measurements took place during the period. (2) Identified reserves of $ 8,283,000 and $ 1,297,000 were related to collateral-dependent loans for which fair value re-measurements took place during the periods ended June 30, 2020 and December 31, 2019, respectively. 44 ASC Topic 825, Financial Instruments , requires disclosure in annual and interim financial statements of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments not previously disclosed. Cash and cash equivalents – The carrying amount for cash and cash equivalents approximates fair value (Level 1). Interest bearing balances due from banks – The fair value of interest bearing balances due from banks – time is estimated using a discounted cash flow calculation that applies the rates currently offered on deposits of similar remaining maturities (Level 2). Held-to-maturity securities – Fair values for held-to-maturity securities equal quoted market prices, if available, such as for highly liquid government bonds (Level 1). If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things (Level 2). In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Loans – The fair value of loans is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Additional factors considered include the type of loan and related collateral, variable or fixed rate, classification status, remaining term, interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans. The fair value of loans is estimated on an exit price basis incorporating the above factors (Level 3). Deposits – The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities (Level 3). Federal Funds purchased, securities sold under agreement to repurchase and short-term debt – The carrying amount for Federal funds purchased, securities sold under agreement to repurchase and short-term debt are a reasonable estimate of fair value (Level 2). Other borrowings – For short-term instruments, the carrying amount is a reasonable estimate of fair value. For long-term debt, rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value (Level 2). Subordinated debentures – The fair value of subordinated debentures is estimated using the rates that would be charged for subordinated debentures of similar remaining maturities (Level 2). Accrued interest receivable/payable – The carrying amounts of accrued interest approximated fair value (Level 2). Commitments to extend credit, letters of credit and lines of credit – The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. 45 The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows: Carrying Fair Value Measurements (In thousands) Amount Level 1 Level 2 Level 3 Total June 30, 2020 Financial assets: Cash and cash equivalents $ 2,545,160 $ 2,545,160 $ — $ — $ 2,545,160 Interest bearing balances due from banks - time 4,561 — 4,561 — 4,561 Held-to-maturity securities 51,720 — 53,751 — 53,751 Mortgage loans held for sale 120,034 — — 120,034 120,034 Interest receivable 79,772 — 79,772 — 79,772 Loans, net 14,375,257 — — 14,420,889 14,420,889 Financial liabilities: Non-interest bearing transaction accounts 4,608,098 — 4,608,098 — 4,608,098 Interest bearing transaction accounts and savings deposits 8,978,045 — 8,978,045 — 8,978,045 Time deposits 3,029,975 — — 3,046,955 3,046,955 Federal funds purchased and securities sold under agreements to repurchase 387,025 — 387,025 — 387,025 Other borrowings 1,393,689 — 1,504,732 — 1,504,732 Subordinated notes and debentures 382,604 — 402,716 — 402,716 Interest payable 10,473 — 10,473 — 10,473 December 31, 2019 Financial assets: Cash and cash equivalents $ 996,623 $ 996,623 $ — $ — $ 996,623 Interest bearing balances due from banks - time 4,554 — 4,554 — 4,554 Held-to-maturity securities 40,927 — 41,855 — 41,855 Mortgage loans held for sale 58,102 — — 58,102 58,102 Interest receivable 62,707 — 62,707 — 62,707 Loans, net 14,357,460 — — 14,290,188 14,290,188 Financial liabilities: Non-interest bearing transaction accounts 3,741,093 — 3,741,093 — 3,741,093 Interest bearing transaction accounts and savings deposits 9,090,878 — 9,090,878 — 9,090,878 Time deposits 3,276,969 — — 3,270,333 3,270,333 Federal funds purchased and securities sold under agreements to repurchase 150,145 — 150,145 — 150,145 Other borrowings 1,297,599 — 1,298,011 — 1,298,011 Subordinated debentures 388,260 — 397,088 — 397,088 Interest payable 12,898 — 12,898 — 12,898 The fair value of commitments to extend credit, letters of credit and lines of credit is not presented since management believes the fair value to be insignificant. 46 NOTE 23: DERIVATIVE INSTRUMENTS The Company utilizes derivative instruments to manage exposure to various types of interest rate risk for itself and its customers within policy guidelines. Transactions should only be entered into with an associated underlying exposure. All derivative instruments are carried at fair value. Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s asset/liability management committee. In arranging these products for its customers, the Company assumes additional credit risk from the customer and from the dealer counterparty with whom the transaction is undertaken. Credit risk exists due to the default credit risk created in the exchange of the payments over a period of time. Credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty. Hedge Structures The Company will seek to enter derivative structures that most effectively address the risk exposure and structural terms of the underlying position being hedged. The term and notional principal amount of a hedge transaction will not exceed the term or principal amount of the underlying exposure. In addition, the Company will use hedge indices which are the same as, or highly correlated to, the index or rate on the underlying exposure. Derivative credit exposure is monitored on an ongoing basis for each customer transaction and aggregate exposure to each counterparty is tracked. The Company has set a maximum outstanding notional contract amount at 10% of the Company’s assets. Customer Risk Management Interest Rate Swaps The Company’s qualified loan customers have the opportunity to participate in its interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with the Company. The Company enters into such agreements with customers, then offsetting agreements are executed between the Company and an approved dealer counterparty to minimize market risk from changes in interest rates. The counterparty contracts are identical to customer contracts in terms of notional amounts, interest rates, and maturity dates, except for a fixed pricing spread or fee paid to the Company by the dealer counterparty. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of these derivative instruments is recognized as either derivative assets or liabilities in the accompanying consolidated balance sheets. The Company has a limited number of swaps that are standalone without a similar agreement with the loan customer. The Company has entered into interest rate swap agreements that effectively convert the loan interest rate from floating rate based on LIBOR or Prime rate to a fixed rate for the customer. The Company has entered into offsetting agreements with dealer counterparties. The following table summarizes the fair values of loan derivative contracts recorded in the accompanying consolidated balance sheets. June 30, 2020 December 31, 2019 (In thousands) Notional Fair Value Notional Fair Value Derivative assets $ 445,660 $ 44,702 $ 401,969 $ 14,903 Derivative liabilities 455,010 45,080 387,075 12,650 Risk Participation Agreements The Company has a limited number of Risk Participation Agreement swaps, that are associated with loan participations, where the Company is not the counterparty to the interest rate swaps that are associated with the risk participation sold. The interest rate swap mark to market only impacts the Company if the swap is in a liability position to the counterparty and the customer defaults on payments to the counterparty. The notional amount of these contingent agreements is $ 52.2 million as of June 30, 2020. Energy Hedging During 2019, the Company began providing energy derivative services to qualifying, high quality oil and gas borrowers for hedging purposes. The Company serves as an intermediary on energy derivative products between the Company’s borrowers and dealers. The Company will only enter into back-to-back trades, thus maintaining a balanced book between the dealer and the borrower. 47 Energy hedging risk exposure to the Company’s customer increases as energy prices for crude oil and natural gas rise. As prices decrease, exposure to the exchange increases. These risks are mitigated by customer credit underwriting policies and establishing a predetermined hedge line for each borrower and by monitoring the exchange margin. The outstanding notional value as of June 30, 2020 for energy hedging Customer Sell to Company swaps were $ 12.6 million and the corresponding Company Sell to Dealer swaps were $ 12.6 million and the corresponding net fair value of the derivative asset and derivative liability was $ 514,800 . NOTE 24: RECENT EVENTS The coronavirus (COVID-19) pandemic has placed significant health, economic and other major pressure on the communities the Company serves, the United States and the entire world. In March 2020, Congress passed the CARES Act, which is designed to provide comprehensive relief to individuals and businesses following the unprecedented impact of the COVID-19 pandemic. The Company has implemented a number of procedures in response to the pandemic to support the safety and well being of its employees, customers and shareholders that continue through the date of filing this report. Some of the implemented procedures include: • Addressing the safety of the Company’s 226 branches, following local, state, and federal guidelines. In March, the Company announced the temporary closure of 52 branches and increased its focus on the enhanced digital banking experience. Many of the branches have now been reopened, however we will continue to review our branch network; • Holding regular executive and pandemic task force meetings to address issues that change rapidly; • Implementing business continuity plans to help ensure that customers have adequate access to banking services; • Providing extensions and deferrals to loan customers affected by COVID-19 provided such customers were not 30 days or more past due at December 31, 2019. Through June 30, 2020, the Company has modified more than 4,600 loans totaling approximately $ 3.3 billion; and • Participating in both appropriations of the CARES Act Paycheck Protection Program (“PPP”) that provides 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assist with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions during this crisis. The Company originated over 7,800 PPP loans with a balance of $ 963.7 million at June 30, 2020. The Company continues to closely monitor this pandemic and expects to make future changes to respond to the pandemic as this situation continues to evolve. 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. 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Audit Committee, Board of Directors and Stockholders Simmons First National Corporation Pine Bluff, Arkansas Results of Review of Interim Financial Statements We have reviewed the condensed consolidated balance sheet of Simmons First National Corporation (“the Company”) as of June 30, 2020, and the related condensed consolidated statements of income, comprehensive income and stockholders’ equity for the three-month and six-month periods ended June 30, 2020 and 2019, and cash flows for the six-month periods ended June 30, 2020 and 2019, and the related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 27, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Emphasis of Matter As discussed in Note 1 to the condensed consolidated financial statements, the Company has changed its method of accounting for the allowance for credit losses in 2020 due to the adoption of Topic 326. /s/ BKD, LLP Little Rock, Arkansas August 6, 2020 49